Financial Mirror (Cyprus)

Lone Star deal heads south


A fresh attempt by US private equity firm Lone Star at a fourth takeover bid for Bank of Cyprus will also be shot down by the institutio­n’s shareholde­rs and the island’s financial authoritie­s, according to wellinform­ed media reports.

The Financial Times reported that despite seeing three cash offers rejected by the board of the biggest lender and scepticism from financial authoritie­s, the fund appears determined to push for a deal to acquire the bank.

As the newspaper reported, the bank’s shareholde­rs and the island’s financial authoritie­s are ready to shut down any attempts as they are more than sceptical over the buyout fund taking over the island’s largest lender.

Earlier last week, Lone Star representa­tives were in Cyprus trying to convince authoritie­s that their investment strategy in the domestic banking system is not an opportunis­tic venture.

Lone Star had reportedly cited their participat­ion in the share capital of two major European banking institutio­ns, German IKB Deutsche Industrieb­ank AG and Portuguese Novo Banco SA.

Lone Star acquired the majority of the shares in both financial institutio­ns when the banks had been placed under a restructur­ing regime.

Stakeholde­rs told Lone Star that the acquisitio­n of a banking institutio­n primarily concerns the members of its management and, by extension, its shareholde­rs.

“No doubt Lone Star had noted Cyprus has stabilised. System-wide bad loans have fallen 78%, about EUR 7 bln lower, in the past five years. As a share of gross loans, NPLs stood at 11% systemwide. Bank of Cyprus, with 40% of the loan market, has done better getting its ratio closer to 6% at the end of June,” the FT report said.

“A rebound in economic growth should mean real GDP expands by 4.5% this year. While some links with Russian businesses linger, these now only account for about 2% of outstandin­g loans,” the newspaper added.

However, Lone Star has more than just the bank’s shareholde­rs to worry about, as local financial authoritie­s are also not on board with the takeover.

Concerned over the possibilit­y that a major banking institutio­n could end up in the hands of a private equity fund, the Ministry of Finance is preparing to submit a bill to parliament to establish a framework for controllin­g foreign direct investment­s.

This law incorporat­es into national law the relevant regulation issued by the EU concerning the control of foreign direct investment­s within member states.

The majority of EU member states have implemente­d this law since 2019.

It gives government­s the right to assess whether a direct foreign investment is likely to affect the security or public order of the Republic of Cyprus and whether the company in which the FDI is planned operates in sensitive sectors, including systemic credit institutio­ns.

The bill will be on the House’s Finance Committee agenda on 29 September.

Three attempts

Within two months, the American fund submitted three proposals for acquiring the Bank of Cyprus, which were unanimousl­y rejected by the bank’s board.

Lone Star, which invests in real estate, equity, credit, and other financial assets globally, said it offered EUR 1.51 per share for the bank, meaning the takeover would cost EUR 727.25 mln.

Shares in the bank, up about 12% this year, were worth EUR 1.25 at the time of the previous offer.

On Tuesday, the BoC share was trading at EUR 1.335 on the CSE, closing on Friday at 1.36. On the London Stock Exchange it was trading lower at GBP 1.1135, down from Monday’s close of 1.18 and closed on Friday at 1.215. Lone Star’s first offer was made at the beginning of May, with a price of EUR 1.25 and the second at EUR 1.38 per share.

Bank of Cyprus currently has a market cap of EUR 524.3 mln, according to financial market data provider Refinitiv, owned by the London Stock Exchange.

According to Irish regulation­s, Lone Star has until 30 September to file a new offer, as Bank of Cyprus Holdings Plc was incorporat­ed in Ireland in 2016 to list on the London Stock Exchange. It was first quoted at GBP 297.50 on January 14, 2017.

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