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Hellenic Bank avoids Cyprus state bailout, raises €354 mln

02 November, 2013

 * Third Point, Wargaming, Demetra step in and take control * 

Hellenic Bank, the island's second biggest lender, has been rescued by three strategic investors in the 11th hour prior to a deadline for its recapitalisation set by the Troika of international lenders who have bailed out troubled Cyprus.

New York-based hedge fund Third Point LLC, online gaming developer Wargaming.net and local investment house Demetra pumped 100 mln euros by buying shares, bonds and rights that remained unexercised after the bank's 294 mln euro issue to meet European liquidity rules.

The Cyprus Stock Exchange suspended the Hellenic Bank stock for a third day on Friday as investors were sought to raise the 36 mln euro shortfall in the recap plan.

With the stock price ranging between 4.7 and 5.7 cents during the past month, the share shot up in value and volume towards the end of October on rumours of potential investors.

The stock will resume trading on the CSE board on Monday, but with a completely revised shareholder base, as Third Point and Belarus-owned Wargaming will each take a 30% stake and Demetra 15%.

The Church of Cyprus, that controlled about 25% of the bank’s shares, did not fully subscribe to the recent bond and rights conversion aimed to prop up Hellenic’s Core Tier 1 ratio closer to 9.0%. Now it's stake has been diluted to a quarter, closer to 7%.

In a stock exchange filing on Tuesday, the bank had confirmed the shortfall, explaining that “the applications on the issue of shares and the voluntary conversion of the existing capital securities/bonds have been submitted, to an amount that at the first examination appeared that it could cover the target set as a result of Pimco’s evaluation.”

It added that following the evaluation procedure by the board, “it is possible that the final outcome is a remainder of the target set.”

Pimco came up with the magic number considering the non-performing loans Hellenic had in its loan book and the great exposure to mortgages which have seen their value diminish after the Cyprus bailout announced in March.

The three investors had come forward as potential suitors for Hellenic Bank, with Archbishop Chrysostomos II publicly opposing the U.S. Investors.

“The American (hedge fund) wants to waltz in and reap havoc,” the Archbishop was quoted by state radio CyBC as saying on Friday morning, prior to the deal, adding that he would prefer to see all three jointly participating in order to ensure a better distribution of shares and prevent a single investor having the upper hand.

Asked about the fact that CSE-listed Wargaming is foreign-owned, chief among them being Renat Fatkhullin, the Archbishop said that there were Cypriots in the company, too, whom he knows well, indirectly giving his nod of approval.

As regards Third Point, the $13 bln fund run by controversial hedge fund manager Daniel Loeb, the Archbishop said that “the aim of the Americans is to make a profit on the deal. We just want the whole economy to benefit.”

New York Magazine recently wrote that Loeb's “preferred strategy” is to buy into troubled companies,” replace inefficient management, and return the companies to profitability, which “is the key to his success.” As of early 2013, Loeb's personal net worth was $1.5 bln. “The only thing I care about,” he was quoted as saying, “is making money for my investors.”

Third Point LLC made headlines recently when it raised its stake in auction house Sotheby's and called for the resignation of the auctioneer's chief executive and chairman on concerns about the company's leadership and strategic direction. Loeb's fund, now Sotheby's large shareholder with a 9.3% stake, said it would seek to replace CEO William Ruprecht once Loeb gains a seat on the company's board.

In August, Sony Corporation’s chief executive rejected a spinoff plan to detach its entertainment business to major shareholder Third Point LLC.

"Should we require capital, or in the event of unanticipated events, our priority would be to raise it without selling a portion of an asset fundamental to our growth strategy, and without unnecessarily burdening Sony's ability to execute our business strategy for both entertainment and electronics," wrote Kazuo Hirai.

Loeb, who started Third Point in 1995 with just $3.3 mln in capital, told investors last month that its assets under management had grown to $14 bln, buoyed by strong performance from its flagship Partners fund and its Ultra fund.

The hedge fund said it will return around 10% of its capital by the end of the year, “in an effort to moderate this growth.”