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Bank of Cyprus in 3-tier recap to raise €1bn

15 July, 2014

 * Private placement to institutionals - “Clawback” fixed at 20%, set at €100,000 per investor *

The Bank of Cyprus announced on Tuesday the structure of its capital increase in three phases, expected to be approved by an extraordinary general meeting of shareholders in August with the aim to raise about EUR 1 bln.
The scheme allows existing shareholders to participate in three ways.
The first phase, currently underway and expected to end in late July, involves a private placement to institutional investors within and outside the European Union deemed as “qualified investors”, existing shareholders and new investors approached by the bank and its advisors during the road-shows.
Following the solicitation of investor interest in the first phase, the bank’s board will consider the bids received, the share price and the allocation of shares among investors. At the end of the first phase, participating investors (including eligible existing shareholders who wish to participate) will enter into firm commitments in respect of their orders to be approved at next month’s EGM, including the waiving of their pre-emption rights.
In the second phase, dubbed the “clawback”, existing shareholders will be able to apply for up to 20% of the total number of shares offered to qualified investors in the first phase and at the same price. The minimum purchase per investor in the clawback will be 100,000 euros, as determined by EU regulations to allow participation without the publication of an approved prospectus. All existing shareholders (whether or not qualified investors) will be eligible to participate.
In addition, following the approval and publication of a prospectus, the bank will offer a further 100 mln euros worth of newly issued shares (in addition to those sold in phases 1 and 2) for subscription by all other existing shareholders prior to any relisting of the shares on the Cyprus Stock Exchange and the Athens Exchange.
The subscription price for the shares will be the same at all phases and for both new investors and existing shareholders.
The aim of the fund raising is to boost the lender’s capital adequacy levels by at least four percentage points.
This means that the bank’s Core Tier 1 level of 10.4-10.6% will be raised to about 14.6%, in time for the EU-wide stress tests of 128 systemic banks within the Eurozone to be announced in October.
The pressure has been on local banks to secure a cushion of safety as they try to deal with rising levels of non-performing loans, often reaching 45-50% of portfolios, that are very difficult to recover amid an austerity-hit and cashless economy, where unemployment is still hovering at high levels of beyond 15%.
A fortnight ago, the bank’s board ended weeks of speculation and friction when it agreed to proceed with an immediate capital increase, announcing that “the Group’s management will engage directly with institutional investors. A possible capital transaction will be structured in a way that allows the opportunity for existing shareholders to participate.”
This means that present shareholders, including a mix of major local and Russian depositors who represent 80% and the pre-bail-in shareholders whose stake has been diluted to just 0.5%, will be able to take part in up to 20% of the new capital increase.
HSBC and Credit Suisse have been advising the bank on its recapitalisation plans and will also be arranging the sale of new shares between July 18 and 28. Joining them will be Deutsche Bank and VTB Capital, part of the VTB Group, owner of the Cyprus-based Russian Commercial Bank that will also be subject to the Eurozone stress tests in autumn.
Deutsche, HSBC and VTB arranged the sale of a 5-year 750 mln euro bond sovereign issue last month, the government’s successful return to the markets after being locked out for more than three years. Also arranging the bond sale were Goldman Sachs and UBS.
Encouraged by its first official foray back into the markets, the government aims to set the bar higher at 1 bln euros for a 7-year issue some time in autumn, following the outcome of the local banks’ stress tests.