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CYPRUS: EBRD, WL Ross eye half of BOCY €1 bln cap issue

28 July, 2014

 * Board agrees to 24c offer price *
The Bank of Cyprus board decided after a marathon 12-hour meeting on Monday to offer 4.17 bln new shares in a private placement to institutional investors with the aim of raising about €1 bln in fresh capital and boosting its liquidity ratio by more than four percentage points.
The European Bank for Reconstruction and Development (EBRD) and a group of international investors headed by American billionaire Wilbur L. Ross, are expected to subscribe to 52% of the capital increase, with the EU-owned bank saying it will inject some 120 mln euros and the other investors the remaining 400 mln.
After agreeing on July 15 to seek new investors, the bank announced the successful private placement of 4.17 bln new ordinary shares at 24c each, offered to new investors and existing shareholders. Existing shareholders currently hold some 4.7 bln shares.
It said the placing “was comfortably oversubscribed” and allocated to a broad range of institutional investors from Europe, North America and Russia, including a number of international investors introduced by WL Ross & Co LLC and the EBRD.
Ross recently invested in the recapitalisation of Greece's Eurobank in April with fellow Bank of Ireland investor Fairfax Financial. He has also spoken of exploring opportunities in Italy, Portugal and Spain.
The bank added that the closing of the placing is subject to a “clawback” of up to 20% in favour of existing shareholders, subject to an extraordinary general meeting next month.
The second offer to existing shareholders will be available for 15 days starting July 31 for a minimum offer of 100,000 euros.
The new shares will be unlisted at the time of issue, but the bank said it “intends to proceed with the listing for the entire class of its ordinary shares on the Cyprus Stock Exchange and the Athens Exchange as soon as reasonably practicable ... before the end of the year.”
The CSE said the stock will remain suspended in October as well, to allow the bank time to resolve its share register and return to the market.
The bank said it will also offer an additional 100 mln euros of new ordinary shares to all existing shareholders, thus allowing current stakeholders to minimise the losses from a dilution of their shareholding.
HSBC and Credit Suisse acted as lead placing agents, with Deutsche Bank and VTB Capital acting as co-lead placing agents. The bank’s subsidiary CISCO was the local placing agent.
The bank said that after the capital raising, its Common Equity Tier 1 ratio is expected to rise from 10.6% by more than four percentage points to 15.1%, thus providing a safety cushion prior to the Europe-wide stress tests in October.
“The fact that high calibre institutional investors were interested and participated successfully in this exercise is a testament to their confidence in the bank and also in the economy of Cyprus,” said Chairman Christis Hassapis.
The placement was hailed by many stakeholders, including the Cyprus Investment Funds Association (CIFA) that said that this will help restore confidence in the bank, after the government recently successfully return to the markets with its first euro bond issue in more than three years.
The bank’s CEO, John Hourican, added “we are delighted with the quality of investors and the broad investor base including international investors introduced by WL Ross, the EBRD as well as other institutional investors which we believe have a long-term view. We are pleased to welcome them as new shareholders and we appreciate the continued support of our existing shareholders.”
“In co-operation with the senior management of the Bank of Cyprus, we were pleased to assist with the introduction of international investors who are committed to buying about 40% of this placement,” added Wilbur L. Ross, Founder and Chairman of WL Ross & Co. LLC.
The Financial Mirror had earlier reported that US-based hedge funds were keen to grab more than half of the offered capital increase, expressing an interest to subscribe to 54% of the capital increase and thus a majority control of the board, while another hedge fund has submitted a bid of 30 cents a share, that in itself would cover the entire new capital and again seek board control.
In an announcement on Tuesday, the EBRD said it will invest up to 120 mln euros in Bank of Cyprus, as part of the capital raise which is subject to a clawback of up to 20% by existing shareholders and certain conditions, including the passing of shareholder resolutions at a forthcoming extraordinary general meeting.
“Through this investment, the EBRD is actively engaging in supporting the implementation of the ongoing restructuring plan and the stabilisation of the bank’s operations,” it said.
“Supporting the restructuring and recovery of Bank of Cyprus is critical for the economy as a whole. As an active shareholder one of our priorities will be to work towards improvements in corporate governance. This successful capital raise is a positive signal to the markets, providing investors with additional confidence,” said EBRD’s First Vice President Phil Bennett.
The EBRD’s shareholders decided at the annual meeting in Warsaw to start investing in Cyprus with one of the priorities being to strengthen the financial sector, making it more robust to future shocks and improving its governance. The acquisition of a stake in Bank of Cyprus is the EBRD’s first investment in Cyprus, as part of a 700 mln euro investment planned for the economy, in addition to setting up a local office o consider and monitor other investments.