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CYPRUS: BOCY braces for more battles

26 August, 2014

 * Disgruntled groups want to block cap increase - Court rejects old shareholders’ demand *

The next three days are critical for the future of the Bank of Cyprus, as the preliminary results for the first half are announced today Wednesday, a crucial shareholders’ meeting to approve a 1 bln euro capital increase takes place on Thursday and the audited results approved by the current or a changed board of directors on Friday.
But the biggest problem lies in two groups of disgruntled shareholders, each worried that the capital increase, as necessary as it may be for the bank’s viability, will jeopardise their stakes (and say) in the bank.
A court decision on Tuesday stopped about 250 old shareholders in their tracks who had hoped that they could secure an injunction to prevent the EGM from taking place on Thursday, claiming that the haircut on their deposits was illegal and wanting to prevent the administrator of now defunct Laiki Popular Bank from selling off the 18% stake legacy Laiki now held in BOCY.
The old shareholders, who saw their stake in the bank diluted to less than 0.5% last year after the bail-in transformed large depositors into equity owners and subsequently a bigger say in the restructured bank, are urging fellow investors to reject the capital increase.
As fair as their demand might seem, a rejection of the capital increase would see the likes of US venture capitalist Wilbur Ross and the European Bank for Reconstruction and Development (EBRD) walking away from a 540 mln euro cash injection to get the bank up and running again.
On the other hand, Russian minority shareholders have expressed their dissatisfaction with the terms of the potential capital increase, saying their rights are infringed and the board is acting “exclusively for the benefit of Western investors and the authorities of the island.”
These shareholders, grouped under the umbrella of the “Center for the Protection of Rights of Shareholders and Investors of Cypriot Banks” said that their stakes will be diluted after any capital increase and that they were disqualified from participating in the private placement to “certain institutional investors in the European Union who are ‘qualified investors’ and similarly qualified institutional investors in other jurisdictions.”
They said the ‘clawback’ phase for the 20% of the capital increase offered beyond the private placement was allocated among participating shareholders pro rata based on their shareholdings at the time of allocation, excluding any shares acquired in phase 1.
“This configuration of the capital increase directly infringes the rights of Russian private investors and businessmen who were forced to become shareholders of Bank of Cyprus in 2013” adding that the aim is “to force the Russian minority shareholders out of the Bank’s shareholding structure by diluting their stake and giving priority purchase rights not to them – the depositors affected by the subprime lending policy of this Cypriot organization – but to ‘qualified investors’.”
It is expected that the Center for the Protection of Rights of Shareholders and Investors representing both Russian and Ukrainian shareholders will try and secure a common front, possibly even to reject the capital increase proposal.
“The deliberate restriction of the rights of shareholders to participate in the Bank of Cyprus capital increase seems to be especially cynical in the light of attempts to legitimise it by introducing the ‘for qualified investors only’ requirements. Unfortunately, the Board of Directors of the Bank seems to have forgotten that the minority shareholders of Bank of Cyprus, for the most part, are not professional investors and have received their shares as a result of the forced expropriation of their investments in 2013,” said Yevgeniy Kogan, CEO of the Center.