KIB launches $5 bln commercial programme

First Cypriot issuer of US commercial paper

 

Kommunalkredit International Bank Ltd. (KIB) has become the first Cyprus-based bank to launch a USD 5 bln US Commercial Paper Program, the biggest ever launched here.

KIB’s CEO Leopold Fischer told the Financial Mirror in an exclusive interview that the program secured a P-1 rating from Moody’s and F1+ by Fitch, the highest short-term ratings available in the market.  

“KIB is the first Cypriot issuer of US commercial paper and is the top player with respect to placing Cyprus on the international financial map,” said Fischer. KIB previously launched a Euro commercial paper program which currently ranks among the top 40 programs in Europe with EUR 3 bln outstanding.

In effect, KIB has become the first Cyprus based bank to be allowed to market and sell its debt to US investors.

 

Third largest

Patrick Soetens, KIB joint Managing Director with Willibald Schebesta told the Financial Mirror that the bank has shown strong growth since it set up in Cyprus four years ago and currently it is the highest rated bank on the island — Aa3 by Moody’s and AA- by Fitch, higher than the Cyprus sovereign rating and the highest rated in the Eastern Mediterranean, Balkan and Eastern Europe.  

As a comparison the Republic of Cyprus has a A2 rating from Moody’s, two notches lower than KIB, while Bank of Cyprus, the largest financial institution has a Baa1 long term and P-2 short-term rating from Moody’s.
“Our total assets exceeded EUR 8 bln end of September, which comfortably places Kommunalkredit International Bank as the third largest bank in Cyprus ahead of Hellenic Bank,” said Soetens
“Our people are a unique blend of high profile native and foreign professionals with extensive experience from leading international banks. We have grown to 26 people active in capital markets, public finance and syndicated lending.”

Strong capital

KIB Ltd. plays a vital part in the international strategy of Kommunalkredit Austria AG but is a separate entity with its own capital, based in Cyprus. It is an acknowledged financial partner of local authorities, public enterprises, utilities and suppliers of the public sector in Western Europe, Greece, Cyprus and investment-grade rated non-European countries.

KIB operates with the know-how of a specialist bank for the public sector, providing the entire spectrum of financial products focusing on medium and long-term financing through syndicated loans and bond transactions, and is an active player in the asset-backed security, bond and credit derivative markets.

 

Dynamic growth

Total assets doubled from EUR 2.6 bln in 2004 to EUR 5.5 bln end of 2005 and reached EUR 8 bln in September 2006. Backed with the US commercial paper program, total assets are on target to grow by a further EUR 2 bln during the next year according to KIB CEO Fischer. Profit was in line with growth: in 2005 KIB’s profit after tax grew by 80.4% to EUR 16.1 mln while for the first half of 2006, profit after tax surged to EUR 10.54 mln. Return on equity after tax improved by 20.4% to the end of June 2006, and the cost-to-income ratio was reduced from 14.6% end of 2005 to 10.4% end of the first half 2006.

KIB’s total capital amounted to EUR 302 mln end of June 2006, which corresponds to a capital ratio of 11.5%. This satisfactory ratio and further capital increases in 2006 are the basis for a continued expansion and growth strategy.

With the objective of further strengthening its Tier 1 capital, KIB plans a preference share issue in November with Morgan Stanley as lead managers, with the issue mainly targeted to investors in Europe and Asia.

“It will be priced at an attractive level for us,” said Fischer, with Soetens adding that KIB is one of the most active Cypriot issuers in the international debt markets, helping international investors become more willing to take on Cyprus issued paper, which helps build up an excellent image for the country.

 

Cyprus

As a specialist bank for the public sector, KIB concluded loan contracts for a total of more than EUR 60 mln with several municipalities and local authorities (eg. sewerage boards) said KIB CEO Fischer.

“We won the tender of the entire tranche of about EUR 100 mln aimed at debt restructuring for municipalities,” said Fischer and although there has been quite a bit of delay, documentation is now in final stage and will be signed in the next few weeks. 

Fischer said that with KIB lending only to government agencies, the bank has become accustomed to the long delays when negotiating with government backed agencies, but he too admitted that things were moving at a very slow pace in Cyprus.

KIB has in the past acted as co-lead issuers in a bond issue for the government of Cyprus while it also acted as co-lead manager in the recent EUR 300 mln bond issue under the MTN program of Bank of Cyprus.

“We are here to help and we shall be delighted to participate in more projects to further develop Cyprus,” said Fischer.

KIB was the first bank in Cyprus to enter into a Global Loan facility with the European Investment Bank (EIB) for projects of local authorities in Cyprus and Greece and will further strengthen its co-operation with the EIB in these two markets.

 

Greece

Besides Cyprus, Greece is the natural area of expansion for the loan origination business. A number of tenders were won and first contracts – to date amounting to EUR 90 mln – were signed or will be completed soon with a number of Greek municipalities. KIB has adopted a top-down approach and aims to establish itself as a lender to the main Greek cities and municipalities as well as other public sector entities. The know-how of a specialized bank for the public sector enabled KIB to develop a very effective scoring system for the evaluation of the credit risk of Greek municipalities.

In co-operation with international and local banks, KIB will also be targeting the PPP market in Greece as a consultant or lender after the introduction of a new legal framework for such initiatives.