.jpg)
The Bank of Cyprus shareholders’ EGM approved Wednesday the issue of 1.34 bln euros worth of Convertible Enhanced Capital Securities, an enhanced form of contingent convertible bonds, or CoCos, which are being considered by several banks to provide an extra buffer if capital is eroded.
The meeting represented 38.2% of the bank’s shareholders and also decided to increase the share capital of the island’s biggest bank from 1.1 bln euros to 1.5 bln through the issue of 400 mln new ordinary shares with a nominal value of one euro each.
The capital securities will convert into shares if the bank's core Tier 1 capital falls below 5%. The bonds can also be converted into shares at a 20% premium to the current share price at any point in the next five years.
The bonds pay an annual interest to investors — in this case 6.50% — but convert into equity if capital falls below a certain level.
Bank of Cyprus has said it expects its capital adequacy ratio to rise to 14% from its present 11.9% of assets, and its Tier 1 ratio to rise to 12.7% with conclusion of the issue.
The EGM also approved an amendment to the share options plan for the bank’s employees setting the exercise price of the share options at 3.30 euros.
BOCY Deputy Managing Director Yiannis Kypri told the Financial Mirror in earlier comments that he expects the issue to take place in early May.
The bonds pay annual interest to investors but convert into equity if capital falls below a certain level. Existing shareholders will have priority rights to subscribe at a conversion rate of 3.30 euros at the end of each quarter, starting with September this year and ending in May 2016.
“There will be a mandatory conversion similar to CoCos, but also a voluntary conversion clause on the part of the holder,” he said.
There are about 818 mln euros worth in eligible securities for conversion, he added.
The bond issue would raise a further 524 mln euros from the market, he explained.
“The bank recognises that regulators across Europe require that banks have additional capital. Also, while the bank is in expansion mode it does not want this need to have additional capital to be an impediment to its growth model,” Kypri said.
Bank of Cyprus had successfully undertaken a rights issue amounting to 340 mln euros in September 2010.
MPB COVERED BONDS
Meanwhile, Marfin Popular Bank CEO Efthymios Bouloutas told an analysts briefing earlier this month that the bank plans to boost its capital levels with the issue of covered bonds worth 2 bln euros some time this year, following the new covered bond law in Cyprus, enacted in December 2010.
Bouloutas said the bank plans to raise the funds directly from the market and not from the European Central Bank, where its borrowing has so far reached 7 bln euros.
He said that he wanted to see this exposure gradually reduced, starting from this year.
He said that two strategic aims were achieved in the first quarter of 2011 – the capital increase through the 488 mln euro rights issue and the sale of 85% of its Australian subsidiary to Bank of Beirut for an additional cash benefit of 104.3 mln euros.
The bank’s Tier I capital ratio now stands at 12.0%, up from 9.1% at the end of 2009, while the capital adequacy levels have risen from 11.5% to 13.7%, positioning MPB among the best capitalised banks in the Eurozone.
“The successful completion of our capital increase, the largest ever executed by a CSE listed company, in combination with the recent disposal of our Australian subsidiary, have further improved our capital position, boosting our tier I and total regulatory capital to 3.3 bln euros and 3.7 bln, respectively,” Bouloutas said.
“The recent capital-enhancing exercises enable the Group to fully align its capital structure to its strategic business objectives, as well as to the forthcoming Basel III capital requirements, thus dramatically improving its long-term growth potential,” he concluded.
