The Ministry of Finance has selected audit firm Ernst & Young to carry out a fair value assessment of the Cyprus Cooperative Institutions (Co-ops), a term of the a €1.5 capital injection given by the State to cover their estimated capital shortfall.
According to CNA sources, the firm Ernst & Young had submitted the lowest bid of the three other firms invited to express interest, namely KPMG, PWC and Deloitte.
Following the capital injection, the state acquired 99% of the Coops` share capital. The assessment aims to determine the participation of the state in the Central Cooperative Bank capital and its voting rights.
In accordance with its mandate, the firm will have until January 3 to deliver the results of the evaluation.
For the purposes of evaluation, Ernst & Young, which will take into account the shareholder value of Cooperatives on 30 September 2013, will use the forecast for GDP contraction of 8.7 % in 2013 and 3.9 % in 2013 ( as opposed to -5.2 % and -2.3% for 2013 and 2014 used by Pimco), and elevated estimations for the growth rate of unemployment that were included in the Memorandum of Understating (17 % in 2013 and 19.5 % in 2014 ) as opposed to 13.8% and 14.6 % for 2013 and 2014 used by Pimco.
In relation to the prediction for reduction of property values, the same assumptions will be used, ie 14% in 2013 and -10 % in 2014.
The €1.5 billion, disbursed by Eurogroup following the first review of the Cypriot adjustment programme at the end of July, have been deposited in a special account in the CBC and will be distributed to the Coops following the approval of the Coops` restructuring plan by the EU Commission`s Directorate-General for Competition.
The Coops began a merger process that will see the number of cooperative credit institutions decline from 93 to 18.
The estimated losses of €1.5 billion emerged from a due diligence audit carried out by Pimco, as part of the €10 billion bailout Cyprus received by the European Stability Mechanism. Excluded from the international capital markets since May 2011, Cyprus applied for a bailout in June 2012 to recapitalize its two largest banks that posted mammoth losses due to the Greek sovereign debt haircut and soaring non-performing loans, as well as to finance its fiscal deficits.
