CYPRUS: Hellenic Bank €220m rights to cover stress-test shortfall

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Hellenic Bank, one of the four Cyprus systemic banks that were subjected to capital stress tests by European banking authorities, announced a rights issue of 220mln euros that will help it “more than cover” a 105 mln shortfall seen in the exercise.

Under the three-scenario tests conducted by the European Central Bank and the European Banking Authority, Hellenic Bank passed two of the benchmarks and failed in the third ‘adverse’ scenario with its Common Equity Tier 1 ratio (CET1) at 1.7%, far below the minimum required 5%. The “worst case” scenario resulted in a capital requirement of EUR 277 mln.
On Friday, the bank said it plans to increase its share capital by a EUR 220 mln issue offered only to existing holders at a rate of one right per share. The rights will be listed on the Cyprus Stock Exchange after the approval of the relevant authorities
Every two rights exercised at 3.75c will provide a right to buy three fully paid newly issued ordinary shares of 1c nominal value. The exercise price represents a discount of 27.5% to the theoretical ex-rights price based on the share’s closing price on the CSE on October 31.
Rights holders may also exercise a presubscription right to subscribe for additional shares in the bank, to the extent that such shares are not subscribed by other holders of subscription rights.
The bank’s two major shareholders, Third Point Hellenic Recovery Fund, L.P. and Wargaming Public Company Ltd, each with a 20.3% stake, are supportive of the issue and have each undertaken to subscribe in full for the shares corresponding to their rights. Third Point and Wargaming, together with local investment fund Demetra, injected EUR 100 mln into the bank earlier this year.
Deutsche Bank AG London is acting as sole global coordinator and joint placement agent, Axia Ventures Group is acting as joint placement agent, N.M Rothschild & Sons is acting as financial advisor. Hellenic Bank (Investments) Ltd is acting as the underwriter responsible for drawing up the prospectus and preparing all necessary submissions to the CySEC.
“Hellenic Bank aims to proactively strengthen its capital base and raise sufficient capital to enable the bank to pursue business opportunities in the recovering Cypriot environment and utilise its competitive advantages to grow customer numbers and loan book and gain market share,” it said in an announcement.
Following the rights offering, the bank’s core equity CET-1 ratio will increase to 13.2% based on current capital regulation and 12.4% based on CRR excluding transitional arrangements, thus exceeding by far the ECB and EBA stress test requirements.
This year, the bank also proceeded with a rights issue, bond conversions of EUR 24 mln and other actions worth a total EUR 71 mln that includes selling the banking operations in Russia (but maintaining a Moscow rep office) for a gain of EUR 2 mln.
Chairman Irena Georgiadou said in her notes to the 9-month results, approved by the board last week, that deposits as at September 30 were up 11% year-on-year to EUR 6.13 bln, from EUR 5.51 bln in the same nine-month period last year. And this at a time when the Central Bank of Cyprus announced that September saw the highest deposits outflow from the banking system since July 2013, as total deposits fell by EUR 850.6 mln.
Georgiadou said that pre-tax earnings from operations were up 39% at EUR 119 mln, which allowed for higher provisions of EUR 259 mln, which, however, resulted in pre-tax losses rising 73% to -140 mln or -124.1 mln attributable to shareholders.
Thus, losses per share were improved from -12.1c in 9M2013 to -3.8c in 9M2014.
The shares traded on the Cyprus Stock Exchange at 5.7c on Tuesday (Nov 4), down 3.39% from Monday, but hovering within the 5-8c range in recent weeks.