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Bank of Cyprus has finally disposed of its Russian subsidiary Uniastrum, albeit for a cash deal of €7 mln, but ridding itself of about €700 mln in risk weighted assets.
Following the deal, the last overseas subsidiary earmarked for sale in an effort to deleverage the bank from “non-core assets”, including a similar sale in Ukraine last year, its net exposure to Russia is now reduced to €114 mln of loans and real estate assets which will “be reduced over time”, according to an announcement.
However, the island’s largest lender said it will retain its two representative offices in Moscow and St. Petersburg.
CB Uniastrum Bank LLC operates a network of 120 branches, focusing on retail and businesses in Russia, and employs 2,000 staff.
BOCY’s 80% stake in the bank and a leasing subsidiary have been sold to Artem Avetisyan, the majority shareholder in Bank Regional Credit, 147th biggest in Russia by assets, and the deal is expected to be completed by the end of the third quarter.
During the fourth quarter of 2014, the Group’s operations in Russia were reclassified and treated as a disposal group held for sale.
The announcement said that “in light of the deteriorating economic conditions in Russia since mid-December 2014, the bank proceeded to reassess its operations in that country and significantly increased the level of provisions for impairment of its loans and other assets, reflecting a deliberately more conservative stance regarding the Russian economic outlook and significantly reducing the group’s exposure. Specifically, the bank recorded €289 mln of provisions for impairment during the fourth quarter of 2014 and the first quarter of 2015 in relation to its Russian operations. In addition to these provisions, an impairment loss of €84 mln was recognised against the carrying value of non-current assets within IFRS 5 measurement scope during the fourth quarter of 2014.”
The transaction carries a nominal consideration of €7 mln and results in an accounting loss of €29 mln, €24 mln of which is from the technical unwinding of a foreign currency translation reserve. The remaining €5 mln reflects a loss against the net book value of the assets and validates the accuracy of the write downs taken previously.
Deutsche Bank AG, London Branch, acted as financial advisor and Linklaters as legal advisor.
In March, when BOCY released its audited results for 2014, the total loss of discontinued operations for the year amounted to €303 mln, of which a loss of €299 mln related to the Russian operations, €36 mln to the Ukrainian operations disposed in the second quarter of 2014 and a profit of €36 mln from the Greek operations due to the reversal of a provision recognised initially in 2013.
At the time, the bank raised its provisions for impairment of customer loans in Russia by €30 mln “due to further information which became available.”
“The results of the fourth quarter were negatively affected by increased provisions and impairments in Russia, as well as the classification of the Russian operations as held for sale,” CEO John Hourican had said in a statement on February 25.
Hourican’s two main objectives had been to shrink the bank back to its core activities by selling off unprofitable assets and to reduce the bank’s high risk exposure to non-performing loans, currently running at a national average of 50% of all loans.
In statements released to the media, the bank said it has deleveraged its balance sheet by €3.5 bln, disposing of its Ukranian operations, its investment in the Romanian Banca Transilvania, its loans in Serbia, assets in Romania and the UK loan portfolio acquired from Laiki Bank.
“The bank is running a process to dispose of its operations in Russia,” the statement added, suggesting that Uniastrum, itself at the heart of a struggle by control by its former owners Gagik Zakaryan and George Peskov, would no longer burden the Group with a deterioration of its loanbook and deposits.
Recent Russian news reports suggested that the main contenders for Uniastrum included Alfa-Bank and BaltInvestbank, but that Avetisyan’s Bank Regional Credit had made the best offer.
On June 1, Uniastrum’s capital amounted to 6.6 bln roubles (€110 mln) and with assets of 50.6 bln roubles (€820 mln) was ranked 102nd biggest in Russia.
According to Interfax-CEA, Kostroma-based Bank Regional Credit is the 147th biggest by assets of 26.4 bln roubles (€430 mln), less than half of Uniastrum, and has 18 offices.
