Bank of Cyprus, the island’s biggest lender bailed out by depositors in 2013 and new investors in 2014, plans to raise its market capitalisation from the current EUR 1.37 bln to a level near its book value of 3.5 bln when or after it lists on the London Stock Exchange later this year.
As its ECB-funded emergency liquidity assistance (ELA) is on its way to diminish by 2017, the bank is considering setting up a UK holding company in order to list on the LSE main market, but this also entails a positive outcome from the Brexit referendum, as a ‘no’ vote could hamper the listing decision, somewhat.
Already, the bank’s “turnaround CEO” John Hourican has been parading across international financial media and stated on Bloomberg TV that he wants to use the float to increase the bank’s exposure to international investors and to raise its market capitalisation to its book value (of EUR 3.5 bln).
With the stock currently lingering at 15c a share on the illiquid Cyprus bourse, compared to the 24c offering picked up by strategic investors who pumped in EUR 1.1 bln two years ago and helped recapitalise the bank, Bank of Cyprus has a long way to go to prop up the share value and attract liquidity on the stock. At current prices, the shortfall is just over EUR 2 bln, but this is, after all, the purpose of seeking liquidity from bigger markets.
“The London listing was initially my idea. All our board members are saying we need the highest standard of corporate governance and transparency, we need to tell our story to a wider audience and we need to know that the stock, with this level of debt, can be widely owned by longer term investors,” Hourican told Bloomberg.
“Our stock is about faith. We’ve taken all the steps faster than we said, and the story holds for this to be a book-value bank.
“We’ve cut away all the overseas existential risks, we’ve repaid more than the Troika expected, and deposits are growing again,” Hourican said.
In its latest report for the 2015 audited financial results, the bank declared that Group customer deposits totalled EUR 14.18 mln as at 31 December 2015, compared to EUR 13.61 bln at 30 September 2015 and EUR 13.17 bln a year earlier, at 31 December 2014. “We can see that the margins have held up,” Hourican said.
Commentators have pointed out that the bank’s price-to-book ratio is still 0.45, still very much priced as a recovery story and as a stock that has problem issues with non-performing loans (NPLs).
Hourican said that that the Athens and Cyprus bourses provided very little liquidity and the management team had been contemplating a new listing for a year.
“We decided that London was the best market, it was a choice between that or Euronext,” he said.
UNHAPPY WITH MOVE
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Although regulators in Cyprus and Greece are unhappy with the move, the dual listing on the LSE FTSE250 ‘premium’ market and on the CSE will provide ample liquidity.
It is expected that the listing, anticipated within the second half of the year and probably closer to the end of the third quarter, will also pre-empt some form of issue, either new stock, rights or even bonds, as the 8.9 bln shares in circulation cannot on their own sustain the bank’s recovery, which in turn relies on the economy’s return to growth after a long recession.
Hourican has also rejected that the London listing would be an exit opportunity for current shareholders, including billionaire investor Wilbur Ross and the European Bank for Reconstruction and Development (EBRD).
“Wilbur pressures you on everything and that is the nature of having an active investor,” he told Bloomberg.
As regards the recently-established real-estate asset unit burdened with the assets linked to NPLs, the bank’s CEO said it does not aim to become the biggest property owner in Cyprus.
“Hopefully not, we have regulatory limits what real estate we can own as a bank. But what we hope (to become) is a force for change in Cyprus, to use smarter ways to move the ownership of assets, without actually flooding the market. We will be active in the property markets.”
During the same discussion on Bloomberg TV, Julian Chillingworth, CIO of Rathbones, said that “what investors want in a bank is predictability and consistency in return over the medium term. And the current climate is more inclining to retail banking and away from investment banking. Predictable yield, predictable return.”
In a statement issued on Monday, the bank said that it “is pursuing a premium listing on the London Stock Exchange (LSE).”
RANGE OF OPTIONS
“In order to achieve such a listing and to be considered eligible for inclusion in the FTSE UK index series (FTSE indices), the bank is considering the incorporation of a new holding company. The bank has been in discussions with our regulators and has considered a range of options. The bank is currently considering incorporating such a holding company in the UK.” It is advised by HSBC.
“There is no intention to change the residency of the bank’s headquarters, while the Group’s tax and banking regulatory status are expected to remain unchanged.”
In separate comments to a Bloomberg correspondent, Hourican said that “nothing changes in the regulated enterprise, nothing changes in who regulates the bank, nothing changes in the tax residency, nothing changes in the headquarters, the only thing we’re talking about here is the mechanics of listing the stock so that investors can invest.”
“The discussion with us has been whether we’ll have a U.K. top company, or the other recommendation by our advisers with the Jersey top company. It’s likely that we’ll go with the U.K. (option), although we have considered Jersey as well,” Hourican reassured after politicians’ hysterics that the bank was moving its headquarters out of the country, reminiscent of when Andreas Vgenopoulos wanted to move now-defunct Marfin Laiki out of Cyprus.
The discussion in parliament had raised the issue of the representation of legacy Laiki depositor-shareholders on the bank’s board, an option all political groups favour at the moment, as the country prepares to go to the polls and elect a new House on May 22.
“Although there’s no tax payable on share trading with Jersey, we will probably go with U.K. to manage reputation, given the sensitivities around offshore jurisdictions,” Hourican said.
The Group operates through a total of 135 branches, of which 129 operate in Cyprus, and employs 4,605 staff, with its latest voluntary redundancy scheme falling far shor of the required numbers. As at December 31, 2015, the Group’s total assets amounted to EUR 23.3 bln and total equity was EUR 3.1 bln.
SECONDARY LISTING
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A Financial Times report quoted Hourican as saying that the Group will keep a secondary listing in Cyprus, but plans to ditch its other listing in Athens, where it sold its operations several years ago.
Investors will be offered the option of transferring their shares to London or Cyprus and there is no plan to raise any fresh capital from the move.
“The listing and, subject to meeting the eligibility criteria, potential inclusion in the FTSE UK Index series will enhance the group’s visibility and share liquidity,” the bank said in a statement last week.
It said a London listing would provide “access to a greater pool of international capital together with greater profile and visibility in the European financial markets”.
Last year, Bank of Cyprus made a net loss of EUR 438 mln after taking an almost EUR 1 bln hit for higher provisions on bad debts in response to pressure from the European Central Bank.
The bank’s almost EUR 14 bln of NPLs account for 62% of its entire loan book — a painful legacy of the debt crisis that pushed the country into a deep recession.
While the lender, which has a dominant 28% share of the Cypriot market, has repaid EUR 8.1 bln of its EUR 11.4 bln bailout funds, it still relies heavily on loans from European authorities, the FT report said.
The bank’s shares resumed trading in December 2014 but they have fallen sharply in the past six months to well below their heavily diluted relisting price of EUR 0.24.
While the materialisation of the plan would bring the bank under the supervision of the UK’s Financial Conduct Authority, it would not alter in any way the bank’s supervision by the Central Bank of Cyprus, the Cyprus Securities and Exchange Commission while the Single Supervisory Mechanism would remain “the final supervisory authority”, the Cyprus Mail reported.
The paper quoted source as saying that the establishment of a holding company will not affect the bank’s shares nor the composition of its board of directors, while annual shareholder and board of directors’ meetings will continue to take place on the island.
“There is no intention -and there has never been any- to relocate the bank’s or group’s headquarters,” the source said.
