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Lone Star deal heads south

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A fresh attempt by US private equity firm Lone Star at a fourth takeover bid for Bank of Cyprus will also be shot down by the institution’s shareholders and the island’s financial authorities, according to well-informed media reports.

The Financial Times reported that despite seeing three cash offers rejected by the board of the biggest lender and scepticism from financial authorities, the fund appears determined to push for a deal to acquire the bank.

As the newspaper reported, the bank’s shareholders and the island’s financial authorities are ready to shut down any attempts as they are more than sceptical over the buyout fund taking over the island’s largest lender.

Earlier last week, Lone Star representatives were in Cyprus trying to convince authorities that their investment strategy in the domestic banking system is not an opportunistic venture.

Lone Star had reportedly cited their participation in the share capital of two major European banking institutions, German IKB Deutsche Industriebank AG and Portuguese Novo Banco SA.

Restructuring

Lone Star acquired the majority of the shares in both financial institutions when the banks had been placed under a restructuring regime.

Stakeholders told Lone Star that the acquisition of a banking institution primarily concerns the members of its management and, by extension, its shareholders.

“No doubt Lone Star had noted Cyprus has stabilised. System-wide bad loans have fallen 78%, about €7 bln lower, in the past five years. As a share of gross loans, NPLs stood at 11% systemwide. Bank of Cyprus, with 40% of the loan market, has done better getting its ratio closer to 6% at the end of June,” the FT report said.

“A rebound in economic growth should mean real GDP expands by 4.5% this year. While some links with Russian businesses linger, these now only account for about 2% of outstanding loans,” the newspaper added.

However, Lone Star has more than just the bank’s shareholders to worry about, as local financial authorities are also not on board with the takeover.

Concerned over the possibility that a major banking institution could end up in the hands of a private equity fund, the Ministry of Finance is preparing to submit a bill to parliament to establish a framework for controlling foreign direct investments.

This law incorporates into national law the relevant regulation issued by the EU concerning the control of foreign direct investments within member states.

The majority of EU member states have implemented this law since 2019.

It gives governments the right to assess whether a direct foreign investment is likely to affect the security or public order of the Republic of Cyprus and whether the company in which the FDI is planned operates in sensitive sectors, including systemic credit institutions.

The bill will be on the House’s Finance Committee agenda on 29 September.

Three attempts

Within two months, the American fund submitted three proposals for acquiring the Bank of Cyprus, which were unanimously rejected by the bank’s board.

Lone Star, which invests in real estate, equity, credit, and other financial assets globally, said it offered €1.51 per share for the bank, meaning the takeover would cost €727.25 mln.

Shares in the bank, up about 12% this year, were worth €1.25 at the time of the previous offer.

On Tuesday, the BoC share was trading at €1.335 on the CSE. ON the London Stock Exchange, it was trading lower at £111.35, down from Monday’s close of 118.00.

Lone Star’s first offer was made at the beginning of May, with a price of €1.25 and the second at €1.38 per share.

Bank of Cyprus currently has a market cap of €524.3 mln, according to financial market data provider Refinitiv, owned by the London Stock Exchange.

According to Irish regulations, Lone Star has until 30 September to file a new offer, as Bank of Cyprus Holdings Plc was incorporated in Ireland in 2016 to list on the London Stock Exchange. It was first quoted at £297.50 on January 14, 2017.