Further to the announcement dated 28 June 2010 the Board of Directors of the Bank of Cyprus Group (“BoC”, the “Bank”, or the “Group”) has decided to increase its capital through a rights issue (“the Rights Issue”) of up to €345 mn to strengthen the capital base of the Bank.
Theodoros Aristodemou, Chairman of Bank of Cyprus Group commented:
“In a period of uncertainty and increasing regulatory requirements Bank of Cyprus pre-emptively strengthens its capital base with high quality capital. With an enhanced capital base and its strong well positioned networks in Cyprus, Greece and Russia, Bank of Cyprus remains committed to its shareholders, clients and to the markets in which it operates.”
Andreas Eliades, Chief Executive Officer of Bank of Cyprus Group, added:
“Bank of Cyprus has fared exceptionally well through the difficult last two years strengthening its footprints and consistently delivering strong profitability. With a highly liquid balance sheet, organic recurring profitability and a strong capital base, Bank of Cyprus is strengthening its financial and market positioning despite the ongoing financial crisis“.
Principal terms of the Rights Issue
• Each outstanding ordinary share shall receive one nil paid pre emptive subscription right, with 7 pre emptive subscription rights being needed to subscribe for 2 new shares at €2,00 per each new share. The nil paid pre emptive subscription rights are expected to be listed on the Athens Exchange (ATHEX) and the Cyprus Stock Exchange (CSE) for a minimum period of 10 working days upon receipt of relevant approvals from the authorities in Cyprus and Greece;
• The Bank will issue up to 172.630.273 new ordinary shares. After the successful completion of the Rights Issue, the Bank’s issued and outstanding ordinary share capital will reach up to €776.836.228 divided into 776.836.228 shares;
• The issue price of €2,00 represents a 44% discount to the closing price as of 8 July 2010 and a 38% discount to the theoretical ex-rights price based on that closing price;
• The Rights Issue is conditional to the approval of an Extraordinary General Meeting of Shareholders of the Bank to increase the Bank’s authorised capital to 1.100.000.000 shares and approval of the Rights Issue Prospectus by the Cyprus Securities and Exchange Commission (“CySEC”);
• The Cyprus Investment and Securities Corporation Limited (CISCO) has been appointed by the Bank to act as Lead Manager and file the relevant Prospectus with the CySEC and request its passporting to other European countries pursuant to article 18 of Directive 2003/71/EC of the Council of the European Union;
• Any unsubscribed rights by their entitled shareholders will lapse unexercised and may be allocated to other interested investors at the discretion of the Board of Directors;
• The conversion prices of the Bank’s Convertible Bonds 2013/2018, Convertible Capital Securities and Employee share options will be amended pursuant to their terms as the current share capital issue is not extended to these stakeholders. The new amended conversion price for each of these financial instruments will be announced by the Bank after the Bank’s shares trade as ex–rights on the ATHEX and CSE.
Rationale for the Rights Issue
• Strategic decision to operate with higher capital ratios within an environment of greater uncertainty and market and regulatory demand for higher capital ratios across the financial industry. The proposed rights issue further enhances the Bank’s strong and high quality capital base raising its pro forma 31 March 2010 total adequacy ratio to 12,6%, its Core Tier I ratio to 8,4%, and its Tier I ratio to 11,5%;
• Offers the Bank further strategic flexibility to capitalise on its strong well positioned network and to deploy its increasing liquidity to seize profitable growth opportunities across its various markets;
• Allows the Bank to maintain high credit ratings and to continue to benefit from quality business opportunities;
• Given the Bank’s current strong fundamentals (healthy balance sheet, strong liquidity, high recurring profitability, growth prospects), this capital increase is not reflective of any deterioration in the Bank’s business, nor is it related to the outcome of any stress tests.
• The strategic priorities of the Group for the year 2010 focus on maintaining strong liquidity and high capital adequacy, improving efficiency and cost containment, satisfactory profitability and effective risk management. Strong balance sheet with ample liquidity, high capital adequacy and satisfactory loan quality have been demonstrated in financial results for the quarter ended 31 March 2010, reaffirming the appropriateness of the Group’s business model and allowing it to continue its expansion tackling effectively the challenges of the difficult operating environment and be ready to take advantage of any opportunities that may arise.
Financial Performance Update
In the period following the announcement of the financial results for the first quarter of 2010 Bank of Cyprus maintained its sound financial performance amid a challenging market environment. The Bank is currently tracking towards a strong financial performance for the first six months of 2010 supported by continued positive deposit inflows and a notable recovery in credit demand.
The Group’s liquidity position is maintained at very high levels with a net loans to deposits ratio of around 83% and total Group’s loans and deposits at 30 June 2010 reaching approximately €28 bn and €33 bn respectively, compared to €27 bn of loans and €29 bn of deposits at 31 December 2009.
In Cyprus the Group enjoys the leading market share of total loans and deposits of commercial banks and credit cooperatives. As at 31 May 2010 (latest available information) the market share in loans and deposits stood at 27,6% and 28,2% respectively.
The market for certain Greek government bonds became inactive in the second quarter of 2010 and the Group reclassified these from the Available For Sale category to the Loans and Receivables category. In addition, other Greek bonds were reclassified from the Available For Sale to the Held To Maturity category.
As far as financial performance is concerned, results to date continue to be within the profit target set by the Group in the beginning of the year (€300 mn to €400 mn profit after tax for the year 2010).
Dividend Policy
Bank of Cyprus remains committed to its dividend policy including its dividend reinvestment plan. New shares will be entitled to any future distributions by Bank of Cyprus including any 2010 interim dividend.
Preliminary Indicative Timeline
Subject to the receipt of all necessary regulatory approvals, the Bank expects to complete the Rights Issue in October with customary share subscription period to take place in September and early October. A more detailed timetable for the transaction will be published within the Prospectus following approval from the CySEC.
