The island’s two main lenders, Bank of Cyprus and Marfin Popular Bank, have issued a total of 1 bln euros in covered bonds, both eventually aiming to issue a total of 10 bln of the instrument.
Market analysts said this was the first facility by both banks to enhance their position and make provision “if some day we require capital building.”
Marfin Popular Bank issued 300 mln euros worth of covered bonds on Friday under a 5 bln euro covered bond programme, it said.
The bonds have a two-year maturity with the possibility of extending for one year. They pay an annual interest rate of 3-month euribor plus 2.00%.
The bonds are rated Baa1 by Moody's, Marfin said. They will be admitted for trading on the Irish stock exchange.
Bank of Cyprus issued 700 mln euros in covered bonds, as part of its target to raise up to 5 bln of the instrument.
The bond has a maturity of three years and may be extended for one year. It carries a rate of 3-month Euribor plus 1.25%, with a Moody’s BSFR rating of Baa1.
Bank of Cyprus said the new covered bonds are secured by housing loans in Greece and other instruments such as deposits and other securities with other banks.
The new covered bonds started trading on the Luxembourg Exchange on Tuesday, July 19.
CAPITAL BUILDING
Bank of Cyprus said in mid-May that it had received subscriptions worth around 890 mln euros for its enhanced convertible capital securities (CoCos) issue to bolster its capital adequacy ratios.
Subscriptions totalling 696 mln euros were in the form of exchange of existing eligible securities.
Under terms of the issue, the capital securities will convert into shares if the bank's core Tier 1 capital falls below 5%. The bonds can also be converted into shares at a 20% premium to the current share price at any point in the next five years.
The bank says its securities are an enhanced form of contingent convertible bonds. The instrument is being considered by several banks to provide an extra buffer if capital is eroded.
The bonds pay an annual interest to investors – in Bank of Cyprus's case 6.50% – but convert into equity if capital falls below a certain level.
EXPOSURE REDUCED
Marfin Popular CEO Efthymios Bouloutas told an analysts briefing in March that the bank planned to boost its capital levels with the issue of covered bonds worth 2 bln euros some time this year, following the new covered bond law in Cyprus, enacted in December 2010.
Bouloutas said the bank plans to raise the funds directly from the market and not from the European Central Bank, where its borrowing has so far reached 7 bln euros.
He said that he wanted to see this exposure gradually reduced, starting from this year.
He said that two strategic aims were achieved in the first quarter of 2011 – the capital increase through the 488 mln euro rights issue and the sale of 85% of its Australian subsidiary to Bank of Beirut for an additional cash benefit of 104.3 mln euros.
“The recent capital-enhancing exercises enable the Group to fully align its capital structure to its strategic business objectives, as well as to the forthcoming Basel III capital requirements, thus dramatically improving its long-term growth potential,” he concluded.
