Hellenic Bank, the second largest lender in Cyprus with a healthy loans to deposits ratio, will raise 168 mln euros from a new share issue, to satisfy the extreme case scenario for recapitalisation under a national banking system restructure to cover losses from a vast exposure to toxic Greek government bonds.
The bank’s board approved on Thursday the recapitalisation plan that also includes the conversion of older bonds into new ones and the issue of fresh bonds worth a total 306 mln euros and carrying a coupon of 10 and 11%, respectively.
This conversion will give it a safety cushion of liquidity in accordance with strict European Banking Authority requirements. A minimum 90% of bondholders’ participation is required.
Potential investors may also be offered new convertible bonds, the board decided.
The Eurogroup of eurozone countries forced the island’s banking system into a state of resolution as part of a 10 bln euro rescue plan, saying that the Cyprus banking system was too large compared to the size of the economy.
As a result, second largest lender Popular Laiki was shut down and absorbed by the larger Bank of Cyprus, while depositors of amounts larger than 100,000 euros surrendered their rights as part of a bail-in agreement with the Troika of lenders – the European Commission, the European Central Bank and the IMF.
Bank of Cyprus, Laiki and Hellenic were also forced to give up their branch networks in Greece as part of a settlement imposed by the Central Bank of Cyprus.
Following the changes, as well as ongoing cost cutting, the central bank also commissioned global fund managers Pimco to assess the viability of the island’s banks, with an ‘optimistic’ and ‘adverse’ scenario.
Hellenic Bank needs 294 mln euros by the end of September in order to satisfy the Core Tier 1 liquidity ratio at 9%, up from the current level of 8.3% of issued share capital plus reserves.
It’s assets and liabilities are balanced at 7.8 bln euros and the bank’s senior executives said last week that Hellenic can recapitalise on its own without any state aid.
The bank’s board decided on Thursday to issue new shares to current shareholders to raise 168 mln euros in fresh funds and convert 126 mln euros of bonds to new ones that, if the capitalisation fails to reach the 9% target, will then be converted to full shares.
Chief Financial Officer Antonis Rouvas told a press briefing last Friday that the bank has implemented “a realistic plan to keep the bank as a healthy institution.”
Rouvas had said that although deposits were lower following the Eurogroup decision to impose a bail-in on unsecured deposits at Bank of Cyprus and Laiki, the net loans-to-deposit ratio at Hellenic was still at a healthy 59%, with 4.6 bln euros in loans and 6.9 bln in deposits.
“Even if we don’t raise a single cent in fresh funds, we can recapitalise the bank on our own and still meet the capital adequacy ratio.”
The bank’s CFO explained that despite losing its branch network franchise in Greece, Hellenic also wrote off its 110 mln euros worth of toxic GGBs over the past three years.
“We were innocent bystanders in the whole crisis,” Rouvas said, adding that Hellenic was the only bank to avoid a bail-in imposed by the Troika of international lenders.
“We are a viable bank and will be able to recapitalise without the contribution of our depositors,” he said, adding that the authorised share capital will also be increased and the stock’s nominal price lowered to better reflect the current share price of about 10c traded on the Cyprus Stock Exchange.
Thursday’s board decision concluded that the nominal value of the shares will be reduced from the current 43c to 1c, with the balance of the value transferred to a “reserve fund from the reduction of capital”.
A shareholders’ EGM will be called on August 14 to approve the conversion and new issue.
