Canadian-owned Senvest Capital, whose two subsidiary funds have doubled their stake in Hellenic Bank to 5% following the recent rights issue and exercise, plans to hold on to its Cyprus investments, including shares worth nearly 60 mln euros in Bank of Cyprus, for up to three years.
This is an additional vote of confidence in the island’s banking system that has shrunk considerably and is struggling to recover burdened with an enormous portfolio of non-performing loans and narrow margins of growth amid an economy that, too, is struggling to come out of recession.
Hellenic raised 201 mln euros from a rights issue offered to existing shareholders, more than the 105 mln capital shortfall identified by the recent European Central Bank’s stress tests on Eurozone banks in October.
Retail and institutional shareholders subscribed to the offer and exercised their rights at 3.75c each, with the bank saying that it can raise a further 20 mln euros until the end of January if necessary, corresponding to the available rights that were not exercised.
The Church of Cyprus, the one-time primary shareholder of the bank, said recently that it would not exercise the rights and would sell its free rights to third parties to raise funds for its own operations. Its stake has diminished from the 25% control it once enjoyed to 8% prior to the rights issue and is now at 3.6% after selling alll its rights.
The three major shareholders that rescued the bank by raising 100 mln euros at the beginning of the year, online gaming giant Wargaming.net, New York-based hedge fund Third Point Hellenic Recovery Fund and local investment house Demetra Investments Ltd, fully supported the rights issue, “reconfirming both their confidence in and their commitment to the group,” a bank statement said.
Third Point is now the biggest shareholder with a 26.98% stake, followed by Wargaming at 26.46%, Demetra at 10.69% and New York-based Senvest International LLC and Senvest Master Fund LP at a combined 5.03%.
Senvest Master Fund is a Cayman Islands-registered investment fund, while Senvest Capital, headquartered in Montreal, is listed on the Toronto Stcok Exchange and operates as a holding company with CAD 2 bln in assets and equities and interests in merchant banking, asset management, real estate and electronic security
The group is about 70%-owned by the Mashaal family and headed by Richard R. Mashaal as the President at Senvest International LLC and Vice President at Senvest Capital Inc., while Victor Mashaal is chairman and president of Senvest Capital Inc.
It is also an 80% majority owner of ARU Cyprus Euqities and Investments Limited.
Following the 2013 meltdown and bailout, “these stressful conditions offer the types of opportunities that we seek in our contrarian investment approach, as many investors extrapolate the current dire circumstances as if they will persist forever,” Senvest said in its latest annual report.
“We returned to Cyprus in early October [2013], reengaged with management teams and were able to assess interesting investment opportunities, some of which have started to bear fruit.”
The group’s largest investment in the third quarter of 2014 was the single-stock fund – Senvest Cyprus Recovery Investment Partners, LP (SCRIF) – a vehicle that owns a $88 mln (EUR 58.3 mln) investment in the Bank of Cyprus, following the recapitalisation led by turnaround investor Wilbur Ross, who was also the lead investor in the Talmer 2010 private placement that Senvest participated in.
“BOC is now one of the better capitalised banks in Europe, with a TCE1 ratio of more than 15%, and it is the dominant market player in Cyprus. The success of this investment is also tightly linked to the Cypriot economy and while currently in recession, trends are pointing to a return to growth next year,” Senvest said.
“The country has massive offshore hydrocarbon resources that it is in the early stages of developing. The economy may benefit not only from the investments that lead the development of the resources, but the nation’s potential share of revenues over time could cover its national debt. We look to hold on to this investment over roughly a three year period. By way of comparison, Greek banks trade at 0.9x – 1.5x tangible book value. Despite large equity raises earlier this year, Greek bank stocks traded down in the quarter due to fears they will require even more capital as a result of the European bank stress tests.”
With 5,364,374,709 new shares introduced after the recent capital raise, Hellenic’s existing capital has almost doubled to 9,300,973,920 shares, with trading on the new additional shares set to start on the last day of the year.
But with nearly 74% of the stock in the hands of the five biggest investors, including the Church, the free-float is expected to remain at present levels with growing demand from retail investors.
