An increasing number of Bank of Cyprus shareholders are accusing the bank of favouritism over its decision to issue a bond of €220 mln – with an interest rate of 12.5% – for only a select group of investors.
The Securities and Exchange Commission (CySec) announced that is looking into several written and oral complaints from BoC shareholders claiming that the bank acted in a non-transparent manner.
According to complainants the bank is excluded institutional and other smaller shareholders from having access to the bond issue which carry the highest interest rate seen in Europe in recent years.
CySec chair Demetra Kalogirou, told news website Stockwatch that she is looking into the matter and will ask the bank to clarify whether it intends on providing any further explanation to investors. She said CySec’s next move will depend on how the bank responds, suggesting that BoC’s announcement regarding the bond issue raises some questions surrounding transparency procedures.
She said that one question raised is why the bank did not declare an open procedure with which it could have achieved a lower interest rate. She did stress however, that the interest rate of a bond is a reflection of the risk an investor is to undertake.
She said that the risk undertaken by institutional investors is particularly high considering the possible future capital needs of the bank and its high NPL percentage.
“Maybe that is why such a high interest rate is given,” said Kalogirou who noted that this practice is common.
Echoing the same argument, a Bank of Cyprus source told the Financial Mirror that this is a common practice of the global banking system, giving as an example Credit Suisse who issued a bond with an interest rate of 9.5% three years ago.
“Taking in consideration the country’s risk, it is only natural that the bank would offer such a high interest rate. This being the case it is only natural that we would seek to sell the bond to the biggest investors,” said the source.
Last year the bank had issued a similar bond of EUR 250 mln with an interest rate of 9.25% to investors who were not named in the annual report. According to a Financial Times article they were sold to a group of investors with ties to BoC’s biggest shareholders.
Meanwhile, an ex-BoC executive, in a letter addressed to CySec and forwarded to the press, said that there is an issue of unequal treatment of BoC’s shareholders.
Evdokimos Xenophontos said that the procedure in question is in violation of corporate governance regulations, the Cypriot law and regulations of the stock exchange.
