By Stelios Orphanides
The Cyprus Cooperative Bank and Hellenic Bank have made progress in their negotiations for the acquisition of the Co-op’s operations and the two sides are likely to reach an agreement in principle within the next days, the Cyprus News Agency (CNA) reported on Thursday.
Citing unnamed sources, CNA said the two sides are close to an agreement on how to cover the funding gap between the value of assets and liabilities that the buyer will take over.
The government will be issuing a new bond, on top of the €2.4bn bonds issued in favour of the Co-op two months ago, CNA said. The new bond will let the government acquire assets deemed less attractive or valuable by Hellenic.
The Co-op, bailed out by the government which injected €1.7bn in taxpayers’ money in 2014 and 2015, is struggling with a €6.5bn non-performing loans mountain, accounting for about six tenths of its loan portfolio. In March, the Co-op announced its decision to sell its operations, or part of them, to a third party after slow progress in reducing delinquent loans sparked concerns about its capital adequacy.
In addition, the government will cover future losses for Hellenic in the event acquired loans show impairments through an “asset protection scheme,” which could burden taxpayers in the future while limiting risks for the buyer.
The risk to taxpayers from the asset protection scheme is mitigated by offsetting impairments for certain loans by non-materialised losses from other loans, CNA said, adding that the issue of the bond and the asset protection scheme is expected to reduce Hellenic’s capital requirements for the acquisition to below €300m.
The agency also reported that Hellenic’s future shareholding structure remains unclear with Atlas Merchant Capital, J.C. Flowers, and Pimco seen as likely to contribute with equity in a future capital increase while Third Point, the US hedge fund which owns more than a quarter of the bank’s stock has not expressed its intentions.