Bank of Cyprus said on Tuesday it has reached agreement to sell more than 14,000 loans of €2.8 b (of which €2.7 b relate to NPLS) and secured by real estate collateral to Apollo Global Management for a gross cash consideration of some €1.4 b.
In a separate announcement, the island’s largest bank said chairman Josef Ackermann was stepping down at the 2019 AGM, while the contract of CEO John Paul Hourican has been extended to the end of 2020.
Known as Project Helix the transaction is the first NPL disposal by BoC and represents a significant milestone in the delivery of the bank’s strategy of improving asset quality through the reduction of NPEs, it said.
Following the completion of Project Helix, the Bank’s gross NPEs will be 65%1,4 lower than its peak in 2014, it added.
“This is a transformative sale for the Bank and is the first meaningful Corporate and SME NPL trade in Cyprus,” CEO Hourican said.
“Since 2014, we have focused on decreasing our stock of NPLs and improving the asset quality of the Bank, and today’s transaction is a significant step forward on our journey of de-risking the balance sheet and enhancing our capital position.
“There is of course much more work to be done and we remain as focused as ever on continuing to seek solutions, both organic and inorganic, to further improve the Bank’s asset quality position,” he added.
Apollo Global was selected following a competitive sale process.
BoC said the portfolio has a contractual balance of €5.7 b. The net book value of the assets being sold as at 30 June 2018 amounted to €1.5 b before the impact of the transaction on the 2Q 2018 income statement.
“At completion, the Bank will receive gross cash consideration of c.€1.4 b. The portfolio comprises 14,024 loans to corporate and SME borrowers, secured over 9,065 properties. The completion of the transaction remains subject to a number of conditions precedent, including mainly regulatory and other approvals, including the ECB agreeing to a Significant Risk Transfer (“SRT”) benefit from the transaction,” BoC said in a filing to the Cyprus Stock Exchange.
It added that it intends to participate in the senior debt in relation to such financing in an amount of €450 m, subject to regulatory approval.
BoC said the transaction accelerates the Bank’s strategy of de-risking its balance sheet, resulting in a non-performing exposure (“NPE”) ratio improvement of c.10 percentage points.
The deconsolidation of the portfolio from the Bank’s balance sheet is expected to have a positive impact on the Bank’s capital ratios of c.60 bps. The accounting loss attributable to the transaction reported in 2Q2018 is estimated at €135 m, declining to c.€105 m by the year end, as time value of money of c.€30 m unwinds.
In a separate announcement, BoC said Chairman, Dr Josef Ackermann intended to step down at the next AGM in 2019.
It quoted Dr Ackermann as saying “When I was first asked to take my position with the Bank of Cyprus I committed to stay for three years. Now, almost four years later, with a strong Board and executive management team, major strides have already been made in restructuring the Bank and in formulating appropriate reform strategies. It may thus be a suitable time to give an indication of my intentions, as part of the Bank’s prudent governance practices’’.
The exploration of a suitable candidate to succeed Ackermann will be addressed by the Nominations and Corporate Governance Committee in due course, the announcement said.
It added that the appointment of John Patrick Hourican as Group CEO was being extended to December 21. 2020.