Moody’s said on Thursday that a commitment by Emma Alpha Holding Ltd to purchase up to €50 million of unsubscribed shares in the Hellenic Bank’s forthcoming €100 million rights issue planned for the fourth quarter was a credit positive for the the bank because added to other subscription agreements, it secures the full amount of its planned capital increase.
The capital increase will facilitate Hellenic’s transformational acquisition of Cyprus Co-operative Bank Ltd.’s €10.3 billion balance sheet, it added.
Emma Alpha Holding Ltd. is fully owned by Emma Capital, a Czech investment company focusing on Europe, the Commonwealth of Independent States and Asia. In July, Demetra Investment Public Ltd, one of Hellenic Bank’s largest shareholders with a 10% stake, agreed to purchase up to €50 million of the rights issue, a much higher amount than its €10 million pro-rata share.
Hellenic expects to complete the planned capital increase in the fourth quarter of this year, pending all regulatory approvals. The bank has also secured an additional €50 million of capital though a private placement to Poppy Sarl, an entity owned by PIMCO, the fixed-income investment management firm.
But Moody’s said Hellenic’s plan still faces significant hurdles, including gaining shareholder approval for the capital increase at next Wednesday’s EGM. Management currently has commitments from around 66% of shareholders to go ahead with the capital increase, but 75% of the meeting attendees must approve the capital increase, which is a precondition for the acquisition to proceed.
“Hellenic must also successfully combine CCB’s balance sheet with its own without harming its existing business,” the ratings agency said.
And it added: “Hellenic will need to successfully integrate its newly acquired staff while retaining its newly acquired customer base and ensuring that its existing business does not suffer during the integration process. ”
Hellenic’s balance sheet size would more than double following the acquisition, making Hellenic the second-largest bank in Cyprus Hellenic’s market share would rise to around 32% in deposits, making it the island’s largest retail and small and midsize enterprise bank.
Hellenic’s financial fundamentals would also immediately benefit from the acquisition. Its asset quality would improve and its ratio of nonperforming exposures to gross loans would decline to 25% from 52% as of March 2018, while provisioning coverage of the nonperforming loans would remain stable at 62%.
Hellenic’s earning capacity will likely grow considerably and efficiency will improve because of revenue and cost synergies from a larger asset base serviced by a smaller combined branch network and headcount than the two banks had individually.