Agreement for sale of portf. of Non Perform. Loans

RNS Number : 9830L

Bank of Cyprus Holdings PLC

18 January 2021

 

Announcement

Agreement for sale of a portfolio of Non Performing Loans

Nicosia, 18 January 2021

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014.

Further to the agreement for the sale of Non Performing Loans announced on 3 August 2020 ("Helix 2 Portfolio A"), Bank of Cyprus Holdings Public Limited Company ("BOC Holdings" and, together with its subsidiaries, the "Group") has reached agreement with funds affiliated with Pacific Investment Management Company LLC ("PIMCO"), for the sale of an additional portfolio of Non Performing Loans ("Portfolio B") with a gross book value of €545 mn^1,2 (known as "Helix 2 Portfolio B", or the "Transaction").

Portfolio B had a contractual balance of €783 mn³ and comprises c.16,000 loans, mainly to Retail and SME clients, secured over c.4,000 real estate collaterals. The net book value of the assets being sold amounts to €244 mn¹. The gross consideration amounts to 44%¹ of the gross book value and 31%³ of the contractual balance payable in cash, of which 50% is payable at completion and the remaining 50% is deferred up to December 2025 without any conditions attached. The consideration can be increased through an earnout arrangement, depending on the performance of Portfolio B.

The Transaction represents another milestone in the delivery of one of the Group's core strategic objectives of improving asset quality through the reduction of NPEs. The Transaction reduces the stock of NPEs by 22%^1,4. Overall, the pro forma NPE reduction for 2020 amounted to c.€2.1 bn⁴ reducing NPEs to €1.8 bn⁴ and the NPE ratio to 16%⁴, including Helix 2 (Portfolios A and B) and an organic NPE reduction of c.€600 mn. 

At completion, the Transaction is expected to be broadly neutral¹ to the Group's capital ratios. Upon the  payment of the deferred consideration and without taking account of any positive impact from the earnout, the Transaction is expected to have a 14 bps¹ positive capital impact on the Group's CET1 ratio. The loan credit losses on Portfolio B, expected to be recorded in 4Q2020, is estimated at c.€27 mn.

The completion of Helix 2 Portfolio B will be aligned with the completion of Helix 2 Portfolio A and is currently estimated to occur early in 2H2021. The completion remains subject to a number of conditions, including customary regulatory and other approvals.

Following a transitional period where servicing will be retained by the Bank, it is intended that the servicing of both Portfolios will be carried out by a third party servicer selected and appointed by the purchaser.

PIMCO is one of the world's premier fixed income investment managers. With its launch in 1971 in Newport Beach, California, PIMCO introduced investors to a total return approach to fixed income investing. In the 45+ years since, the firm continued to bring innovation and expertise to their partnership with clients seeking the best investment solutions. Today PIMCO has offices across the globe and 2,900+ professionals united by a single purpose: creating opportunities for investors in every environment. PIMCO is owned by Allianz SE, a leading global diversified financial services provider.

Panicos Nicolaou, Group Chief Executive Officer, commented:

"I am pleased to announce the signing of the disposal of the Helix 2 Portfolio B today, another milestone in our de-risking strategy.

Despite the on-going challenging market conditions, the Bank has signed the sale of € 1.4 bn¹ NPEs in the last six months (Helix 2 Portfolios A and B). Our combined de-risking actions have reduced NPEs in the year 2020 by c.€2.1 bn ⁴ , from €3.9 bn to €1.8 bn⁴, and the NPE ratio from 30% to 16%⁴.

Overall, s ince the peak in 2014, we have now reduced the stock of NPEs by €13.2 bn⁴ or 88%⁴ and the NPE ratio by 47 percentage points ⁴ , from 63% to 16%⁴.

As part of our broader strategic objectives to drive shareholder value creation as set out with our medium term strategic targets announced with our financial results for the nine months ended 30 September 2020, we remain committed to further de-risking the balance sheet and we will continue to seek solutions, both organic and inorganic, to achieve our target of a single digit NPE ratio by the end of 2022. We will continue to assess the potential to accelerate the decrease in NPEs on our balance sheet through   additional sales of NPEs in the future.

We are now better positioned to manage the challenges resulting from the impact of the on-going COVID-19 crisis, and to support the recovery of the Cypriot economy".

Morgan Stanley & Co. International plc and KPMG LLP acted as financial advisors, Allen & Overy LLP acted as English legal advisors and Chryssafinis & Polyviou LLC acted as Cypriot legal advisors to the Bank in this Transaction.

For further information, please contact Investor Relations at [e-mail] .

¹  Based on the Group Financial Results for the nine months ended 30 September 2020.

² On balance sheet gross book value of which €529 mn¹ relate to non-performing exposures or "NPEs". The gross book value of €545 mn¹ includes properties of €9 mn¹ that will also be transferred to the buyer.

³ As at the portfolio reference date of 30 September 2019.

⁴ Calculations on a pro forma basis assume legal completion of both Helix 2 Portfolio A and Helix 2 Portfolio B.

 Group Profile

The Bank of Cyprus Group is the leading banking and financial services group in Cyprus, providing a wide range of financial products and services which include retail and commercial banking, finance, factoring, investment banking, brokerage, fund management, private banking, life and general insurance. The Bank of Cyprus Group operates through a total of 98 branches in Cyprus, of which 14 operate as cash offices. Bank of Cyprus also has representative offices in Russia, Ukraine and China. The Bank of Cyprus Group employs 3,577 staff worldwide. At 30 September 2020, the Group's Total Assets amounted to €21.5 bn and Total Equity was €2.1 bn. The Bank of Cyprus Group comprises Bank of Cyprus Holdings Public Limited Company, its subsidiary Bank of Cyprus Public Company Limited and its subsidiaries.

 

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