Bank of Cyprus sells NPLs amounting to €2.8 billion

The Bank of Cyprus announced on Tuesday it agreed to sold a portfolio of non-performing loans of gross book value of €2.8 billion to Apollo Global Management LLC, a transaction that will reduce its stock of NPLs to 5.2 bilion from €7.9 in the end of June 2018.
 
The bank said it sold the loan portfolio, in the tender called project Helix, at 48% of book value for a consideration of €1.4 billion while having a positive impact on its capital.
 
“Bank of Cyprus Holdings Public Limited Company has reached an agreement for the sale of a portfolio of loans with a gross book value of €2.8bn (of which €2.7 bn relate to non-performing loans) secured by real estate collateral,” the bank said in a press release.
 
The Portfolio has a contractual balance of €5.7 bn, the bank said, adding the net book value of the assets being sold as at 30 June 2018 amounted to €1.5 bn before the impact of the Transaction on the second quarter 2018 income statement. 
 
“At completion, the Bank will receive gross cash consideration of c.€1.4bn,” the press release noted.
 
The portfolio comprises 14,024 loans to corporate and SME borrowers, secured over 9,065 properties, the bank added.
 
The bank described the transaction as a “significant milestone in the delivery of the Bank’s strategy of improving asset quality through the reduction of NPEs,” adding “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.”
 
It also noted 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, while the accounting loss attributable to the Transaction reported in 2Q2018 is estimated at €135 mn, declining to c.€105 mn by the year end, as time value of money of c.€30 mn unwinds.
 
John Patrick Hourican said in statement that the transaction “is the first meaningful Corporate and SME NPL trade in Cyprus.”
 
“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,” he said, adding “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.”
 
Furthermore, the portfolio will be transferred to a licensed Cypriot Credit Acquiring Company owned by the bank with its shares being acquired by certain funds affiliated with Apollo.

The bank said it intends to participate in the senior debt in relation to such financing in an amount of €450 mn, subject to regulatory approval.
 
Moreover, following a transitional period where servicing will be retained by the Bank, it is intended that the servicing of the Portfolio will be carried out by a long-term servicer.
 
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, the bank said.