Bank of Cyprus has entered into an agreement for the sale of non-performing loans with PIMCO under Helix 2.
According to an announcement on the Cyprus Stock Exchange, an additional MED portfolio was sold with a gross book value of € 545 million.
The announcement as it is
Following the agreement for the sale of Non-performing Loans (“NPLs”) announced on 3 August 2020 (“Helix 2 Portfolio A”), the Bank of Cyprus Holdings Public Limited Company (“BOC Holdings” and, together with its subsidiaries , the “Group”), has reached an agreement with investment 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 million. 1,2 (“Helix 2 Portfolio B”, or the “Transaction”).
Portfolio B has a contractual balance of € 783 million.3 and consists of approximately 16,000 loans, mainly of private and small and medium-sized enterprises, which are secured by approximately 4,000 properties. The net book value of the assets sold is € 244 million. 1 The gross sale price is 44% 1 of the gross book value or 31% of the contractual balance and is payable in cash, with 50% being payable. at the completion of the Transaction and the remaining 50% to be deferred until December 2025 without any conditions. The price can be further increased through a variable price mechanism (earnout), which depends on the performance of Portfolio B. The transaction is another milestone in achieving one of the strategic goals of the Group to improve the quality of the loan portfolio by reducing of MES.
The transaction reduces the NES by 22% 1.4. Overall, the decrease in NPLs for the year 2020 amounted to € 2.1 billion4, reducing the NPLs to € 1.8 billion4 and the percentage of NPLs to loans to 16% 4, taking into account Helix 2 (Portfolios A and B) and organic reduction of NPLs amounting to approximately € 600 million. Upon completion, the Transaction is not expected to have a significant impact on the Group's capital position. With the payment of the deferred price and without taking into account any positive effect from the variable price (earnout), the Transaction is expected to have a positive effect of 14 bp on the Group 1 Common Share Capital Index of the Group. The credit loss of loans for Portfolio B, which is expected to be recognized in the results of the fourth quarter of 2020, is estimated at approximately € 27 million.
The completion of Helix 2 Portfolio B will be implemented together with the completion of Helix 2 Portfolio A and is expected early in the second half of 2021. Completion is subject to a number of sects, including standard supervisors and other approvals. After a transitional period during which the management of the loans will remain with the Bank, the intention is for the management of both Portfolios to be transferred to an independent loan management body (servicer), which will be selected and appointed by the buyer. PIMCO is one of the top fixed income investment managers in the world. Founded in 1971 in Newport Beach, California, PIMCO introduced to investors a total return approach to fixed income investments. In the 45+ years since then, the company has continued to offer innovation and know-how in its cooperation with clients seeking the best investment solutions.
Today PIMCO has offices around the world and 2,900+ professionals united by one goal: To create opportunities for investors under any circumstances. PIMCO is owned by Allianz SE, a leading global diversified financial services provider.
Panikos Nikolaou, CEO of the Group, commented: “We are pleased today to announce the signing of the agreement for the sale of Helix 2 Portfolio B, another milestone in achieving our strategic goal of reducing the risk to the balance sheet. Despite the continuing difficult market conditions, the Bank has signed agreements for the sale of NPLs amounting to € 1.4 billion1 during the last six months (Helix 2 Portfolios A and B).
As a result of our actions to reduce the risk in the balance sheet, we have achieved a reduction of NPLs by € 2.1 billion4 in 2020, from € 3.9 billion to € 1.8 billion4, and a reduction of the NPL percentage of loans from 30% to 16% 4. In total, we reduced the NPLs by € 13.2 billion4 or 88% 4, from the high level of 2014, and the percentage of NPLs to loans by 47 percentage points4, from 63% to 16% 4. As part of our broader shareholder value creation strategy, in line with our medium-term strategic objectives announced in the financial results for the nine months ended September 30, 2020, we remain focused on further reducing risk on the balance sheet and will continue to seek solutions, organic and non-organic, with the aim of the end of 2022 the percentage of NPLs to loans to be in single digits.
We will continue to assess the prospect of accelerating the decline in NPLs, through further sales of NPLs in the future. “We are now in a better position to manage the challenges posed by the ongoing crisis from the spread of COVID-19 and to support the recovery of the Cypriot economy.” Morgan Stanley & Co. International plc, and KPMG LLP acted as financial advisers, Allen & Overy LLP as the Bank's principal legal advisors under English law, and Chrysafinis and Polyviou DEPE as the Bank's principal legal advisors to the Cypriot D Transaction.