ON TUESDAY, the Bank of Cyprus announced it had reached an agreement to sell more than 14,000 loans of €2.8 billion (of which €2.7 billion relate to NPLs) and secured by real estate collateral to Apollo Global Management for a gross cash consideration of some €1.4 billion.
The bank said the portfolio has a contractual balance of €5.7 billion. The net book value of the assets being sold as at 30 June 2018 amounted to €1.5 billion before the impact of the transaction on the 2Q 2018 income statement.
Commenting on the agreement John Hourican, the Bank of Cyprus Group SEO, said: “This is a transformative sale for the Bank and 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.
“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.”
As Apollo is buying the loans, defaulting borrowers will owe money/loans to Apollo. Apollo will restructure the loans, enter into debt for asset agreements, foreclose, etc. in order to recover the contractual loan balance of €5.7 billion. The Bank is required by law to send borrowers a letter before their loan is transferred to Apollo.
Following the bank’s announcement Standard & Poor’s rating agency upgraded Bank of Cyprus’ long-term credit rating to B+ from B. In its statement the rating agency said “The upgrade reflects our belief that the agreed sale of NPEs and the pricing of an additional Tier 1 (AT1) instrument represent meaningful steps for BoC in reducing the inherent tail risks associated with holding a large stock of unproductive exposures. The sale and expected new issuance also contribute to strengthening the bank’s financial profile, namely its asset quality and capitalization.”
In a separate announcement the Bank of Cyprus said that appointment of John Hourican as Group’s CEO was being extended to 31st December 2020 and that Chairman, Josef Ackermann, intended to step down at the 2019 AGM.