€2.8bn of Bank of Cyprus’s Bad Loans Sold To Apollo

The Bank of Cyprus Group has agreed over the deal for the sale of €2.8bn (£2.5bn) in bad loans to Apollo, a US private equity giant, That a deal that the bank – laid low by the crisis in the Eurozone – said that it will be “transformative.”

Apollo manages assets that are worth $270bn (£209bn). He will pay €1.4bn for the non-performing loan (NPL) portfolio, known as “Project Helix” of the mortgage lending to over 14,000 firms. On the other hand, the Bank of Cyprus will be getting 48 cents for every euro in gross book value.

The deal signifies yet another milestone in the recovery of the Cypriot bank. The bank was forced to bail in depositors in order to avoid collapse in 2013. Today, the shares in the London-listed bank increased by more than four percent.

Since its almost collapse, the bank has made its way back slowly, with John Hourican, a former banker of the Royal Bank of Scotland. He is leading the restructuring of the lender. The bank also announced today that Hourican will stay on until the end of 2020.

The Helix transaction is the most recent sale that was finalised by the bank as it appears to reduce its balance sheet and concentrate on its core operations of lending in Cyprus. The company sold its subsidiary in the United Kingdom. The payment for last July will amount to £203m which is now known as Cynergy.

The servicing of the Helix loans will be taken out of the hands of the Bank of Cyprus following a transitional period. It will come even though the timing has yet to be decided between both sides.

Hourican stated: “This is a transformative sale for the Bank and is the first meaningful corporate and SME [small and medium-sized enterprise] NPL trade in Cyprus.”

He continued: “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.”

The deal is contingent on acceptance by the banking supervisor of the Eurozone, the European Central Bank, will lower the non-performing exposure of the bank ratio by 10 percentage points.

The bank also revealed a €220m capital raise which is aimed to boost its tier one capital ratio. The ratio is a significant measure of balance sheet strength. The bank said that a “small number of institutional investors” supported the capital raise.

KPMG and Alantra Corporate Portfolio Advisors International, Morgan Stanley, served the as financial advisors on the deal, with legal advice coming from Chryssafinis, Polyviou, Allen, Ashurst, and Overy.