* Banks to issue shares, convertible bonds to boost capital
* New shares to be issued at 50 pct discount
* Bank support fund to take up most of new issues
By George Georgiopoulos
ATHENS, Nov 12 Greek bank shares fell sharply on
Monday after Athens set the terms of a recapitalisation plan for
the battered sector, which entails new shares and convertible
bonds to shore up its capital ratios but may hit current
Greece and its international lenders have earmarked money
from the country's 130 billion euro bailout to recapitalise
viable banks. Shareholders must take up at least 10 percent of
the new shares to be issued to keep the lenders privately run.
Failure to do so will mean nationalisation.
Authorities have set up a bank support fund, the Hellenic
Financial Stability Fund (HFSF), to recapitalise lenders whose
capital base was nearly wiped out after huge losses from a
sovereign debt swap and rising loan impairments.
The Greek banking index lost 14.4 percent in what
brokers said was a delayed reaction to the dilutive nature of
the recapitalisation scheme.
Even after Monday's drop, bank shares are still 45 percent
higher than a June 11 low.
Under the plan, banks will issue new shares to meet at least
a 6 percent Core Tier 1 capital adequacy ratio and contingent
convertible bonds, called CoCos, to boost it up to 9 percent.
CoCo issues may precede or follow the share offerings.
The CoCos will be bought up exclusively by the HFSF bank
support fund. They will pay a 7 percent annual coupon and will
have a half percentage point step-up feature, the plan said.
If the bonds are not bought back by banks after five years
they will convert into common equity.
As set by the plan, the new share offerings will be priced
at a 50 percent discount to the average price 50 days prior to
Analysts said, however, that banks would continue to face
risks tied to what Prime Minister Antonis Samaras has described
as Greece's "Great Depression".
"The proposed recapitalization of Greek banks appears to
fall well short of a comprehensive, long-term solution," said
Peter Doherty, partner at London-based bond fund manager Tideway
"The improvements in capital ratios are welcome but do not
come close to the levels required to manage through the serious
economic challenges facing the country."
Greece's economy is expected to contract for a sixth
straight year in 2013, with national output projected to shrink
by 4.5 percent.
The continuing economic slump and a recently passed
13.5-billion-euro package of wage, pension cuts and tax hikes
will weigh on households with unemployment already at 25
The HFSF fund, which will provide most of the new capital,
buying most of the new shares and all of the convertible bonds
banks will be issuing, will become their biggest shareholder.
The plan also calls for warrants to be given to investors
who will participate in the share offerings as an incentive as
long as the minimum take up of 10 percent is met. The warrants
will entitle holders to buy back shares from the HFSF fund.
The fund has already injected 18.5 billion euros into the
country's four biggest lenders and is awaiting Greece's next
31.5 billion euro bailout tranche to replenish its cash arsenal.
Reuters originally reported the basic terms of the
recapitalisation plan in October.