Convincing comeback for Bank of Cyprus

* Lender sells first internationally placed bond since 2007

* Follows bail-in of senior and sub bondholders in 2013

LONDON, Jan 13 (IFR) - Bank of Cyprus priced its first public issue since bailing in bondholders during 2013’s Cypriot banking crisis, in one of the strongest indicators yet that its turnround story has won over investors.

The 250m 10-year non-call five-year Tier 2 bond (rated Caa3) priced at 9.25%, increased in size from 200m and inside initial price talk of 9.5%. It drew in excess of 600m of orders from more than 80 investors and had rallied almost five points by Friday afternoon.

Bank of Cyprus (Caa2/B-) has made great strides since imposing losses on subordinated and senior bondholders four years ago. It made the final repayments on its 11.4bn emergency liquidity assistance last week in what the lender described as a “significant milestone” on its journey back to strength.

“We’ve made tremendous progress,” said Despina Kyriakidou, group treasurer at the bank.

“We’ve repaid the ELA, there have been significant inflows in cash deposits, which proves customer confidence is returning to the bank, we’ve deleveraged non-core assets and operations, and we’re focusing on the Cyprus market and on loan quality.”

The deal’s reception suggests investors are comfortable with the lender’s non-performing exposures, which remain high, accounting for 58% of gross loans as defined by the European Banking Authority.

“They have a huge stock of NPLs but they’re quite heavily provisioned, so people think the problems have been dealt with and provisioned for,” said Piers Ronan, head of FIG debt syndicate at Credit Suisse, a global coordinator and bookrunner on the trade.

While Bank of Cyprus had not sold a bond to international investors since 2007, plenty of investors are familiar with the institution, having bought the sovereign or the equity.

“They’re also very impressed by management,” added Ronan. “People like the story, even if the NPLs look alarming at first.”


Bank of Cyprus capitalised on a much-improved issuance backdrop for southern European lenders.

Intesa Sanpaolo and Santander last week seized on strong conditions to sell the region’s first broadly syndicated subordinated bank bonds since May 2016, but Bank of Cyprus is not only a smaller but also much lower-rated lender.

The 9.25% coupon might look eye-watering, but is roughly in line with the 9% coupons that smaller Spanish banks - Banco de Credito Social Cooperativo and Banco Mare Nostrum - were forced to pay for sub-benchmark Tier 2s last year.

“It’s probably one for the brave,” said one portfolio manager early during Thursday’s bookbuilding. “9.5% is quite massive, but Bank of Cyprus is only trying to raise a small amount. Also, they paid back the ELA last week and are probably in better shape than other lenders in Europe.”

Bank of Cyprus said as part of its Q3 results that it was examining various funding opportunities to optimise the level and composition of its liabilities.

It cited existing and upcoming regulatory requirements, including the European Union’s Minimum Requirement for Own Funds and Eligible Liabilities, which requires lenders to build layers of loss-absorbing debt to protect taxpayers from bank failures.

Bank of Cyprus considered starting with a senior unsecured bond issue, but received reverse enquiry for Tier 2.

“There are no specific plans to issue senior,” said Kyriakidou. “The Tier 2 is a very good first step, which will help us achieve a senior bond on better terms.”

HSBC was global coordinator and bookrunner alongside Credit Suisse. Bank of America Merrill Lynch and Deutsche Bank were bookrunners. (Reporting by Alice Gledhill, editing by Matthew Davies)