The Single Supervisory Mechanism (SSM) is expected to meet today to consider Piraeus Bank's request for the repayment of a 165-million-euro coupon for the convertible bonds (CoCo's) issued during the bank’s recapitalization in 2015.
Piraeus Bank will be notified of the SSM’s initial decision in order for the lender to proceed with the necessary steps, however, the publication of the final official decision will take place next week.
All indications are that SSM will not allow for the repayment of the 165 million euros, triggering the conversion of the CoCos into shares. As sources told Business Daily, Piraeus Bank’s board of directors are scheduled to meet on the weekend where the supervisor’s decision will be discussed, along with the steps required to issue new shares that will be acquired by the Hellenic Financial Stability Fund (HFSF).
The government, the Bank of Greece and Piraeus Bank have already prepared for this decision, while a meeting was held at the end of October, with the participation of Prime Minister Kyriakos Mitsotakis, in which the basic guidelines of the bank’s future were assessed.
The market has also priced the prospect of a capital increase in favor of the HFSF and the reduction of the stakes held by existing shareholders. The bank's share has fell from 1.1 euros in September to 0.65 euros on October 29, while yesterday it closed at 0.7490 euros.
According to Piraeus Bank’s agreement with the HFSF, in case of the CoCos being converted into shares, 394.4 million new shares will be issued, which will be added to the 436.6 million shares that exist today, increasing the total number issued to approximately 831 million.
The issue price will be 6 euros per share, which is the price the share capital increase took place in 2015. After the capital hike, the HFSF’s stake in the bank will rise to 61.3 percent from 26.4% currently.
Why the SSM rejects repayment
The deterioration of conditions caused by the pandemic played a decisive role in the SSM’s decision, with economies coming under new pressure and banks facing a new wave of non-performing loans.
Its decision is based on the supervisor's decision to ban dividend payments, repurchase of own shares and any payments that lead to an outflow of funds as long as emergency support measures are in place. It is noted that many European banks are pushing the supervisory authorities to opt out, which the ECB rejects.
Thus, while the amount of Piraeus Bank's coupon is not large, at 165 million euros, the SSM does not want to set a precedent with it being paid.
However, it is not the only ban in place. The issuing of CoCos, totaling 2 billion euros, was an enormous weight for the bank and many doubt whether its repayment at the end of 2022 is realistic, as the bank is obliged to do.
Especially after the additional pressure created by the pandemic, many analysts consider it impossible to pay the three coupons (2020-2022) totaling 495 million euros, in addition to repay the 2 billion euros, which is the value of CoCo's, an amount far larger than the bank’s market value.
By converting CoCos to shares, not only will the CoCo problem be solved but the bank will save an additional $500 million by not paying the coupons.
The drastic shift in the bank’s shareholders will not result in changes in its management team, according to sources. Last week, the HFSF stated that it "has complete confidence in the bank's management", while the government does not seem to favor changes either.
The bank will continue to operate as it has been doing, while management plans include accelerating steps to consolidate its portfolio.
The government's goal is to sell its stake in the lender when conditions improve. It is noted that in 2013, during the first recapitalization, Eurobank passed into the full control of the Greek state, after the decision of the Latsis family not to participate in its share capital hike.
In regards to the price of its share, no change is expected due to the corporate change.
According to a decision from the Athens Stock Exchange, the price of a share is not adjusted in case of a convertible bond being converted, when the new theoretical price is higher than the old price.
It is noted that, based on yesterday's closing (0.7490 euros), the market value of the bank is set at 327 million euros, while if the new shares to be issued by the CoCos conversion are taken into account, then the capitalization will stand at 622 million euros. At the same time, the market capitalization of Alpha Bank comes in at 870 million euros, National Bank at 1.12 billion euros and Eurobank at 1.46 billion euros.