ATHENS (Reuters) - Greek banks will issue common shares to meet at least 6 percent of a 9 percent capital adequacy requirement the central bank will set as part of their recapitalisation, sources close to the plan said.
The banks, whose capital base was almost wiped out by a combination of huge bond swap write downs and rising loan impairments amid a deep five-year recession, will raise the rest through convertible bonds.
Athens is trying to finalise the terms of the recapitalisation framework, with Finance Minister Yannis Stournaras set to meet the top brass of the Greek bank association later on Monday.
Authorities have set up a capital backstop, the Hellenic Financial Stability Fund (HFSF) to carry out the task. HFSF, funded from the country’s 130-billion euro EU/IMF bailout, has already injected 18 billion euros into the four biggest lenders as part of the recapitalisation.
“They will have to issue common equity to meet a 6 percent Core Tier 1 capital ratio. The private sector will have to cover at least 10 percent of this for the bank recapitalisation fund (HFSF) to have restricted voting rights on the shares,” one of the sources told Reuters on Monday.
Existing bank shareholders or new investors will have to pitch in to the recapitalisation to avoid the government taking them over. If they come up with at least 10 percent of the new common shares issued, the HFSF will buy the rest and have restricted voting rights.
Should that fail, HFSF will end up with common shares with full voting rights, which would be tantamount to nationalisation.
The remaining 3 percent of the required Core Tier 1 capital ratio can be addressed by issuing convertible bonds, such as co-called contingent convertible bonds (CoCos) that will be bought up by HFSF and count as regulatory capital.
“CoCos will mature in five years. After that they will be either paid back or convert into common equity. They will pay an annual 7 percent coupon, with a step-up feature of 0.5 percent, provided banks are profitable,” the other source said.
If banks’ Core Tier 1 ratio falls below a 5.125 percent threshold in the next 5 years, this would trigger the conversion of CoCos into common equity.
“If banks achieve a stronger-than-required capital adequacy, a Core Tier 1 ratio above 9 percent, and the central bank concurs, they will be able to repay the CoCos earlier.” the sources said.
Under the plan, current shareholders or new investors participating in the forthcoming share offerings will be offered warrants as an incentive, enabling them to buy shares from HFSF.
“The warrants will be listed. The capacity to exercise them will not be continuous, they will be exercisable every six months,” one of the sources said.
If private sector investors cover 10 percent of the share offering, they will be given warrants to buy back the remaining 90 percent of the common shares from HFSF.
Reporting by George Georgiopoulos; Editing by Helen Massy-Beresford