By Angelos Anastasiou
Three major Bank of Cyprus clients have restructured their non-performing obligations, with two more very close to clinching restructuring deals, likely to be finalised early next week, sources inside the bank have said.
The three locked-up deals involve the D. Zavos Group, Pafilia Property Developers and Tsokkos Hotels and Resorts. The Tsokkos deal was the last to have been finalised, signed on Thursday.
All five agreements – including the two to be completed before Christmas – would restructure outstanding loans close to a total €1 billion.
The names of the three clients that have successfully restructured their obligations with the BoC had made headlines last year when a confidential list of the Bank of Cyprus’ top-30 borrowers with non-performing loans was leaked to the press.
According to the list, which represented a snapshot of outstanding loans in June 2013, the Zavos group had €134 million in unserviced exposures, Tsokkos had €172 million and Pafilia had €90 million.
Since then, the bank noted, clients have made repayments to some of their obligations but because one or more of their loans may have expired their entire portfolio was classed as non-performing.
But the successful restructurings will not see a reduction in the lender’s total NPLs for at least 12 months because the rules stipulate that in order for restructured loans to be considered serviced the new arrangements must have been met consistently for at least a year, Restructuring and Recoveries boss Nick Smith told the Cyprus Mail earlier this week.
Instead, the reduction will be recorded in terms of loans in arrears over 90 days, as the new restructured loans will be classed as non-performing in the ‘less than 90 days’ category.
“Even though the official non-performing exposure levels will not change for about a year, those who today dismiss the progress made will no longer be justified in doing so,” Smith said.
The restructuring deals involve the reorganisation of borrowers’ operations, constant monitoring and triggering mechanisms, and the break-up of obligations into serviceable and ‘bridge’ facilities.
The first facility will be a long-term loan to be repaid through operational profitability over 15 or 20 years, whereas the ‘bridge’ facility, a short-term deal spanning four or five years, will require only repayment of interest and modest capital repayment targets per annum.
If the terms of either facility are not met as scheduled, instruments such as floating charges and share pledges will be activated, transferring control of assets or a stake in the business, and asset disposals may be triggered.
The bank considers the deals to be ‘win-win’ arrangements, with companies returning to viability while the bank secures its own interests.
As part of the restructuring deals, borrowers will also be required to keep a ‘rainy day’ fund for emergency needs.
In other restructuring cases, still under negotiation, the borrower has offered to put up additional collateral, which will reduce the bank’s provisions for the loan in question, further improving its balance-sheet.
The philosophy behind the mutually agreed restructuring arrangements, bank officials said, revolves around the bank’s motto that “we are in the banking business, not the winding-up business”.
It is in both parties’ interest, the bank believes, to have a healthy organisation that is able to repay its obligations through operational profitability, rather than assume a predatory stance against delinquent clients. This attitude was touched on by Smith in his interview to the Mail.
“Yes, the [tougher foreclosure] law helped a lot, but I think the attitude of the bank has also helped,” he said. “We have seen an improvement in the way we are able to interact with borrowers.”
The breakthrough in coming to agreements with large borrowers over their unserviced exposures has taken so long to make for a number of reasons, bank officials said.
“Clients needed some time to absorb the fact that urgent and drastic action was required, and take ownership of their obligations,” one official said.
“There had also been a pervasive sense among the general public that the ‘big boys’ are about to be let off the hook again, which only made things more difficult. It was also a matter of finding the right solutions, inserting the right triggers, and devising appropriate mechanisms – not so much so that the bank can control the client’s business, but more so that it can make sure it would be informed of performance and remain in the loop at any point in time.”