E U R O P E
Wednesday, March 27, 2013, Vol. 14, No. 61
Wednesday, March 27, 2013, Vol. 14, No. 61
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C Y P R U S
BANK OF CYPRUS: Chairman Submits Resignation Letter
* CYPRUS: To Limit Cash Withdrawals; Depositors to Take 40% Hit
* CYPRUS: Banks to Stay Shut Until Tomorrow
* CYPRUS: Fitch Examines Crisis Impact on EMEA Corporates
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C Y P R U S
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BANK OF CYPRUS: Chairman Submits Resignation Letter
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Michele Kambas at Reuters reports that Andreas Artemis, the
chairman of Bank of Cyprus, has submitted his resignation.
According to Reuters, a source at the bank said Mr. Artemis sent a resignation letter yesterday which will be examined by the Board of Directors. The source said that the board was scheduled to convene yesterday afternoon, Reuters relates.
Bank of Cyprus is a major Cypriot financial institution. In terms of market capitalization of 350 million in March 2013, it is the country's biggest bank. As of September 2012, the bank held a 26.7% share of the Cypriot deposit market and a 22.5% share of the Cypriot loan market, making it the largest bank in Cyprus. The Bank of Cyprus Group employs 11,326 staff worldwide.
* * *
As reported by the Troubled Company Reporter-Europe on March 26, 2013, Moody's Investors Service downgraded to Caa3, from Caa2, the deposit and senior unsecured debt ratings of Bank of Cyprus Public Company Limited. These ratings have also been placed on review for downgrade. At the same time, Moody's affirmed the Bank Financial Strength Rating (BFSRs) of Bank of Cyprus at E. It lowered the standalone credit assessment for Bank of Cyprus to ca from caa3.
* CYPRUS: To Limit Cash Withdrawals; Depositors to Take 40% Hit --------------------------------------------------------------- BBC News reports that Cyprus finance ministers are planning to impose a weekly limit on cash withdrawals.
According to BBC, Newsnight economics editor Paul Mason said the country's draft capital controls include export limits on euros and a ban on cashing checks. In addition, fixed-term deposits will have to be held until maturity, BBC discloses.
Cyprus's finance minister, Michalis Sarris, earlier confirmed that depositors with more than EUR100,000 could see 40% of their funds converted into bank shares, BBC relates.
BBC relates that Mr. Sarris also said Cypriot depositors with less than 100,000 euros in their accounts "will not be hit".
"The exact percentage is not . . . yet decided but it is going to be significant," he told the BBC.
Mr. Sarris, as cited by BBC, said that the final size of the loss faced by investors will depend on how the government decides to protect pensions. According to BBC, he said that these restrictions would "probably be a bit stricter" on the country's two largest banks, Bank of Cyprus and Laiki, and would remain in place until the banking system "stabilizes".
* CYPRUS: Banks to Stay Shut Until Tomorrow ------------------------------------------- Josephine Moulds, Helena Smith, Ian Traynor, Miriam Elder and Jill Treanor at The Guardian report that banks in Cyprus will remain closed at least until Thursday and will then be subject to strict controls to prevent a bank run in the wake of the island's EUR10 billion (GBP8.5 billion) bailout.
According to the Guardian, all but the country's two biggest banks were slated to open on Tuesday, but the central bank now says all lenders will remain closed to ensure the banking system functions "smoothly". Asked whether Cyprus's banks will reopen on Thursday, Cyprus's finance minister Michalis Sarris, as cited by the Guardian, said: "Yes, I think they will."
Speaking on Radio 4's Today Programme, Mr. Sarris said capital controls will be imposed on Cyprus "for several weeks", restricting the flow of money around the system, the Guardian relates.
The freezing of the Cypriot banking system follows an international rescue deal that involves restructuring the country's two largest lenders, with heavy losses for wealthy savers, the Guardian notes. President Nicos Anastasiades acknowledged on Monday that the country had come "a breath away from economic collapse" before its last-minute bailout, the Guardian discloses.
This involved an agreement to radically restructure the country's largest lender, the Bank of Cyprus, and shut down its second largest bank, Laiki, in return for a EUR10 billion bailout from the European Union, the European Central Bank and the International Monetary Fund, the Guardian states.
* CYPRUS: Fitch Examines Crisis Impact on EMEA Corporates --------------------------------------------------------- Fitch Ratings says that the events surrounding Cyprus's current crisis have not led to any rating actions on EMEA Corporates. "We are alert, however, to the precedent this may set for further forms of capital controls within the eurozone, and will be reviewing our approach to corporate/sovereign linkage in that light. Our current approach reserves the strongest insulation for multinational corporates with well-diversified operational cash flows and treasury management, a position which should remain robust in a single country stress of this nature," Fitch says.
-- On Cyprus Cyprus itself does not host any Fitch-rated corporates with material local operations. Cyprus-registered companies relevant to Fitch's rated corporate portfolio are limited to holding companies for Ukranian and Russian groups benefiting from the European country's tax haven status. Often a dividend-receiving holding company higher up the group structure, these entities are less relevant to Fitch's analysis, unless it is the main issuer or guarantor of the group's rated debt. A list of the main companies with relevant Cyprus-registered companies is below.
-- Current Developments: Cash Deposits Based on company feedback to Fitch, virtually all issuers with Cyprus-linked entities relevant to Fitch's EMEA corporate portfolio have minimal amounts of cash located with Cypriot banks and will not be detrimentally affected by a "full contribution" or bail-in from large cash deposits. Perhaps surprisingly, some of these holding companies do not even have a Cypriot bank account, but transact money using international banks in their respective offshore financial centers. Even where the issuer does maintain a Cypriot-based account, in many cases, as normal treasury policy, the tax haven holding company does not route cash through Cyprus's borders.
-- Scenario: Foreign Currency Capital Controls For international companies, not routing cash through Cyprus alleviates pressure on ratings should a further adverse scenario evolve of Cyprus introducing a new currency with accompanying draconian foreign currency capital controls. Whilst this is not Fitch's base case, under this scenario companies with substantial cash deposits in Cyprus would clearly be further affected, beyond the currently projected deposit losses, depending on the scope and effectiveness of the currency capital controls. Practically, at the outset, companies' euro deposits would also most likely suffer significant losses from the redenomination into a new and devalued domestic currency.
In addition to lower cash resources locally and withdrawal restrictions, if maintained for a period of time, currency capital controls might require Cypriot companies to seek central bank permission to make euro-denominated payments sourced from Cyprus's domain. For those cases with the majority of their cash resources located in Cyprus (again, none of which would be among Fitch's current rated portfolio), this would seriously disrupt payment schedules on a company's overseas debt.
Worse still, if the currency capital controls replicated Russia's in 1998 when domestic companies were told to repatriate their foreign currency deposits, this would be adverse for local companies' foreign creditors.
"We do not currently see similar pressure affecting the Cypriot holding companies which already transact money through offshore accounts and jurisdictions, and, for Fitch-rated entities, whose cash-generating operations are not on Cypriot soil," Fitch says.
Under Fitch's criteria, a Cypriot-domiciled holding company which transmits cash offshore from its Russian or Ukrainian cash- generating assets, are factors that would typically enable it to be rated above a distressed Country Ceiling.
-- Scenario: An Opportunistic Stance Again, whilst not Fitch's base case, for a Cypriot-registered company subject to new national laws including a new currency, opportunistic management could theoretically question if bond documentation required the company to repay its euro-denominated debt and whether international law (if applicable) would support foreign bondholders in enforcing such repayment. Documentary obstacles aside, Fitch does not believe that any of its rated corporates would regard such an opportunity as representing any form of realistic incentive for sustainable, non-Cypriot going concern entities to evade debt obligations in the current climate.
-- The Next Chapter "Our corporate eurozone analytical tool kit has included a number of eurozone shock cases, peripheral liquidity analyses, rating reactions to Fitch's six eurozone alternative sovereign scenarios, how far corporate ratings are detached from their downgraded eurozone sovereigns, redenomination risk, a single country exit scenario, and now cash deposit bail-ins in tax havens," Fitch states.
The greatest threat to emerge from the Cyprus crisis for rated EMEA corporates is the precedent of deposit withdrawal controls, which have thus far exceeded the disruption previously seen in Greece. Fitch will be monitoring the context in which these controls are ultimately positioned by eurozone policymakers over the coming weeks to see whether any tightening of our current guidance on corporate and sovereign delinkage may be required.
-- Fitch-rated Corporates with Linkages to Cyprus-registered Entities Fitch stresses that no rating impact is currently expected from Cypriot domiciled entities for the following Fitch-rated companies. None of the companies has material Cyprus-based operational activity, none has reported to Fitch upon enquiry that it has material cash balances in the country.
--Main Related Affected Corporates Eurasia Drilling Company Limited (EDC, Long-term foreign currency IDR 'BB'/Stable) The rated parent, EDC, has intermediate holding companies domiciled in Cyprus yet no significant operations in that country. The company has informed Fitch that these entities typically have no significant cash balances in Cyprus. Currently, EDC has about USD70m at its accounts with a branch of Barclays Bank Plc in Cyprus which are not accessible. The group's oil drilling operations are mainly based in Russia and are unaffected by events in Cyprus. Fitch does not expect to change the ratings of EDC even if this amount proves to be not accessible to the group for a longer period of time.
DTEK Holdings B.V. (DTEK, Long-term foreign currency IDR 'B'/Stable) A Ukranian integrated power company, DTEK has an intermediary holding company and a trading company domiciled in Cyprus. Most operations for these entities are transacted through international banks outside of Cyprus. Therefore, DTEK maintains insignificant cash balances and has had minimal transactions through Cyprus or accounts with Cypriot banks abroad.
Interpipe Limited (Long-term foreign currency IDR 'B-'/Stable) Interpipe Limited (Cyprus) is the rated issuer with debt outstanding and is registered in Cyprus with steel operations in Ukraine. The company has confirmed that it has no Cypriot bank accounts and funds are routed offshore.
- Agroton Public Limited
(Long-term foreign currency IDR 'B-'/Stable) Agroton is domiciled in Cyprus and issuer of the group's USD bond (with sureties from Ukraine operating subsidiaries). The company has informed Fitch that this entity has bank accounts in Cyprus with some cash. It uses international banks. The group's agricultural operations are based in the Ukraine.
- Avangardco Investments Public Limited
(Long-term foreign currency IDR 'B'/Stable) The group's holding company, Avangardco IPL, is domiciled in Cyprus and its debt is guaranteed by group entities. The company has informed Fitch that Avangardco IPL has no bank accounts in Cyprus. It uses international banks. The group's egg operations are based in the Ukraine.
- Ukrlandfarming PLC
(Long-term foreign currency IDR 'B'/Stable) Related to Avandgardco, Ukrlandfarming is domiciled in Cyprus and is the issuer of a USD bond. The company has informed Fitch that this entity has not used bank accounts in Cyprus. It uses international banks. The group's agricultural operations are based in the Ukraine.
- Mriya Agro Holding Public Limited
(Long-term foreign currency IDR 'B'/Stable) Although Mriya is domiciled in Cyprus, the company has informed Fitch that this entity has no deposit bank accounts in Cyprus. It uses international banks. The Cypriot holding company issues most of the group's debt, guaranteed by group entities. The group's agricultural operations are based in the Ukraine.
According to Reuters, a source at the bank said Mr. Artemis sent a resignation letter yesterday which will be examined by the Board of Directors. The source said that the board was scheduled to convene yesterday afternoon, Reuters relates.
Bank of Cyprus is a major Cypriot financial institution. In terms of market capitalization of 350 million in March 2013, it is the country's biggest bank. As of September 2012, the bank held a 26.7% share of the Cypriot deposit market and a 22.5% share of the Cypriot loan market, making it the largest bank in Cyprus. The Bank of Cyprus Group employs 11,326 staff worldwide.
* * *
As reported by the Troubled Company Reporter-Europe on March 26, 2013, Moody's Investors Service downgraded to Caa3, from Caa2, the deposit and senior unsecured debt ratings of Bank of Cyprus Public Company Limited. These ratings have also been placed on review for downgrade. At the same time, Moody's affirmed the Bank Financial Strength Rating (BFSRs) of Bank of Cyprus at E. It lowered the standalone credit assessment for Bank of Cyprus to ca from caa3.
* CYPRUS: To Limit Cash Withdrawals; Depositors to Take 40% Hit --------------------------------------------------------------- BBC News reports that Cyprus finance ministers are planning to impose a weekly limit on cash withdrawals.
According to BBC, Newsnight economics editor Paul Mason said the country's draft capital controls include export limits on euros and a ban on cashing checks. In addition, fixed-term deposits will have to be held until maturity, BBC discloses.
Cyprus's finance minister, Michalis Sarris, earlier confirmed that depositors with more than EUR100,000 could see 40% of their funds converted into bank shares, BBC relates.
BBC relates that Mr. Sarris also said Cypriot depositors with less than 100,000 euros in their accounts "will not be hit".
"The exact percentage is not . . . yet decided but it is going to be significant," he told the BBC.
Mr. Sarris, as cited by BBC, said that the final size of the loss faced by investors will depend on how the government decides to protect pensions. According to BBC, he said that these restrictions would "probably be a bit stricter" on the country's two largest banks, Bank of Cyprus and Laiki, and would remain in place until the banking system "stabilizes".
* CYPRUS: Banks to Stay Shut Until Tomorrow ------------------------------------------- Josephine Moulds, Helena Smith, Ian Traynor, Miriam Elder and Jill Treanor at The Guardian report that banks in Cyprus will remain closed at least until Thursday and will then be subject to strict controls to prevent a bank run in the wake of the island's EUR10 billion (GBP8.5 billion) bailout.
According to the Guardian, all but the country's two biggest banks were slated to open on Tuesday, but the central bank now says all lenders will remain closed to ensure the banking system functions "smoothly". Asked whether Cyprus's banks will reopen on Thursday, Cyprus's finance minister Michalis Sarris, as cited by the Guardian, said: "Yes, I think they will."
Speaking on Radio 4's Today Programme, Mr. Sarris said capital controls will be imposed on Cyprus "for several weeks", restricting the flow of money around the system, the Guardian relates.
The freezing of the Cypriot banking system follows an international rescue deal that involves restructuring the country's two largest lenders, with heavy losses for wealthy savers, the Guardian notes. President Nicos Anastasiades acknowledged on Monday that the country had come "a breath away from economic collapse" before its last-minute bailout, the Guardian discloses.
This involved an agreement to radically restructure the country's largest lender, the Bank of Cyprus, and shut down its second largest bank, Laiki, in return for a EUR10 billion bailout from the European Union, the European Central Bank and the International Monetary Fund, the Guardian states.
* CYPRUS: Fitch Examines Crisis Impact on EMEA Corporates --------------------------------------------------------- Fitch Ratings says that the events surrounding Cyprus's current crisis have not led to any rating actions on EMEA Corporates. "We are alert, however, to the precedent this may set for further forms of capital controls within the eurozone, and will be reviewing our approach to corporate/sovereign linkage in that light. Our current approach reserves the strongest insulation for multinational corporates with well-diversified operational cash flows and treasury management, a position which should remain robust in a single country stress of this nature," Fitch says.
-- On Cyprus Cyprus itself does not host any Fitch-rated corporates with material local operations. Cyprus-registered companies relevant to Fitch's rated corporate portfolio are limited to holding companies for Ukranian and Russian groups benefiting from the European country's tax haven status. Often a dividend-receiving holding company higher up the group structure, these entities are less relevant to Fitch's analysis, unless it is the main issuer or guarantor of the group's rated debt. A list of the main companies with relevant Cyprus-registered companies is below.
-- Current Developments: Cash Deposits Based on company feedback to Fitch, virtually all issuers with Cyprus-linked entities relevant to Fitch's EMEA corporate portfolio have minimal amounts of cash located with Cypriot banks and will not be detrimentally affected by a "full contribution" or bail-in from large cash deposits. Perhaps surprisingly, some of these holding companies do not even have a Cypriot bank account, but transact money using international banks in their respective offshore financial centers. Even where the issuer does maintain a Cypriot-based account, in many cases, as normal treasury policy, the tax haven holding company does not route cash through Cyprus's borders.
-- Scenario: Foreign Currency Capital Controls For international companies, not routing cash through Cyprus alleviates pressure on ratings should a further adverse scenario evolve of Cyprus introducing a new currency with accompanying draconian foreign currency capital controls. Whilst this is not Fitch's base case, under this scenario companies with substantial cash deposits in Cyprus would clearly be further affected, beyond the currently projected deposit losses, depending on the scope and effectiveness of the currency capital controls. Practically, at the outset, companies' euro deposits would also most likely suffer significant losses from the redenomination into a new and devalued domestic currency.
In addition to lower cash resources locally and withdrawal restrictions, if maintained for a period of time, currency capital controls might require Cypriot companies to seek central bank permission to make euro-denominated payments sourced from Cyprus's domain. For those cases with the majority of their cash resources located in Cyprus (again, none of which would be among Fitch's current rated portfolio), this would seriously disrupt payment schedules on a company's overseas debt.
Worse still, if the currency capital controls replicated Russia's in 1998 when domestic companies were told to repatriate their foreign currency deposits, this would be adverse for local companies' foreign creditors.
"We do not currently see similar pressure affecting the Cypriot holding companies which already transact money through offshore accounts and jurisdictions, and, for Fitch-rated entities, whose cash-generating operations are not on Cypriot soil," Fitch says.
Under Fitch's criteria, a Cypriot-domiciled holding company which transmits cash offshore from its Russian or Ukrainian cash- generating assets, are factors that would typically enable it to be rated above a distressed Country Ceiling.
-- Scenario: An Opportunistic Stance Again, whilst not Fitch's base case, for a Cypriot-registered company subject to new national laws including a new currency, opportunistic management could theoretically question if bond documentation required the company to repay its euro-denominated debt and whether international law (if applicable) would support foreign bondholders in enforcing such repayment. Documentary obstacles aside, Fitch does not believe that any of its rated corporates would regard such an opportunity as representing any form of realistic incentive for sustainable, non-Cypriot going concern entities to evade debt obligations in the current climate.
-- The Next Chapter "Our corporate eurozone analytical tool kit has included a number of eurozone shock cases, peripheral liquidity analyses, rating reactions to Fitch's six eurozone alternative sovereign scenarios, how far corporate ratings are detached from their downgraded eurozone sovereigns, redenomination risk, a single country exit scenario, and now cash deposit bail-ins in tax havens," Fitch states.
The greatest threat to emerge from the Cyprus crisis for rated EMEA corporates is the precedent of deposit withdrawal controls, which have thus far exceeded the disruption previously seen in Greece. Fitch will be monitoring the context in which these controls are ultimately positioned by eurozone policymakers over the coming weeks to see whether any tightening of our current guidance on corporate and sovereign delinkage may be required.
-- Fitch-rated Corporates with Linkages to Cyprus-registered Entities Fitch stresses that no rating impact is currently expected from Cypriot domiciled entities for the following Fitch-rated companies. None of the companies has material Cyprus-based operational activity, none has reported to Fitch upon enquiry that it has material cash balances in the country.
--Main Related Affected Corporates Eurasia Drilling Company Limited (EDC, Long-term foreign currency IDR 'BB'/Stable) The rated parent, EDC, has intermediate holding companies domiciled in Cyprus yet no significant operations in that country. The company has informed Fitch that these entities typically have no significant cash balances in Cyprus. Currently, EDC has about USD70m at its accounts with a branch of Barclays Bank Plc in Cyprus which are not accessible. The group's oil drilling operations are mainly based in Russia and are unaffected by events in Cyprus. Fitch does not expect to change the ratings of EDC even if this amount proves to be not accessible to the group for a longer period of time.
DTEK Holdings B.V. (DTEK, Long-term foreign currency IDR 'B'/Stable) A Ukranian integrated power company, DTEK has an intermediary holding company and a trading company domiciled in Cyprus. Most operations for these entities are transacted through international banks outside of Cyprus. Therefore, DTEK maintains insignificant cash balances and has had minimal transactions through Cyprus or accounts with Cypriot banks abroad.
Interpipe Limited (Long-term foreign currency IDR 'B-'/Stable) Interpipe Limited (Cyprus) is the rated issuer with debt outstanding and is registered in Cyprus with steel operations in Ukraine. The company has confirmed that it has no Cypriot bank accounts and funds are routed offshore.
- Agroton Public Limited
(Long-term foreign currency IDR 'B-'/Stable) Agroton is domiciled in Cyprus and issuer of the group's USD bond (with sureties from Ukraine operating subsidiaries). The company has informed Fitch that this entity has bank accounts in Cyprus with some cash. It uses international banks. The group's agricultural operations are based in the Ukraine.
- Avangardco Investments Public Limited
(Long-term foreign currency IDR 'B'/Stable) The group's holding company, Avangardco IPL, is domiciled in Cyprus and its debt is guaranteed by group entities. The company has informed Fitch that Avangardco IPL has no bank accounts in Cyprus. It uses international banks. The group's egg operations are based in the Ukraine.
- Ukrlandfarming PLC
(Long-term foreign currency IDR 'B'/Stable) Related to Avandgardco, Ukrlandfarming is domiciled in Cyprus and is the issuer of a USD bond. The company has informed Fitch that this entity has not used bank accounts in Cyprus. It uses international banks. The group's agricultural operations are based in the Ukraine.
- Mriya Agro Holding Public Limited
(Long-term foreign currency IDR 'B'/Stable) Although Mriya is domiciled in Cyprus, the company has informed Fitch that this entity has no deposit bank accounts in Cyprus. It uses international banks. The Cypriot holding company issues most of the group's debt, guaranteed by group entities. The group's agricultural operations are based in the Ukraine.
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