Hope for Eurobank’s share capital increase

By Yiannis Papadoyiannis

The local credit sector is optimistic that Eurobank’s share capital increase, expected to come to 3 billion euros, will prove successful following the overbooking for the increases of Piraeus and Alpha earlier this week.

Main stakeholder the Hellenic Financial Stability Fund (HFSF) yesterday discussed the timetable for Eurobank’s capital increase, which will only go ahead on the condition that the necessary regulatory framework become laws, as expected, in the coming days. The plan that Eurobank’s administration has proposed provides for the increase to be completed within April.

With the economy on the path to recovery and the political risk concerning investors less and less, foreigners’ determination to invest in Greek risk is growing by the day. It is no coincidence that the offers for the Alpha and Piraeus increases by far exceeded the issue of shares and that this was in prices equal to or even higher than their current value.

Analysts say that the two lenders’ capital increases constitute important transactions that will have a major bearing on the determination of the price for the Eurobank increase. That means the issue price will be close to the current accounting value, which stands at 0.54 euros.

Still, Eurobank has a special feature: A large part of its accounting value concerns the benefit from its deferred tax assets, which is considered to be low-quality capital. If the contribution of the deferred tax assets is aligned to that of the other banks, then its accounting value would drop to 0.30 euros, according to analysts. Consequently the share issue will have a price range between 0.25 and 0.35 euros, with the most likely scenario seeing it ending up at just over 0.30 euros.

In Eurobank’s case a discount would be justified both due to the size of the increase and to the relatively weaker capital base compared with those of Alpha and Piraeus. The question is what the interest of foreign investors will be at this price level.

Analysts say that if the increase takes place at a price around the accounting value, as the European Commission also desires, then the HFSF will only participate if there are any shares that are not bought by private investors. In such a case, and with the price at 0.30 euros, private sector participation would come to 65 percent, while the HFSF stake would decline from 95 percent today to just 35 percent.