The planned merger between the Eurobank Group and Grivalia Properties that was announced on Monday is aimed at the full streamlining of Greece’s third-largest lender through the drastic reduction of its portfolio of nonperforming exposures from 39 percent of all loans at end-September to 15 percent at end-2019 and below 10 percent in 2021.
Eurobank chief executive Fokion Karavias stated yesterday that “having dealt with the issue of NPEs, the bank will be able to focus on its return to growth and the support of economic activity in Greece and Southeastern Europe.”
Grivalia Properties, the 20 percent Eurobank-owned affiliate formerly known as Eurobank Properties, is one of the Greek stock market’s blue chips and will be delisted upon the merger’s completion.
The share swap planned will have a ratio of 15.83 new common shares of Eurobank for each common share of Grivalia. Prem Watsa’s Fairfax Financial Holdings Limited, which currently controls 18.23 percent of Eurobank and 51.43 percent of Grivalia, will become the biggest shareholder in the merged entity, with a 32.93 percent stake. Fifty-nine percent of the new share capital will be held by Eurobank stakeholders and 41 percent by Grivalia owners, who will get a 9 percent premium on the stock’s closing price last Friday.
The reduction of Eurobank’s NPE index will be conducted via the transfer to a special purpose vehicle (SPV) of bad loans worth 7 billion euros. The group’s management made it clear that this move will not cancel the securitization of its mortgage loan portfolio worth 2 billion euros that is under way, nor the unfolding sale of loan portfolios.
The plan provides for the absorption of Grivalia by Eurobank and the transfer of all existing assets and obligations of the merged group – including deferred tax assets but not the SPV – to a new bank subsidiary, the new Eurobank. This way the Athens-listed Eurobank will be transformed into a holdings company, with the “good” bank (the new Eurobank) and the SPV under its umbrella.
The new lender will have total capital of 5.3 billion euros, of which 900 million will come from Grivalia. All this is expected to return the group to sustainable profits and a capital adequacy index of 19 percent, the highest in the local market.