Piraeus on wobbly ground

Piraeus on wobbly ground

The Hellenic Financial Stability Fund (HFSF) has rejected the proposal by Piraeus Bank stakeholder John Paulson for a share capital increase in the lender for the second time in three weeks. The HFSF decided that the proposal would damage its own interests as well as those of the state and taxpayers.

In a bourse filing late on Monday, Piraeus clarified that although it is assessing various options to speed up the streamlining of its financial results, it is not planning to proceed with a share capital increase in the near future. This followed the sinking of its stock price by almost a quarter.

The Paulson proposal provided for an 800-million-euro share capital increase in Piraeus; however, he would only commit to investing €200 million, expecting the rest to be paid by other investors.

The fact that Paulson submitted a second proposal for an identical share capital increase within a few days and the eagerness he has shown for that to be completed as quickly as possible are related to the fact that Piraeus must pay the HFSF a coupon of €165 million for contingent convertibles (CoCos) on December 2. Piraeus has already forfeited the payment of one coupon, and if it misses another it will trigger the CoCo clause for their automatic conversion into shares priced at 6 euros each.

Were Paulson’s proposal to be accepted, the HFSF would see its 26.5% stake in Piraeus shrink to about 10%. If the CoCos that are worth €2.04 billion are converted into shares, the HFSF stake would soar to 61.3%.

In light of all that, the management of the HFSF has once again rejected the proposal and is insisting on the strict application of what the law provides for CoCos, with a payment of the coupon by December 2 in cash or shares if approved by the Single Supervisory Mechanism (SSM), or the conversion of CoCos into shares. In a statement, the HFSF said it is aware of the plan for the bank’s transformation to improve its results and has full confidence in the bank’s management.

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