Fairfax-led group gets go-ahead to invest EUR 1.3 billion in Eurobank

Fairfax-led group gets go-ahead to invest EUR 1.3 billion in Eurobank

 

By Lefteris Yallouros – Athens

Greece’s banking system was handed a vote of confidence Tuesday as Eurobank was given the go-ahead for a share capital increase. A group of foreign investors will pump 1.3 billion euros in the Greek bank.

The Hellenic Financial Stability Fund (HFSF) – that owns 95 pct of Eurobank’s shares – approved the share sale to a group led by Canada’s investment fund, Fairfax, which includes Capital Research and Management, Wilbur Ross, Fidelity, Mackenzie and Brookfield.

Money raised will go towards plugging a capital shortfall of e.86 billion which emerged from stress tests conducted by the Central Bank of Greece last month.

Investors committed to subscribe to 47 percent or 1.33 billion euros of Eurobank’s equity offering at 0.30 euros a share, a 25 percent discount to Tuesday’s closing price of 0.40 euros. The HFSF, will waive rights to the share issue, which will dilute the rescue fund’s stake in Eurobank significantly.

Capital Research and Management pledged about 557 million euros for the deal, with Fairfax signing up for 400 million euros. Fairfax and Wilbur Ross made a commitment to hold on to the shares for at least six months and said they would actively participate in Eurobank’s management, Reuters reports.

“We are looking forward to the full coverage of the share capital increase with private participation at the final price which will be determined via the book building process,” HFSF chief executive Anastasia Sakellariou said Tuesday.

It isn’t the first time Fairfax has invested in the Greek economic turnaround in recent months. The Prem Watsa – controlled fund has also invested in Eurobank Properties (Eurobank’s real estate unit), Praktiker Hellas and also holds a 5 percent stake in Greek mining company Mytilineos.

With the National Bank of Greece’s capital increase also unfolding this week and Piraeus and Alpha banks both raising capital from the market recently, it appears foreign investors are showing renewed confidence in the Greek banking system and the country’s economic recovery drive.

Eurobank’s share sale will determine how much untapped capital will be left in EFSF coffers (currently at 11 billion euros). If the bank manages to raise the full 2.86 billion euros it requires privately, EFSF money could be used to plug Greece’s funding gap next year.

The government hopes to avoid a third bailout loan and a fresh memorandum overseen by the troika by striking a deal to restructure sovereign debt later this year as well as using unused EFSF, and other, funds to stimulate the economy having returned to the bond market after a four year absence.