The operation announced Thursday by the New Bank (NB) of repurchase eight bond issues is positive for the institution, but may represent losses for sellers up to 30%. The level of losses for bondholders will result from the difference between the price at which securities were purchased and the value at which they trade today.
The bank intends to invest up to EUR 500 million in the purchase of bonds eight series that currently have market values lower by about 30% over the cost issue, which is the bank led by Stock da Cunha an interesting savings.
Speaking to PUBLIC, Filipe Silva, Director of Asset Management Banco Carregosa, realize the savings that the institution will do with this operation, whose aim is to increase the capital, with debt reduction. “The haircut (default) implies around 30%, ie, if the operation goes ahead, the NB will win 30% of a debt contracted and it will not pay [in full],” said Filipe Silva.
in the memo released Thursday, the New Bank details that “minimum purchase prices reflect a premium of approximately 1.50% to 2.50% above market prices observed for the obligations” on 22 June .
the market conditions are favorable, at various levels, to the NB, namely “the power going to the ECB seek money at zero cost to repurchase these 500 million euros,” said the manager, concluding that “for NB operation seems to be quite convenient.”
for customers the decision can be difficult. Filipe Silva recalls that “it is senior debt, that is, that has better quality.” What makes, “the game, who do not sell now to NB to lose close to 30%, receiving only 70%, will be entitled to receive 100% at maturity (2019 or 2022).” But it also warns that there are risks, and in particular there is any need to recapitalize the NB or a new resolution, which, given the new rules, call the bondholders to bear the costs.
It should be noted that since 1 January this year, the capitalization of institutions is ensured sequentially by shareholders, then by subordinated creditors and finally on equal terms, by the senior creditors and customers with deposits above 100,000 euros.
“If the customer believe that will not be required to capitalize the bank should maintain the obligations. If you believe that the risk is high, then it should sell, “argues Philip Silva, adding that he doubts that” institutional willing to sell now, losing 30%. “
The devaluation of the obligations of domestic banks increased considerably after the decision of the Bank of Portugal to withdraw five issues of NB for the “bad BES”, which will mean huge losses for investors. In the memorandum of offer, which expires on June 29, the bank highlights several risks to bondholders that they will not be repurchased.
One is that the secondary market of bonds remaining in debt can become significantly “more limited” and that they may “trading at a market price below that of securities comparable to a more liquid market.”
Then, says the bank, “a value of reduced market could also increase the volatility of the market price of these bonds. As a result, the market value of the remaining bonds outstanding after completion of the offers may be adversely affected by offerings. ”
The institution also warns that the uncertainty associated with the sale entails risks to the value of the bonds, but its implementation can successfully add value.
“If the sale is not completed , bondholders may be affected in various ways. There is the possibility of the New Bank having to go into liquidation (…) which may result in a total or substantial loss of value of the bonds, “the document. With Ana Brito
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