Greece sets bank recap via common shares with restrictions

Sun Feb 26, 2012 3:04pm EST
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ATHENS (Reuters) - Greece plans to recapitalize its struggling banks after a bond swap largely through common shares with restricted voting rights and convertible bonds, according to a draft law submitted to parliament over the weekend.

The banks are expected to require recapitalization because of impaired loans and losses from a bond swap that Greece launched on Friday to ease its debt burden.

About 50 billion euros ($67.31 billion) have been set aside to recapitalize through Greek banks after the bond exchange.

According to the draft law expected to be voted by parliament on Tuesday, the banks will be recapitalized through rights issues which will largely be covered by the Greek bailout fund, the Hellenic Financial Stability Fund.

"The voting rights of the new shares will be limited to strategic issues ... like mergers and asset sales," said the draft law.

Private investors were worried that banks would fall under state control if they were recapitalized via common voting shares, but the inclusion of restricted voting rights signals that the banks would remain privately-run.

Greek Finance Minister Evagelos Venizelos also confirmed last week that Athens did not plan to nationalize its banks.

The HFSF will give incentives to private investors to cover at least 10 percent of the rights issue, in which case they would be entitled to buy shares of the bailout fund at a ratio based in their participation in the capital increase.

Each bank that seeks funding from the HFSF will have to present a three-year restructuring plan to the fund and the   Continued...

The Parthenon on the Athens Acropolis is seen behind a Greek and an EU flag atop the Greek ministry of finance February 8, 2012. REUTERS/Yannis Behrakis