ATHENS (Reuters) - Greece’s third-largest lender Eurobank (EURBr.AT) agreed a 780 million euro ($886 million) deal to buy Grivalia Properties (GRIr.AT) to boost the bank’s capital and speed up the reduction of bad loans, sending both shares sharply higher.
The all-share deal offers Grivalia shareholders a 9 percent premium based on Friday’s closing share price and includes a 40.5 million euro dividend.
Eurobank surged 23.8 percent to 0.585 euros on the news. Grivalia stock jumped 10.6 percent to 7.93 euros.
Greek banks have been looking to bolster capital ratios to reduce non-performing loans in a sector hit hard by a debt crisis and years of recession.
Eurobank, which is offering 15.8 shares for each Grivalia share, said the deal had the support of both boards, including Greece’s HFSF bank rescue fund, which holds a 2.4 percent stake in the bank.
The two firms said the merger would be capital and earnings accretive, meaning fully-loaded Core Equity Tier-1 (CET1) would rise by 210 basis points to 13.8 percent and pre-provision income to more than 1.0 billion euros or 0.28 euros per share.
The combined group was targeting a more than 10 percent return on tangible equity in 2020, they said.
Eurobank Chief Executive Fokion Karavias said the deal would “accelerate the reduction of NPEs via a large-scale securitization.”
Toronto-based Fairfax Financial Holdings (FFH.TO), which holds 18.23 percent of Eurobank and 51.43 percent of Grivalia, will hold 32.93 percent of the merged firm.
Both firms aim to complete the merger by the end of April, subject to approvals by shareholders and regulators.
Deutsche Bank advised Eurobank on the deal while Bank of America Merrill Lynch worked with Grivalia, Greece’s second-largest real estate investment firm.
Eurobank said the deal would help it cut its ratio of bad loans or so-called non-performing exposures (NPEs) to 15 percent by the end of 2019 from 39 percent in the third quarter, and reduce it to single digits by 2021.
“The deal is an accelerator and an enabler of our aim to shrink our load of NPEs,” Eurobank Chief Financial Officer Harris Kokologiannis told reporters.
The merged entity will securitize about 7 billion euros of deeply delinquent NPEs and transfer them to a special purpose vehicle (SPV), issuing senior mezzanine and junior notes. The SPV will seek a service provider to try to recover some of the bad debts.
The remaining assets and liabilities will be transferred to a new subsidiary called New Eurobank, which will seek a strategic investor for its wholly-owned loan servicing unit Financial Planning Services.
Eurobank executives said the ECB’s Single Supervisory Mechanism is on board on its accelerated NPE reduction plan.
Reporting by George Georgiopoulos; editing by Darren Schuettler and Edmund Blair