Bank of Cyprus Issues AT1 Capital Bonds in Euros, Witnessing Strong Demand and Reduced Coupon Rate

According to a report from the Cyprus News Agency (CNA), the issuance of Additional Tier 1 (AT1) capital bonds has generated significant interest. This comes after the exchange of the previous AT1 bonds issued in 2018, which were worth €220 million and carried an interest rate of 12.50 percent.

The Bank of Cyprus has emerged as the first bank to issue AT1 bonds in euros following the cancellation of Credit Suisse's capital bonds during its sale to UniCredit. This event caused notable fluctuations in the bond markets.

The issuance of the new AT1 bonds occurred after existing AT1 holders were invited to purchase the bonds at a price of 103 percent of the nominal value. The response was overwhelming, with offers reaching €2.7 billion. This resulted in an oversubscription ratio (bid-to-cover ratio) of 12 times, indicating strong demand.

The high demand for the AT1 bonds led to a compression of the coupon rate. The coupon rate for the new bonds decreased to 11.875 percent, compared to the 12.50 percent rate of the 2018 issuance. This reduction in the coupon rate, which corresponds to Euribor plus 9.1 percent, signifies a decrease in the bank's perceived risk compared to the 2018 issuance, where it was Euribor plus 12.6 percent.

The Cyprus News Agency also highlighted that the early redemption date for the AT1 capital bonds has been set for December 19, 2023.

The Bank of Cyprus made the decision to issue the AT1 bonds in response to favorable market conditions, taking advantage of the recent update of targets for return on tangible equity (ROTE) at 17 percent and Common Equity Tier 1 (CET1) capital at around 19 percent.

By fLEXI tEAM