Popular’s Bad Bank Will Not Have To Publish Historical Accounts

24 October 2016 – Expansión

The bank will adopt the exemption granted by the regulations governing stock market IPOs and as such will not have to publish its accounts for the last three years (given that such accounts do not exist). Nevertheless, the new company must show that it has a viable long term future.

The regulations governing stock market IPOs require companies wishing to list for the first time to present audited accounts for the last three years in their admissions prospectus. However, the real estate arm of Popular is unable to fulfil this requirement because it does not exist yet. Moreover, the aim is that when it is constituted, which should happen during the first few months of 2017 at the latest, its assets will be removed from the bank’s balance sheet (…).

Despite the lack of accounts for the previous three years, it will be possible for the entity to debut on the stock market because the regulations themselves state that IPOs may be authorised without fulfilling that requirement.

Precedents

In the history of Spain’s stock markets, numerous companies have made use of this exemption, including the debut on the stock market of Bankia and Banca Cívica in the summer of 2011, and the more recently and plentiful Socimi debuts, which have chosen to list on the stock market without providing accounts because they did not exist at the time. (…).

Independence

From the perspective of the banking supervisor, it will be essential for the real estate company to make clear that it is not related to the bank in any way, for it to be able to authorise the deconsolidation from Popular Group’s balance sheet. To this end, the company’s liabilities must unequivocally reflect the independence of the two companies.

The liabilities shall comprise three major captions: capital, subordinated debt and other debt that the real estate company needs to balance the company’s assets.

The capital, whose amount is still to be determined, shall be paid in its entirety by Popular, which will distribute it immediately to its shareholders.

The subordinated debt will be acquired by Popular. Its amount may not be too high in order to ensure that it may not be concluded, under any circumstances, that the new company depends or may depend on Banco Popular. Finally, the bulk of the liabilities will comprise debt, which will be sold to institutional investors. The volume and price of that debt has not been determined yet.

On the asset side, properties with a book value of €6,000 million will be transferred, but they will be pass onto to the real estate company for a value of around €4,000 million.

The difference represents the provisions that Popular has already recognised or will recognise to reduce the value of the transfer to the figure that ends up being agreed upon. (…).

Once all of these figures have been reconciled, the company will still need to demonstrate that it is solvent by itself and that, therefore, the revenues forecast in the business plan will be sufficient for the real estate company to reduce its debt and generate positive results, which will allow it, in turn, to remunerate its shareholders through the payment of dividends. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

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