13 May 2016 – Expansión
Sareb’s shareholders are fully aware that they will never receive any dividends. Neither the private institutions, mostly banks and insurance companies, which own 55% of the so-called bad bank; nor the State, which controls the remaining 45% stake through the FROB (‘Fondo de Reestructuración Ordenada Bancaria’ or Fund for the Orderly Restructuring of the Banking Sector) expect to receive any returns on their capital, in accordance with the company’s original business plan.
But the institution led by Jaime Echegoyen (pictured above) plans to repay them by other means. Sareb is hoping to pay its shareholders a coupon of €1,000 million, over its remaining twelve years of life, in return for the subordinated debt that they subscribed to, to get it on its feet, according to sources close to the bad bank.
In order to provide the company with sufficient own funds, the shareholders subscribed to convertible subordinated bonds amounting to €3,600 million, which were added to the €1,200 million of pure capital that had been contributed by its investors, to take its own funds to €4,800 million.
The new accounting framework established by the Bank of Spain, which came into force last year, forced Sareb to individually appraise all of its assets and adjust them to reflect market value and, in this way, to undertake a thorough clean up (of its balance sheet), which resulted in significant losses and additional capital requirements.
To cover those without resorting to a capital increase, the company capitalised debt amounting to €2,170 million. In this way, only the remaining subordinated debt holders (who hold €1,429 million) will end up receiving the coupon.
Before the shareholders receive the interest amounting to 8% p.a., Sareb will have to generate sufficient consolidated profit before tax and cash and, also, have paid the interest rates on the senior bonds that it issued to the former rescued savings banks in return for the foreclosed assets and property developer loans that they transferred to it.
Two annual payments
After the shock of the accounting circular, the so-called bad bank is confident that it will be able to leave behind its losses and break even in 2017, before generating profits in 2018, the date when the bondholders will begin to receive the annual coupon for the first time.
Nevertheless, their remuneration would not necessarily be reduced in the event that Sareb has to wait until 2019 generating any profits, given that the amount of interest accrued in 2018 would be rolled into the receipt for the following year. Thus, on the payment date, they could receive the annual payment for the current year as well as for the previous year. They may not receive more than two payments.
Santander and CaixaBank
The conversion of debt into capital, approved by Sareb’s General Shareholders’ Meeting at the beginning of May, did not affect the subordinated debt stakes held by each one of the bondholders, most of whom are also shareholders. As such, and until the operation goes ahead, Santander is the largest private bondholder, with a 16.6% stake, amounting to €237 million.
The next largest bondholder is CaixaBank, which holds 12.2% of the debt, worth €174 million, followed by Sabadell, with a 6.6% stake (€94 million) and Popular, with a 5.7% stake (€81 million). Meanwhile, the State holds debt amounting to €656 million, through the 45.9% stake that it owns through the Frob.
Original story: Expansión (by A.Crespo and S.Arancibia)
Translation: Carmel Drake