Bank of Cyprus pulls Project Ariadne NPL sale to Sankaty Advisors

Bank of Cyprus has pulled the circa €109m sale of a Romanian real estate non-performing loan portfolio, Project Ariadne, to Sankaty Advisors because the highest offer was too far below the level at which the troubled bank had provisioned.

BoC logoSankaty Advisors, in a joint bid with the European Bank for Reconstruction and Development (EBRD), had emerged as the highest bidder of the blind bidding auction at the turn of the year, after offering 20 cents in the euro for Project Ariadne, which has a nominal value of €545m.

Underbidders were Deutsche Bank and The Baupost Group, who bid together, as well as HIG Bayside and AnaCap Financial Partners.

However, as CoStar News reported in mid-January, the Bank of Cyprus is understood to believe that the bid-ask spread – the difference between the price offers and sale price the vendor is seeking – was too wide and would have forced the bank to crystallise a loss greater than the bank could have afforded.

The Bank of Cyprus has instead decided to terminate the loan sale and continue to make provisions over the course of 2015, and consider a future sale of the loans, and underlying properties, when a disposal becomes economically less destructive.

This is the second Central and Eastern European loan portfolio which has been terminated in the last six months.

The Bank of Cyprus and Sankaty Advisors declined to comment.

Last autumn, Volksbank’s attempted sale of the €460m Project Donau NPL collapsed due to the portfolio’s multi-jurisdictional complexity and the removal of two prized assets, a shopping centre and grade A office both in Romania. 

Project Ariadne is a three-tranche NPL portfolio.  The first tranche has gross balance of €360m Romanian NPL comprised of 382 loans from 131 different borrowers, against which there are two widely different valuations, €222m and €339m.

The second tranche is a performing book with a gross balance of €116m, comprised of 163 loans from 261 different borrowers.  Again, two sets of valuation put the underlying real estate at either €63m or €102m.

Finally, Project Ariadne includes a wholly-owned 16-strong direct property portfolio, valued at €69m, post enforcement.  The portfolio includes a €27.4m shopping centre and €15.7m residential compound in Bucharest, a €9.0m hotel in Prahova as well as a mix of urban and rural land, predominantly in Bucharest.

HSBC was been mandated to sell the portfolio last summer.

Last week, Deutsche Bank and APS Holdings completed the purchase of Project Saturn, a portfolio of Romanian corporate real estate loans from Erste Group subsidiary, Banca Comercială Română (BCR), the largest bank in Romania, for €28m.

There is likely to be a pause in deal flow of CEE real estate loans as banks’ contemplate their options in light of the European Central Bank’s (ECB) quantitative easing programme. 

A number of banks in the Eurozone are considering assembling covered bonds to sell to the ECB, which would free up bank’s balance sheets and could ease their pressure – or at least pace – of future loan portfolio sales. 

In the case of banks like Bank of Cyprus, this could provide some breathing space to enable the bank to make further provisions against bad loans.

Banca Comercială Română, BAWAG and Volksbank are all expected to bring CEE commercial real estate loan portfolios to market in the coming months.

Last month, KPMG was appointed to sell Serbian bank KBM Banka a.d. Kragujevac, which is almost 90% owned by Nova KBM, to comply with European Commission restrictions imposed on the scale of Nova KBM’s activities in foreign markets.

KPMG is selling 89.53% of KBM Banka’s share capital, together with a €5m subordinated junior loan secured by the Serbian bank.  KBM Banka has a €92.7m balance sheet including €27.6m corporate loan book, approximately 280 employees and 21 branch locations across Serbia.

About CoStar News

Finance Editor, CoStar News
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