RBI issues €650mn of AT1 hybrid securities

By bne IntelliNews June 29, 2017

Raiffeisen Bank International (RBI), the second largest bank operating across Central and Eastern Europe by assets, has issued €650mn of perpetual additional Tier 1 capital (AT1).

ATI instruments are hybrid securities, also known as contingent convertible bonds (CoCos), which facilitate the bail-in of creditors during financial distress. They speedily convert into equity and can be easily written down when a bank’s capital falls below a supervisor-determined level. Coupon payments can also be skipped.

“The issue constitutes a significant step towards optimising the capital structure of the bank,” said Martin Grull, chief financial officer of the Austrian lender. “The positive feedback from investors during the deal-related roadshow over the last few days confirms the market’s confidence in RBI’s story. The transaction was three times subscribed within the space of a few hours.”

The perpetual security has a coupon of 6.125% per year until December 2022 and will then be reset. Grull said there was a high level of interest from investors primarily in the UK, continental Europe and Asia.

The AT1 issue will give RBI's capital a small boost and make regulators happy at a time when the bank appears to be focusing once again on growth, rather than seeking to strengthen its capital buffers.  RBI’s net profit almost doubled year-on-year to €220mn in the first quarter as its Russian business started to bounce back. 

“We produced a decent level of consolidated profit in 2016,” CEO Johann Strobl told shareholders at the annual general meeting earlier this month. “What is however also key for the future of our bank is that we completed our transformation programme earlier than planned and significantly exceeded our capital targets. This puts us in the position to now switch the focus, from strengthening capital ratios in recent years to increasing our profitability. We want to generate good results for our shareholders. And we want to do this on a sustained basis.”

Strobl also hinted that RBI could resume dividend payments as early as next year, by making a payout on its 2017 profit. It last paid dividends on its 2013 profits. Strobl told shareholders: "The strengthening of our capital base was both important and necessary. We are now employing all our resources to sustainably increase the profitability of our bank. It is our goal to again put forward a dividend proposal to you at the next shareholders' meeting."

That RBI is starting to talk about growth and dividends demonstrates the progress it has made since it launched a restructuring programme in early 2015 after making its first ever full-year loss in 2014 and coming under strong pressure from regulators and investors to boost its capital strength to the level of its peers. Over the past three years it has withheld dividends and devoted all profits to equity, made several disposals and restricted lending in risker markets such as Russia. 

Its fully loaded Tier 1 capital adequacy – a key measure of capital strength – fell 20 basis points compared to the previous quarter to 12.2% following RBI’s merger with its unlisted Austrian parent RZB, which took effect in January. Including the first-quarter results, the ratio would be 12.6%. RBI has a medium-term target to raise its CET1 ratio to 13%.

RBI is still going ahead with the flotation of its Polish unit, which should take place around July 19, but this now looks as if it is being driven by the demands of the Polish regulator, rather than by the bank's financial needs.

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