cyprus investment guide - the business report · 2018-06-29 · uted by rebranding the former...
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the businessreport
02 | BANKING: INTERVIEW WITH BANK OF CYPRUS CEO
04 | PROPERTY & LEGAL SERVICES
"Smart Chinese money should look at Cyprus"
New luxury properties add to investment allure
CYPRUS September 29th, 2017
INVESTMENT GUIDEA GLOBAL TIMES SUPPLEMENT
I n battling its financial crisis, Cyprus’ small size was its greatest asset. The €18 billion
economy proved to be nimble, quickly enacting IMF-prescribed reforms that jump-started an early recovery. Within 16 months, Cyprus re-entered international finance markets. The government has issued debt three times since. And positive growth returned in 2015, much earlier than expected.
As the EU’s easternmost outpost, the Mediterranean island nation is now setting the stage to become a logistics, energy, shipping and tourism node at the nook of three continents – Europe, Asia and Af-rica. Few nations can boast such a strategic location, and fewer still geopolitically transformative nat-
by Justin [email protected]
Doing business at the corner of 3 continents
Back from the brink, a fully recovered Cyprus has emerged as a significant business node at the crossroads of Europe, Asia and Africa.
ural gas reserves. “The energy sec-tor is going to be a massive oppor-tunity, one that will then merge with the shipping sector,” says Natasa Pilides, Director General of the Cyprus Investment Promotion Agency. “We’re a small island and haven't had massive infrastructure projects yet,” she adds. This fact presents myriad greenfield oppor-tunities, all within the EU, espe-cially for Chinese energy and ship-ping infrastructure companies. “China has global know-how
with infrastructure projects, and we are now looking East for the next major investment,” says Pi-lides. “Once we are ready for an [electricity] interconnector,” she says, “Chinese investment will have a huge role to play.” Indeed, the Beijing-led €755-billion Belt and Road Initiative would find an ideal geostrategic link in Cyprus.
As both nations prepare to cele-brate national holidays on Octo-ber 1st, the financial crisis that brought Cyprus to the brink is al-ready being viewed as a closed chapter in history. “Having emerged from such a severe crisis in such a short time is something to take note of,” Pilides observes. “If we can go through that and come out without much collateral damage, then we are on the right path and it’s time for Cyprus to show it,” she declares.
The Oval building in Limassol, Cyprus' emerging business hub.
Investor influx shaking up Cyprus
C yprus' once-imperilled economy has regained positive investor senti-
ment, and is now absorbing new capital, especially in banking and tourism-related projects. "It all comes down to confidence and confidence in the banking sector has been re-stored," Cyprus’ finance minis-ter, Harris Georgiades, told The Business Report. "There is also significant investment in tour-ism-related projects," he adds, "ranging from the largest inte-grated casino-resort in Europe to new seaside hotels."
One of the latest investors, a consortium led by a Lebanese business magnate, has contrib-uted by rebranding the former Piraeus Bank Cyprus into Astro Bank, while injecting €40 mil-lion in new capital. Although only launched last March, Astro Bank is already reporting posi-tive feedback. “The market is beginning to recognize us as a bank that is looking to lend,” says Marios Savvides, Astro Bank's Deputy CEO. “We have dissociated from Greek risk, are out of deleveraging mode and now after growth,” he adds.
While tackling non-perform-ing loans will remain a chief concern, Cyprus is now better equipped to address this debt. “Cyprus has completely re-
formed its banking sector,” Georgiades declares, “which is now smaller but better capital-ized and supervised.”
Foreign capital is also flowing into aviation. Last year, Cy-prus-based Cobalt Air received an equity injection from Hong Kong in one of the latest over-seas purchases in tourism-re-lated industries. Investment in tourism infrastructure contin-ues to be seen as a safe venture, being that the sector was "never put in jeopardy," Georgiades observes. "Tourism spearhead-ed the recovery of the econo-my, and now we are achieving record growth in terms of eco-nomic output," he says. "[Tour-ism] is a flagship industry that never lost its potential."
Foreign capital is taking stock in Cyprus, stimulating a return in confidence.
by David [email protected]
Cyprus has completely reformed its banking sector.
HARRISGEORGIADESMinister of Finance, Republic of Cyprus
The market is beginning to recognize us as a bank that is looking to lend.
MARIOS SAVVIDESDeputy CEO, Astro Bank
The energy sector is going to be a massive opportunity.
NATASAPILIDESDirector General, Cyprus Investment Promotion Agency
NPEs ARE FALLING
BANKING
"Bank of Cyprus has had ten consecutive quarters of growth"
What priority action did BoC take to regain investors' trust?First, we had to assess whether the recapitalization of the bank was efficient, and in my view it was not. We called our board for a robust conversation, and then we went ahead and raised €1 billion of new equity for the bank, which was the largest ever in-vestment into Cyprus since the foundation of the state in 1960. That to me was the starting point for the rebuilding of confidence. Our core strategy was then to re-establish credibility in the bank and its management, as well as pass the European Central Bank’s stress test by raising more equity. Only after we raised the equity we actually begin to try and raise deposits. Renewed confidence was then made possible due to a number of circumstances, in-cluding repaying the ELA pack-age worth €11.6 billion, delever-aging the balance sheet, and by lifting capital controls and re-strictions on our deposits earlier than expected.
In January 2017, just four years after the Greek Depression dragged it to the brink, Bank of Cyprus (BoC) closed a final debt, effectively putting to rest a bitter relic of the na-tion's financial crisis. With the issuance of BoC's last payment for the €11.6 billion Emergency Liquidity Assistance (ELA), ac-quired as the result of the ab-sorption of Laiki Bank, a sum equal to 60% of the nation's real GDP, CEO John Hourican is now looking to achieve even larger market shares as the bank shifts from a pro-equity rehabilitation strategy to one of pure growth. Joined by a board that includes the world's biggest names in banking, such as Josef Ackermann, for-mer CEO of Deutsche Bank, as chairman, Hourican explains how strengthening of law and a drive for foreign equity have led to BoC's rebirth.
How has this renewed confidence paid off today?Confidence is a function of ex-ceeding expectation, not meeting expectations. You create no con-fidence by just doing what you say you're going to do, so what we did is set very strong ambi-tions and then beat them. Today, our trust scores are dramatically better than they were when I came to this position, and Cy-prus' society is beginning to real-ize that the bank is on a sensible recovery. We've now taken 22% of GDP off our balance sheet, which is 15 times more than any other bank in Europe. Another way to put it is last year we took €3 billion off of our balance sheet, similar to the progress of the entire Greek banking system over the same period.
What is the strategy behind decreasing non-performing loans (NPL)? There are a couple of hygiene fac-tors needed to tackle NPLs. The first one is good law. If you don't have good law, you can't tackle anything. Cyprus’ British Com-monwealth law had been weak-ened through legislative action over decades, and we had to en-sure that the legislative reform agenda gave rise to the strength-ening of law. Now we have a fore-closure regime that has been im-proved from a 10- to 15-year recovery period to an 18-month recovery period. Secondly, we had to create incentives around the behaviors of borrowers to en-courage them to come and con-sensually deal with their debts rather than having to go through the foreclosure route.
Why did BoC relist on the London Stock Exchange?BoC needed to delist from Ath-ens, and we didn't want Cyprus associated with Greece because Cyprus was becoming a success and I wanted to differentiate it from its neighbor. Moreover, we were significantly oversubscribed on the first billion, so that was a validation of this type of strategy.
How will Chinese investment impact the future of Cyprus?There is a need for Europe to con-nect to China in a more organized way, and Cyprus is the Eastern gateway to the European Union.
We took €3 billion off of our balance sheet, similar to the progress of the entire Greek banking system.
JOHN HOURICAN CEO of Bank of Cyprus
BANK OF CYPRUS: REDUCING RISK IN A RECOVERING ECONOMY
LOAN-TO-DEPOSIT RATIO: LIABILITY STACK NORMALISING
THE MOST DOMINANT BANK IN CYPRUS
(%)
63%
50%
VALUE OF THE EMERGENCY ASSISTANCE LOAN THAT HAS BEEN FULLY REPAID BY THE BANK OF CYPRUS
€11,600,000,000 -
March2015
Sept2015
March2016
Sept2016
March2017
June2017
138 132119
10295
90
DEC 2014 JUNE 2017
Source: Bank of Cyprus
Source: Bank of Cyprus
Source: Bank of Cyprus
by Justin Calderon [email protected]
It's under Asia, above Africa, and at the very edge of Europe. I be-lieve that smart Chinese money should look at Cyprus because it's an €18 billion economy, so a €1 billion investment is 6% of GDP. You can change the nature of the entire country with a relatively small investment from China.
Why should investors work with BoC?In all, 83% of Cypriots have an active bank account with us, we have 60% market share in corpo-rate accounts, and a 40% share in the total market. If you add the entire banking system together and compare it to us, we are as large as the rest of the banking sector put together.
How do you envision BoC's recovery to continue?BoC has had ten consecutive quar-ters of growth and NPL reduction, and the bank has been able to profit from the sale of real estate that we've on-boarded rapidly. This year is looking even better. BoC sold in the first quarter 2017 the same amount of real estate we sold in all of 2016, and I think that pace will continue. Pace is every-thing in recovery.
You can change the nature of the entire country [of Cyprus] with a relatively small investment from China.
02| CYPRUSbusiness report
39% 31%
LOAN MARKET SHARE
DEPOSITSMARKET SHARE
Cyprus’ largest bank, the Bank of Cyprus turned a corner this January by officially closing a €11.6 billion crisis-era loan. With some of world's top bankers on his board, CEO John Hourican is now transforming renewed
confidence into a concrete recovery.
by David Lozano [email protected]
PROPERTY & LEGAL SERVICES04| CYPRUSbusiness report
New luxury properties add to investment allure
L uxury property devel-opments in Limassol, Cyprus’ de facto com-
mercial hub, are providing next-generation housing op-tions for investors big and small considering basing themselves in the port city, especially those looking to apply for the country’s Gold-en Visa program.
The One, an iconic tower lo-cated along Limassol’s crys-talline Mediterranean coast, has provided Cyprus with a fresh supply of modern resi-dential space. At 37 floors, Cyprus’ tallest residential building, The One was opened last year by Pafilia Group, which has since sold 60% of the tower. “With the launch-ing of The One, Pafilia trans-formed the coastline of Li-massol,” says Eva Eliadou, executive director of Pafilia Group. “Today, we have set the standard for high-rise buildings, and many other developments are now fol-lowing.” The One joins the Li-
massol Marina in its impact on the city, the latter of which placed Cyprus on the map for superyachts when it opened in 2014.
Foreign interest in Cypriot property is buoyed by a visa program that allows investors to acquire permanent resi-dency with a €300,000 in-vestment, or full EU citizen-ship with €2 million. Legal counsel for foreign invest-ment is well established in Cyprus. Ioannides Demetriou LLC, a leading Cypriot law firm, has among the greatest experience with FDI-backed projects, including in tour-ism, construction, ports and more. Notably, the firm has participated in some of the most important M&A deals on the island, as well as the Li-massol port privatization. “Our experience in working with [foreigners] has been very positive,” says Managing Director Pambos Ioannides. He adds that Cyprus has a history of "working effective-ly with international compa-nies, law firms and other pro-fessionals in general.”
T he backbone of the Cyp-riot economy, profes-sional services have
been a crucial ingredient to add-ing credibility to the recovery. Now, Cyprus has taken addi-tional measures to ensure that the service sector, which to-gether with tourism represents about 80% of economic output, maintains its competitiveness by legislating a tax exemption on worldwide income.
By broadening eligibility for ex-emptions, the new law allows “non-domiciled” persons to be exempt from a variety of taxes, primarily the Special Defense Contribution (17% on dividends, 30% on interest earned, and ap-prox. 2.25% on rental income). The initiative, launched in 2015, adds to numerous allures for for-eign investors, the island’s top legal advisors attest. “Cyprus presents the opportunity for global investors to establish their regional (European and Near East) headquarters in Cyprus due to its stable legal system based on UK law, attractive personal and corporate tax regime (12,5% on profit, 0% tax on dividend in-come, no withholding taxes, no CGT on disposal of securities),
while benefiting from extensive bilateral tax and investment trea-ty protection. With these advan-tages, it makes sense for invest-ments to be structured here,” says Kyriacos Scordis, managing partner of Scordis, Papapetrou & Co., one of the oldest LLCs (Law-yer’s Limited Liability Compa-nies) on the island.
Foreign investors come to Cyprus not just to take advantage of the island’s tax services, but also to leverage its geostrategic potential along one of the busiest global trade routes. “The resiliency of the private sector since the re-cession is something to be val-ued,” Scordis says when asked
by Justin Calderon [email protected]
Tax exemption on worldwide income reinforces Cyprus
as regional base for professional services
An increasingly favorable tax regime that has broadened eligibility for exemptions is improving the investment appeal of Cyprus' service sector-
driven economy as the preferred gateway to Europe and the Near East.
why Chinese investors are con-tinuing to arrive in Cyprus. “Looking at the Belt and Road initiative from the Maritime Silk Road perspective,” he continues, “Cyprus is closely positioned to the Suez Canal and the first stop along the way to Europe, pre-senting the perfect destination for regional headquarters and spreading business activities through the region.” He adds: “Cyprus is the ideal location from a geographical, legal and fi-nancial perspective to structure investments not only in the EU, but also in Eastern Europe to fully connect the Silk Road Economic Belt, such as Russia, Ukraine and the CIS-countries.” Already, there are thousands of businesses related to these countries operat-ing in and out of Cyprus employ-ing both local personnel as well as persons from their home countries, Scordis observes.
Rather than resting on their laurels, Cypriots are getting proactive. “China’s role in global investment has provided us the impetus to set up our China desk,” says Scordis, who also maintains offices in Mos-cow, Malta, and Athens. “In doing so, we have already been able to facilitate Chinese busi-nesses and investments to and beyond Cyprus.”
The resiliency of the private sector since the recession is something to be valued.
KYRIACOS SCORDISManaging Partner of Scordis, Papapetrou & Co. LLC
Limassol Marina has transformed the city's property market.