Bloomberg News

Cyprus’s Sylikiotis in China to Explore Ground for Loan

June 26, 2012

Cyprus Requests EU Aid While Seeking Funds From Russia or China

A fisherman transfers a net of freshly caught fish into a storage tank, on board a boat at a fish farm off the coast of Limassol. Photographer: Chris Ratcliffe/Bloomberg

Cyprus hasn’t specified a figure for a possible rescue package it requested from euro-area countries yesterday, which could involve the International Monetary Fund, the east Mediterranean island’s finance minister said.

“Neither ourselves nor the people we are talking to have ever raised the question of the amount,” Vassos Shiarly told reporters today. “It is a matter that will be determined in the process that will follow.”

Negotiations will begin “as soon as Europe and ourselves are ready to negotiate,” he said, adding that the IMF’s involvement “is something that is being discussed at the moment”.

Cyprus, which has been shut out of markets since May last year, is the fifth euro-area member to seek a European rescue after Greece, Ireland, Portugal and Spain. The euro area’s third-smallest economy has also been cut to junk by all rating companies.

Fitch Ratings Co., which was the last to do so yesterday, said that the island’s government may need as much as 6 billion euros ($7.5 billion) to support its banks, which were hurt by writedowns in Greek government debt. The European Central Bank said today that Cypriot government bonds have become ineligible as collateral in refinancing operations following the downgrade.

Recapitalization

The island’s government decided in May to underwrite the issue of 1.8 billion euros in preference shares of Cyprus Popular Bank, which is the second largest Cypriot lender. The deadline for the bank’s recapitalization expires on June 30, a day before Cyprus assumes the rotating presidency of the European Union.

Government spokesman Stefanos Stefanou, who spoke in a joint press conference with Shiarly, said the island’s government is not prepared to discuss the “red lines” it will have in the rescue negotiations and added that it will try to preserve the island’s 10 percent corporate tax rate.

“We are very sensitive about the corporate tax because it is very important for the Cypriot economy,” Stefanou said, adding that “this issue has not been raised,” in exploratory talks so far.

The island, which requested various countries, including Russia and China, for a bilateral loan in order to avoid strings being attached to its bailout, has not received a final response yet, the Cypriot government spokesman said.

European authorities have pressed Cyprus to take a full bailout package worth as much as 10 billion euros, resisting the country’s attempt to limit any aid to its banking system, two officials said earlier this month.

To contact the reporters on this story: Stelios Orphanides in Nicosia at sorphanides@bloomberg.net;

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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