Bloomberg News

Hypo Alpe Wins Temporary Approval for $2 Billion State Aid

December 05, 2012

Hypo Alpe-Adria-Bank International AG, the nationalized Austrian lender loaded with bad debt, won temporary European Union approval for another round of state aid, combined with a warning to speed up its breakup.

The European Commission allowed the Austrian government to give Hypo Alpe 500 million euros ($655 million) in fresh funds plus a state guarantee for 1 billion euros of bonds the bank is selling, it said in an e-mailed statement today. Regulators approved the aid for reasons of financial stability and told Austria to submit an updated restructuring plan for Hypo Alpe within the next two months.

“Austria now urgently needs to present a comprehensive plan for divesting the operative parts of the bank and winding down the non-viable rest,” EU Competition Commissioner Joaquin Almunia said in the statement.

Hypo Alpe needs the bond and the cash injection to fill a 1.5 billion-euro capital gap determined by Austrian regulators. The bank, the third-biggest lender in the former Yugoslavia, has 10 billion euros in bad debt, or about a third of its loan book. The Klagenfurt, Austria-based bank has started the sale of its sound units in Austria, Italy and southeastern Europe.

Austria has committed to safeguards for the bank’s risk policies and new lending business to comply with EU state-aid rules, the EU said. Regulators often require limits on banks’ expansion to prevent them profiting from government support.

Bond Pricing

The bank is in talks with the commission and the government about the restructuring plans and will continue to seek to create the basis for a final EU decision on state aid, Nikola Donig, a spokesman, said in an e-mailed response to questions.

Hypo Alpe met investors last week in Cologne, Frankfurt, Munich, Vienna and London to market the planned bond, which will have a 10-year maturity and qualify as regulatory Tier 2 capital. While Tier 2 bonds usually pay more interest to make up for their higher risk, Hypo Alpe said this risk didn’t exist for holders of this security because of an irrevocable and unconditional guarantee from the Austrian government.

Hypo Alpe said last month it expects to price the bond similar to securities of Austria’s state railway and road operators, which pay a small premium compared with Austrian government bonds. Austrian 10-year yields hit an all-time low of 1.728 percent this week and were at 1.749 percent by 11:32 p.m. in London.

The bank started bookbuilding for the bond sale today after the EU approval, it said in a statement. It has hired Citigroup Inc., Commerzbank AG, Deutsche Bank AG and Morgan Stanley to manage the sale.

Austrian taxpayers have subsidized Hypo Alpe with 1.26 billion euros in capital and a 200 million-euro asset guarantee that is expected to come due next year. Another 700 million euros will be added in 2013. The Carinthia province that used to own Hypo Alpe and the federal government also provide guarantees for a total of 16.7 billion euros in bonds Hypo Alpe has sold and that will mature gradually until 2017.

To contact the reporters on this story: Aoife White in Brussels at awhite62@bloomberg.net; Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net


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