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KBC Groep (EBR:KBC) Regulated information* - 27 October 2008 (8 a.m. CET)
KBC and the Belgian government have reached an agreement to further strengthen KBC's financial position. This will create an additional core capital buffer for KBC and enable it to cope with any future challenges.
Highlights * KBC's solid capital position over the past few weeks and days remains unchanged * KBC to issue 3.5 billion euros' worth of securities to the Belgian State following similar initiatives worldwide * Securities qualified as core capital by the single Belgian financial-sector regulator CBFA, without dilution for existing shareholders * Core Tier-1 ratio for banking boosted to above 8% (from close to 7%) * No impact whatsoever on business strategy and day-to-day operations for customers and staff
The transaction follows multiple initiatives taken across the world to make capital available to banking institutions that are fundamentally sound in order to boost confidence in the financial system and to safeguard access to funding for private individuals and non-financial corporate entities.
'The structure of the transaction is designed to avoid dilution of existing shareholders, while providing additional certainty to customers, counterparties and debt holders. It reinforces our commitment to our business strategy and to our disciplined approach towards risk and capital management,' added Mr Bergen.
Financial details KBC will issue 3.5 billion euros' worth of non-transferable, non-voting core-capital securities to the Belgian State. KBC will use the proceeds of the transaction to increase core Tier 1- capital in the banking business by 2.25 billion euros and the solvency margin of the insurance business by 1.25 billion euros.
After the transaction, the banking Tier-1 capital ratio will be further strengthened to 10.7% (of which 8.2% core Tier-1 capital) and the insurance solvency margin to 280%. These levels are more than two and a half times the regulatory required minimum. The gearing ratio of the holding company will remain virtually unchanged at 106%, leaving the additional holding company gearing capacity intact.
The transaction is expected to be settled by the end of 2008. The debt securities will be issued at a price of 29.50 euros per security (i.e. the average closing price for the last three trading days). The annual cash coupon per security will be the higher of 2.51 euros (reflecting an interest rate of 8.5%) or an amount equal to 105% of the dividend paid on ordinary shares for the year 2008, 110% for the year 2009 and 115% from 2010 and onwards. No coupon will be paid, however, if no dividend is paid on ordinary shares.
Given the exceptional circumstances, KBC has decided not to pay a dividend for 2008. As a result, no coupon will be paid on the newly issued securities for 2008.
The securities are pari passu with ordinary shares, which means that the State will have the same rank as common shareholders. KBC has the right to buy back all or some of the securities at any time at 150% of the issue price (cash settlement). However, in this case, the State can require the buyback to be settled by exchanging one security for one ordinary share. Furthermore, KBC is entitled to exchange all or some of the securities into ordinary shares on a one-for-one basis, from three years after the issuance onwards. If KBC chooses to do so, the State can opt to redeem the securities in cash at 100% of the issue price. All these transactions are subject to the approval of the CBFA, the financial-sector regulator.
Corporate governance Under the terms of the agreement, the State has the right to nominate two members for KBC Group's Board of Directors, to be appointed at the next Annual General Meeting of Shareholders. A representative of the State will sit on the Audit Committee, the Remuneration and the Nomination Committee of the Board of Directors. They will have approval rights for a limited number of decisions, including those relating to share issuance or share buybacks (except in connection with this transaction), acquisitions whose value equal more than one quarter of KBC's share capital and reserves, and the remuneration policy for the members of the Executive Committee.
KBC Group's Executive Committee had already previously decided to forego all bonuses - either in cash, options or shares - relating to the performance in 2008.
* This news item contains information that is subject to the transparency regulations for listed companies.
This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
