This month, Cyprus returned to the international markets and raised EUR 750 million in a sale of five-year notes.

In March 2013, the European Commission,European Central Bank and the International Monetary Fund agreed a EUR10bn bail-out deal with Cyprus, and the Cyprus government introduced temporary administrative and capital controls to contain the risk of deposit outflows.

Under the Resolution of Credit and Other Institutions Law, Cyprus Popular Bank Public Co Ltd (also known as Laiki Bank) and the Bank of Cyprus plc ("BoC") (the country's largest bank) entered resolution proceedings. Laiki Bank's EUR9.2bn Emergency Liquidity Assistance was transferred to BoC, deposits below EUR100k were insured and therefore transferred to BoC, and deposit holders with uninsured deposits over EUR100k suffered severe losses. BoC’s uninsured deposits over EUR100k were partly converted into equity and partly into fixed term deposits at the BoC.

BoC emerged from its recapitalization process on 30 July 2013 and at the end of last month, it reported its first quarterly profit for nearly two years1. In addition, the BoC is reportedly planning to sell its Russian operations as part of a restructuring launched by its CEO, John Hourican(ex-investment banking head of RBS) to refocus on its domestic market2 and considering a potential capital increase of up to EUR1bn which would support its capital adequacy ratio ahead of stress tests in October3.


Distressed investors can get exposure to BoC by purchasing deposit accounts (subject to capital controls) and/or shares which were allocated to deposit holders pursuant to BoC's resolution process.

Uninsured deposits above EUR 100,000 were converted as follows:

  • 47.5% into new shares (which remain suspended from trading on the Cyprus Stock Exchange);
  • 15.1% released to current accounts (subject to capital controls); and
  • 37.4% into three fixed term deposits of 6, 9 and 12 months’ duration. BoC has discretion to roll these deposits for an additional term but the 6 and 9 months’ deposits which have expired were released (on 31 January 2014 and 30 April 2014 respectively), remaining subject to Cyprus capital controls.


The Enforcement of Restrictive Measures on Transactions in case of Emergency Law of 2013

Capital controls are issued by the Central Bank of Cyprus under Decree of the Ministry of Finance, and have to date, generally been issued on a monthly basis. The latest capital control decree was issued on 2 June 2014 and will remain in force for 91 days. provides further relaxation of restrictions originally put in place, including abolishing restrictions on opening new bank accounts.


  1. AML/KYC: A buyer must ensure that the purchased assets are not in breach of anti-money laundering requirements, particularly given the potential lack of clarity regarding the source of funds in deposit accounts.

In addition to carrying out diligence on the accountholders/shareholders, it is advisable to obtain representations that the seller (and its predecessors-in-title) are not in breach of AML, anti-corruption and sanctions requirements, and that none of the purchased assets constitute funds obtained from transactions in violation of AML laws.

  1. KYC with BoC: If purchasing accounts, buyers will first need to provide extensive “Know Your Client” information to BoC in order to become accountholders. This will not be necessary if the buyer is only purchasing shares.Buyers should start this process as soon as possible to avoid delays.
  2. Payment of purchase price/risk of broken trade: Ideally, buyers should seek to confirm prior to trading that the purchase price will be tied to either (i) receipt of confirmation from Bank of Cyprus that the seller’s account balances have been transferred to the buyer’s accountsor (ii) registration of the buyer as holder of the shares (as relevant).
  3. Escrow: Sellers may insist on the purchase price being paid using an escrow arrangement, given the potential delay between documentation being signed and the Bank processing the transfers.This can be costly (due to escrow agent’s fees and increased lawyers’ fees due to negotiation) and time consuming (the escrow agent will also need to diligence both the seller and buyer). If the seller insists on this, it should be agreed beforehand how fees are to be split.
  4. Ancillary Rights and Claims: Holders of accounts and shares may have rights to claim against third parties including the BoC, Laiki Bank, the special administrator, and/or any relevant Cypriot government entity. Some trades seek to reserve such rights to the Seller. If the ancillary rights and claims are to be included, this should be specified.