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EBRD credit line and equity investment for third-largest Estonian bank
The third-largest bank in Estonia will receive a DM 13 million (ECU 7.5 million equivalent) credit line and a 30 per cent equity investment of up to the equivalent of US$ 3 million (ECU 2.5 million equivalent) from the European Bank for Reconstruction and Development (EBRD). The two financings, signed in Tallinn today, will go to AS Eesti Hoiupank (EHP), a commercial bank organised as a joint-stock company and incorporated under Estonian law.
David Hexter, Director of the Financial Institutions team at the EBRD, said: “Both the credit line and the equity stake will play major roles in the development of the Estonian private sector. The first will meet the needs of small and medium-sized enterprises (SMEs) by providing medium-term funding. The second will contribute to EHP’s privatisation. By investing in EHP, the EBRD will enable the bank to expand its operations in Estonia and to enhance its corporate governance and management”.
The two-tranche credit line, half of which will be funded by the Baltic Investment Special Fund, will provide EHP with additional medium-term funding for on-lending to the private sector and especially the growing number of creditworthy private enterprises in Estonia. It is also hoped that the transaction will encourage international banks to raise lending exposure limits to EHP and other Estonian banks.
By subscribing to 280,000 new shares representing about 30 per cent of EHP’s share capital, the EBRD will help to privatise the bank by reducing the shareholding of Eestipank (Bank of Estonia) to below 50 per cent. In addition, the equity investment will improve EHP’s asset and liability management and will provide EHP with adequate resources to further develop its information technology and modernise its branches. The new capital distribution will be: Eestipank, 34.4 per cent; Hansapank, 30.1 per cent; EBRD 30.1 per cent; and EHP’s management, 5.4 per cent.
EHP remains the leading retail savings institution in Estonia. With a network of around 250 branches and 950 employees, EHP took advantage of the strong support of Hansapank to become a universal bank with a strategy of increasing its lending activities while maintaining a prudent level of non-interest income.
The Baltic Investment Special Fund, established in April 1992 between the EBRD and the Governments of Denmark, Finland, Iceland, Norway and Sweden, is a fund to promote private sector development through support for SMEs in Estonia, Latvia and Lithuania.
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