Report No. 37/2013

Legal basis:

Article 56 Section 1 item 1 and item 2  of the Act on Public Offerings and the Conditions for Introducing Financial Instruments to the Organised Trading System and on Public Companies of 29 July 2005, and § 5 Section 1 item 3  of the Regulation of the Minister of Finance on Current and Periodic Information by Issuers of Securities and on the Conditions for Recognising Information as Equivalent to that Required by the Provisions of Law of a State which is not a Member State of 19 February 2009

Content of the Report:

Pursuant to Article 56 Section 1 item 1 of the Act of 29 July, 2005 on public offer and the conditions for introducing financial instruments to the organized trading system, and on public companies (“Public Offering Act”) and Article 56 Section 1 item 2 of the Public Offering Act in conjunction with § 5 Section 1 item 3 of the Regulation of the Minister of Finance of 19 February 2009 on current and periodic information published by issuers of securities and at the conditions under which such information may be recognized as being equivalent to information required by the legal regulations of a state which is not an EU member state (the “Regulation”), further to the current report concerning a delayed release of sensitive information No. RB-1/2013/OI of April 12, 2013, the Management Board of Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (“PKO Bank Polski S.A.”) announces that on 12 June 2013 (“Execution Date”) PKO Bank Polski S.A. and Nordea Bank AB (publ), a company registered in Sweden concluded an agreement (the “Agreement”) setting out the terms of an acquisition from Nordea Bank AB (publ) and other entities from the Nordea Group of:

1. 55,061,403 shares of Nordea Bank Polska S.A. with a nominal value of PLN 5 each representing 99.21% of the share capital of Nordea Bank Polska S.A. (the “Nordea Bank Polska Shares”) which will be acquired in a public tender offer for the sale of shares together with a portfolio of corporate loans to customers of Nordea Bank AB (publ) with a nominal value of PLN 3,604,000,000 as at December, 31 2012;
2. 1,725,329 shares of Nordea Polska Towarzystwo Ubezpieczeń na Życie S.A. with a nominal value of PLN 111.59 each representing 100% of the share capital of Nordea Polska Towarzystwo Ubezpieczeń na Życie S.A. (the “Nordea Polska Life Shares”), and
3. 4,100,000 shares of Nordea Finance Polska S.A. with a nominal value of PLN 1 each representing 100% of the share capital of Nordea Finance Polska S.A. (the “Nordea Finance Polska Shares”)

(jointly referred to as the “Transaction”).

Pricing

The purchase price for the Nordea Bank Polska Shares set out in the Agreement is PLN 2,642,000,000 and will be subject to adjustment related to the financial performance of Nordea Bank Polska S.A.

The purchase price for the Nordea Polska Life Shares set out in the Agreement is PLN 180,000,000 and will be subject to adjustment related to the financial performance of Nordea Polska Towarzystwo Ubezpieczeń na Życie S.A.

The purchase price for the Nordea Finance Polska Shares set out in the Agreement is PLN 8,000,000 and will not be subject to any adjustment.

Additional elements of the Transaction

One of the elements of the Transaction is that Nordea Group will keep financing the mortgage loans portfolio originated by Nordea Bank Polska S.A. (“Mortgage Portfolio”). The financing will be provided by  granting by Nordea Bank AB (publ) a funding facility for PKO Bank Polski S.A. up to CHF 3,869,400,000 (three billion eight hundred sixty nine million four hundred thousand Swiss Francs), EUR 501,000,000 (five hundred one million Euro) and USD 4,500,000 (four million five hundred thousand US Dollars) for a period of up to seven years, with a three-year grace period of the repayment (“Funding Facility”). The Funding Facility agreement is to be concluded between Nordea Bank AB (publ) and PKO Bank Polski S.A. on the Transaction closing date. The Funding Facility is to be secured with a security assignment of the Mortgage Portfolio loans executed in favor of Nordea Bank AB (publ) by Nordea Bank Polska S.A. The average effective margin in the maximum funding period under the Funding Facility is set at 63 base points above the relevant reference rate. No fees for granting funding are provided under the Funding Facility.

PKO Bank Polski S.A. will on-lend the funds received under the Funding Facility to Nordea Bank Polska S.A. in the form of a push-down facility amounting to CHF 3,869,400,000 (three billion eight hundred sixty nine million four hundred thousand Swiss Francs), EUR 501,000,000 (five hundred one million Euro) and USD 4,500,000 (four million five hundred thousand US Dollars) for a period of up to seven years, with a three-year grace period of the repayment (“Push-Down Facility”). The Push-Down Facility will be unsecured. The financial terms of the Push-Down Facility (credit margin, commission) are established at arm’s length.

PKO Bank Polski S.A. will inform in the separate current report about the conclusion of the Funding Facility and the Push-Down Facility agreements.

Additionally, as part of the Transaction the Nordea Group agrees to share the agreed portion of default risk of the Mortgage Portfolio on the terms set out in the risk sharing agreement that will be signed by Nordea Bank AB (publ) and PKO Bank Polski S.A. on the Transaction closing date (the “Risk Sharing Agreement”). In line with the Risk Sharing Agreement for a period of four years following the closing of the Transaction Nordea Bank AB (publ) will bear 50% of the excess of the Mortgage Portfolio risk cost over an annual risk cost level set at 40 base points for each year of the said four-year duration of the Risk Sharing Agreement.

Nordea Bank AB (publ) agreed to maintain subordinated loans granted by Nordea Bank AB (publ) for the Nordea Bank Polska S.A. amounting to CHF 68,000,000 and CHF 224,000,000 with maturity dates in 2019 and 2022, respectively (the “Subordinated Loans”). According to the Agreement, the Subordinated Loans shall be repaid five years before the maturity date specified in the relevant Subordinated Loan agreements, subject to obtaining all necessary regulatory approvals for each repayment.

Additionally, within the framework of the Transaction, Nordea Bank AB (publ) undertook to procure that Nordea Bank Polska S.A. offers to PKO Bank Polski S.A., on the day of closing of the Transaction, subscription warrants authorizing PKO Bank Polski S.A. to acquire shares of a new issue of Nordea Bank Polska S.A. at the issue price offered in the public tender offer for shares in Nordea Bank Polska S.A. (the “New Shares”). The purpose of the acquiring of the New Shares by PKO Bank Polski S.A. is to ensure a proper level of capital adequacy of that Nordea Bank Polska S.A. in connection with the Transaction.

Implementation of the Transaction

The closing of the Transaction depends on the satisfaction of certain conditions precedent specified in the Agreement which include, among other things, the following:

1. PKO Bank Polski obtains a clearance for acquisition of Nordea Bank Polska S.A, Nordea Polska Towarzystwo Ubezpieczeń na Życie S.A and Nordea Finance Polska S.A.from the President of the Competition and Consumers Protection Office;
2. PKO Bank Polski obtains a clearance for acquisition of Nordea Bank Polska S.A, Nordea Polska Towarzystwo Ubezpieczeń na Życie S.A and Nordea Finance Polska S.A. from the Ukrainian Antimonopoly Committee (Antymonopolnyj Komitet Ukrainy);
3. The Polish Financial Supervision Authority (the “PFSA”) issues approval decisions confirming that there is no objection to the acquisition by PKO Bank Polski S.A. of Nordea Bank Polska Shares and Nordea Polska Life Shares in a number resulting in exceeding a 50% stake in the share capital and the total number of votes at the general meeting of Nordea Bank Polska S.A. and Nordea Polska Towarzystwo Ubezpieczeń na Życie S.A., respectively;
4. Nordea Group provides Nordea Bank Polska S.A. with IT support based on an outsourcing agreement that will enable Nordea Bank Polska S.A. to conduct sound business operations prior to migration to IT PKO Bank Polski S.A.’s systems;
5. The competent registry court registers the conditional share capital increase in order to enable PKO Bank Polski S.A. to subscribe for the New Shares.

PKO Bank Polski S.A. will disclose the fact of obtaining or not obtaining of particular approvals required for the Transaction in following current reports.

In order to perform the Transaction, pursuant to the Agreement PKO Bank Polski S.A. will announce a public tender for the sale of all shares of Nordea Bank Polska S.A. within seven business date of the Execution Date.

Following the closing of the Transaction, PKO Bank Polski S.A. intends to buy-out the remaining shares of minority shareholders of Nordea Bank Polska S.A. in order to acquire the remaining shares of Nordea Bank Polska S.A., and then to take actions necessary to re-dematerialize and de-list the shares of Nordea Bank Polska S.A. from the regulated market operated by the Warsaw Stock Exchange, and to merge Nordea Bank Polska S.A. with PKO Bank Polski S.A. by transferring the whole property of Nordea Bank Polska S.A. into PKO Bank Polski S.A. with PKO Bank Polski S.A. as the surviving entity.

A consummation of the Transaction will trigger an obligation to make a public announcement a notification regarding the acquisition by PKO Bank Polski S.A. of significant assets as the Transaction will fulfill the criteria set forth in § 2 Section 1 item 45 letter a) of the Regulation.

The Agreement constitutes a “significant agreement” within the meaning of the Regulation as its value exceeds 10% of the equity of PKO Bank Polski S.A.

Strategic rationale of the Transaction

The Transaction is intended to strengthen the position of PKO Bank Polski S.A. as the leader of the Polish banking sector, broaden its distribution channels and contribute to the quality of services. The implementation of the Transaction will significantly improve the position of PKO Bank Polski S.A. in a segment of affluent retail clients, enhance its competence in the corporate banking sector and contribute to a growth of the bancassurance business.

The Transaction shows a significant potential for synergy and is well aligned with the strategy of PKO Bank Polski S.A. for the years 2013-2015, as one if its goals is to strengthen the position of PKO Bank Polski S.A. on the Polish market and its growth through carefully selected acquisitions.