Sparebanken Sør: new equity strategy, significant increase in ECC ownership ratio and increase in return on equity target
Sparebanken Sør is
Southern Norway'slargest savings bank and one of Norway'smajor regional savings banks. The bank's board of directors wants to increase the listed share of the bank's equity in order to better reflect the size of the bank and to have an ECC ownership ratio in line with comparable banks. Main points o Conversion and issuance of equity capital certificates (ECCs) to be transferred to Sparebankstiftelsen Sparebanken Sør (the Foundation) o Sale of ECCs by the Foundation o New dividend policy o Introduction of customer dividends (see separate stock exchange notice) o New financial targets Conversion and possible sale of ECCs The Board is proposing to convert a part of the primary capital in Sparebanken Sør to equity certificate capital by issuing new ECCs that will be transferred to Sparebankstiftelsen Sparebanken Sør in full. Prior to the conversion, the Foundation is the bank's largest owner of ECCs (51%). Sparebankstiftelsen Sparebanken Sør is planning to carry out a secondary sale of most of the newly issued ECCs. This is subject to the Foundation changing its statutory minimum ownership share of the ECCs in the bank from the current 35% to 25%. Today, the board of directors of Sparebanken Sør therefore proposes to the Supervisory Board to convert approximately NOK 2.9 billionof the bank's primary capital into ECC capital. The proposal will be resolved at the Supervisory Board's annual meeting 31 March 2022. Following the conversion, the ECC ownership ratio in Sparebanken Sør will increase from 15.7% to 40.0%, and the listed ECC capital will amount to approximately NOK 6.4 billion, based on the current trading price on Oslo Børs. The conversion will be based on book equity in the parent bank as of 31 December 2021(adjusted for 2021 dividends), and 26,039,113 new ECCs will be issued, each with a face value of NOK 50and at a conversion rate of NOK 112.100589279. The conversion and new ownership ratio of 40.0% implies that the ECC capital pursuant to the bank's articles of association is increased by NOK 1,301,955,650, in addition to a premium of NOK 1,617,044,262. The conversion is subject to approvals by the Supervisory Board and the Financial Supervisory Authority of Norway, and that the proposed amendments to Sparebankstiftelsen Sparebanken Sør's articles of association are approved by the Foundation's general meeting. A potential secondary sale of ECCs will, subject to acceptable market conditions, at the earliest be carried out after the necessary approvals have been obtained and the new ECCs have been transferred to the Foundation. New dividend policy - equal distribution Today, the board of directors has, as an additional measure to strengthen the ECC, decided to change the bank's dividend policy, implying that the primary capital and the ECC capital will have the same pay-out ratio. This implies that the new 40.0% ECC ownership ratio will remain stable going forward. The board of directors decided that the pay-out ratio shall be in the range of 40-50 %, in line with other comparable banks taking into account the bank's need to retain capital for growth and any regulatory changes. Increased target for return on equity The bank's board of directors has today increased the target for return on equity to more than 11% by the end of 2025. Profitability improvements through improved capital efficiency, increase in other income, effect from the proposed customer dividend and positive effects from a possible approved IRB application will be the most important elements to increase the return on equity. More attractive ECCs The board of directors expects that the combination of a significant increase in ECC ownership ratio, a significant secondary sale of ECCs from the Foundation, a dividend policy with equal distribution and the introduction of customer dividends will make the ECCs in the bank significantly more attractive as an investment for Norwegian and international institutional investors. The increased market capitalization, combined with the substantial secondary sale of ECCs by the foundation, will provide a basis for substantially better liquidity in the bank's ECCs. In total, the board of directors expects that these measures will imply a more efficient pricing and contribute further to a positive development for the ECCs of the bank. Following a potential secondary sale, the Foundation will be a financially strong and liquid foundation with the ability to contribute positively to the bank's development in a longer perspective. Geir Bergskaug, CEO: "Sparebanken Sør's board of directors has today decided to change the dividend policy, introduced customer dividends and proposed a significant conversion of primary capital into ECC capital. With these measures, Sparebanken Sør will have a renewed equity strategy and the ECC will be significantly more attractive to institutional investors. At the same time, it is the board of directors' desire that the sale process of ECC will be structured to make it attractive for retail investors, customers of the bank and the bank's employees to become owners of Sparebanken Sør. Furthermore, customer dividends will make it even more attractive to be a customer in the bank". The implementation of the conversion of the primary capital is inter alia conditioned by (i) positive resolution by the Supervisory Board in the bank; (ii) necessary amendments of the Foundation's articles of association; and (iii) approvals from the Financial Supervisory Authority of Norway. Pareto Securities ASand Swedbank AB(publ.) in cooperation with Kepler Cheuvreuxare engaged as Joint Global Coordinators og bookrunners, and Norne Securities AS as Joint bookrunner for the transactions. Advokatfirmaet Selmer ASis engaged as legal advisor. Sparebanken Sør will host a presentation (in Norwegian) on Friday 11 March 2022at 11:00 CETat Hotel Continental, Oslo, where the proposed changes will be presented. The presentation will also be livestreamed through the following link https://channel.royalcast.com/hegnarmedia/#!/hegnarmedia/20220311_4 and via a link on the bank's IR web page. Those who attend the presentation digitally will have the opportunity to submit written questions during the presentation and the subsequent Q&A session. A recording will be made available through the same link immediately after the presentation. Contact persons in Sparebanken Sør: CEO, Geir Bergskaug, tel.: + 47 901 27 206 Head of finance, Steinar Vigsnes, tel.: +47 906 13 135 About Sparebanken Sør: Sparebanken Sør is a solid and well-managed regional savings bank with total assets of approximately NOK 145 billion. The bank, which is one of Norway'slargest savings banks, has its market in Agder, Vestfold & Telemark and in Rogaland. Sparebanken Sør is an attractive employer with strength and ambition. The bank has skilled employees with a high professional level and is known for effective decision-making processes. Focusing on new technology and digitalisation ensures good customer experiences across all channels. This information constitutes inside information and is subject to the disclosure requirements in accordance with the Market Abuse Regulation (MAR) and Section 5-12 of the Securities Trading Act. The notification will be published on behalf of Sparebanken Sør by Tone Hermansen, Group Secretariat, at 17:00, 10 March 2022.
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