State to repay municipal loans to Austrian bank

By Angelos Anastasiou

THE government seems to have found itself on the hook as the guarantor of loans made in 2007 by municipalities and sewerage boards totalling more than €111m, after the Austrian lender cancelled the loan agreements because the debtors failed to abide by their terms.

As Finance Minister Harris Georgiades told the council of ministers on Thursday, the Austrian bank KA Finanz AG had informed the government in a letter dated 13 November 2013 that it intended to withdraw from 28 loan agreements it had entered with 14 municipalities and two sewerage boards for the amount of €111,861,622, as the counterparties had failed to submit their annual audited accounts for 2011, per the terms of their loan agreement.

But though reports suggested that their failure to submit audited accounts was only the pretext for the Austrian bank’s move, the Finance Ministry had no choice but to engage the lender in order to reach a compromise. Both the municipalities and the sewerage boards said they paid their monthly instalments promptly, but the bank really sought to disengage from the low-interest loans in order to renegotiate a new deal offering higher profit.

After feverish contacts and negotiations with the bank’s officials, Georgiades was able to strike a preliminary deal, under which the state would repay the loans via six-monthly instalments by December 2016, and the bank would waive its 8 per cent interest claim from January 1, 2014. According to the plan, the state will recover the loan repayments from the original debtors through their scheduled repayment instalments.

The government also decided to incorporate the loans made by four more municipalities, another sewerage board and the CyBC from the same bank, adding up to €45m to the deal. Although none of the terms of their loan agreements have been breached, the loans will be repaid by the state as part of the deal with KA Finanz.

Following Georgiades’ update this week, the council of ministers authorised him to proceed with finalising the new deal with the Austrian bank, which will mean the repayment of roughly €157m in loans by the state by the end of 2016.

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