2020 Cyprus Country Report

A GROWING ENERGY SECTOR
Since US company Noble Energy made the first
natural gas discovery in 2011 with estimated
resources of 4.5 trillion cubic feet (tcf) in the
Aphrodite field, Cyprus’ hydrocarbons discoveries
have captured the attention of several global
energy giants. ENI, Kogas, ExxonMobil, Royal
Dutch Shell, and Total have all secured exploration
licences and conducted exploratory drilling
while US giant Chevron will be taking a stake in
Block 12 after announcing its intention in July
2020 to buy out Noble Energy Inc. ExxonMobil
announced the discovery of an estimated 5 to 8
tcf in Block 10 in early 2019 and ENI announced
a promising discovery in Block 6 in early 2018.
More drilling is expected in the next few years
and in 2019 Cyprus agreed to build a subsea pipeline
connecting Aphrodite to Egypt’s liquefaction
plants and concluded a production-sharing
deal with Noble Energy and its partners over the
Aphrodite gas reservoir.
New opportunities are being created for
a range of energy investments, including gas
imports for power generation, the expected liberalisation
of the electricity market by 2021,
the growing share of renewables, the EuroAsia
Interconnector project to connect Cyprus, Israel
and Greece via submarine electricity cable, the
related EuroAfrica Interconnector to connect
Egypt, and the potential for the world’s longest gas
pipeline from Israel via Cyprus to Italy. The discoveries
have boosted the development of a new
energy industry in the country, which is also well
positioned to offer a multitude of auxiliary services
to companies operating in the wider region.
A floating storage and regasification unit (FSRU)
terminal in Vassilikos, which will transform domestic
power production, attracted finance in
2020 from the European Investment Bank (EIB)
and the European Bank for Reconstruction and
Development (EBRD).
A LEANER BANKING SECTOR
In the era of globalisation,
boundaries between
international politics
and international
economic relations have
become even more
blurred. The outbreak
of Covid-19 pandemic
has posed additional,
unprecedented challenges
on governments and
businesses alike and
has accelerated the
changes that were already
underway. Overcoming
these challenges
successfully will
ultimately depend on how
countries are able to adapt
to the new environment.
I am confident that our
new strategy for Economic
Diplomacy will stand us in
a strong position to bring
into play all elements
that make Cyprus an
attractive investment
destination: membership
of the EU with easy access
to a market of 500 million
consumers, a modern
legal framework, an
attractive tax system,
an extensive network
of more than 60 Double
Tax Treaties, a highly
skilled workforce
and high-quality
professional services,
to mention but a few.
Nikos Christodoulides
Minister of Foreign Affairs
Cyprus banks maintain high levels of capital adequacy
and liquidity. The gradual restructuring
of the banking sector after 2013 has attracted important
institutional investors and fresh foreign
capital, and encouraged accelerated sales of nonperforming
loans. These developments have substantially
reduced risk and enabled the financial
system to operate on a more sound basis.
The island’s biggest lender, Bank of Cyprus,
secured €1 billion of investment from worldrenowned
investors in 2014 and issued another
€220 million in Additional Tier 1 (AT1) capital in
December 2018. The bank listed on the London
Stock Exchange in January 2017, which has substantially
opened up access to large foreign investors,
such as Morgan Stanley.
Hellenic Bank completed a capital increase
of €150 million in March 2019 to support its acquisition
of mainly performing loans from the
former Cyprus Cooperative Bank. The acquisition
boosted the bank’s assets to €16 billion and
raised market share for loans to 30%. The capital
raise brought in new international investors, such
as US-based Poppy Sarl (PIMCO), with the other
major shareholders being Demetra Investments
Ltd, Wargaming, Third Point and investment
fund 7Q Financial Services Ltd.
Mergers and acquisitions in the past few years
have transformed the landscape somewhat with
strategic new investment entering the sector from
the sale of the majority stake of the Cyprus subsidiary
of Greece’s largest lender Piraeus Bank, to
Lebanese Holding M. Sehnaoui SAL – which injected
€40 million in fresh capital into the bank in
2017, now renamed AstroBank. In January 2019,
AstroBank went on to acquire the locally based
USB Bank for €40 million and agreed to buy
NBG Cyprus in late 2019. The deals are expected
to contribute to the further consolidation of the
Cyprus banking sector and highlight potential
investment opportunities in Cyprus.
The banking sector has seen more activity
and investment in recent years, providing opportunities
for new players to enter into the market
to encourage healthy competition and a wider
scope of services. Investment opportunities that
could be tapped into by international banks and
financial groups are mergers and acquisitions,
private equity and venture capital projects via the
budding funds sector, as well as financing of large
infrastructure projects.
WORLD-CLASS SHIPPING HUB
One of Cyprus’ most successful export services
has been the maritime industry, which now has
its own dedicated deputy ministry. The growth
of Cyprus’ resident shipping sector over the past
50 years has helped develop a strong maritime
cluster that includes Cyprus-based banking, professional
services, insurance and IT. The cluster
has gone from strength to strength over the
years and is consistently attracting more quality
tonnage and shipping-related companies to its
shores.
The decision in July 2018 by leading London
ship insurer P&I Club to open a post-Brexit EU
subsidiary in Cyprus, reaffirmed the island’s position
as one of the top global hubs for shipping.
Another coup came in early 2019, when British
shipping firm P&O Ferries decided to register
its English Channel operating fleet under the
Cyprus flag to take advantage of the benefits and
Foriegn Direct Investment
Country Report CYPRUS 2020 29