Prominvestbank sold Ukrainian Railway debt

Prominvestbank, the Ukrainian bank controlled by the Russian
state financial institution Vneshekonombank, has sold at least part of the debt
owed by Ukrainian Railway (RAILUA) to international fund VR Global Partners,
the Finbalance news site reported on March 18, citing the public documents of
Ukrainian courts. In particular, two publicly available court documents mention
that on March 3, Prominvestbank informed the courts that VR Global Partners has
become the bank’s successor on a credit line opened in 2012 and another loan
provided in 2011.

Recall, on Feb. 19, Ukrainian Railway issued a press
release warning the potential buyers of its debt to Prominvestbank to refrain from such a deal.
The next day, the bank called Ukrainian Railway to refrain from interfering in
the bank’s operations. The bank also complained that the debtor stopped
servicing the loans as of September 2017.

The total debt of Ukrainian Railway to Prominvestbank
was USD 153.3 mln as of end-September 2018. Recall, in December 2017, the
holders of RAILUA Eurobonds voted to allow the company to avoid a cross-default
event related to this debt for an indefinite time.

The bank, being a subsidiary of a Russian state
entity, fell under Ukrainian sanctions in March 2017, which prohibited it from
making any transactions to its parent entity. Also, in September 2018, the bank
suffered from a court order to ban some operations with its assets.

Alexander Paraschiy: Based on
court documents and the business plan of Ukrainian Railway, we conclude that
Prominvestbank has sold at least USD 78.5 mln of Ukrainian Railway debt
(excluding interest and penalties), and the deal’s amount could be the entire
USD 153.3 mln value of the total debt.

While the new owner of the debt is not under any
Ukrainian sanctions, Ukrainian Railway won’t have any formal reasons to avoid
servicing this debt. At the same time, the debt is likely to have been
purchased at a deep discount to par value, so the new debt holder could be
flexible enough to offer a generous repayment schedule and some haircut to the
company. So far, we see the development is neutral for RAILUA bondholders.