Privatbank noteholders get new trustee, talks with Rothschild fail

A new trustee for the 2018 Eurobonds of Privatbank
(PRBANK) was officially appointed on Oct. 3, the bank reported in its exchange
notice on Oct. 6. With that, the long process of changing the trustee from
Deutsche to Madison Pacific Trust has been completed. The noteholders had voted
to change the trustee at their adjourned meeting on June 21. According to a
Reorg Research report on June 21, the meeting was successful,
though no official report was made on that before Oct. 6.

In other news, the deputy head of Ukraine’s central
bank Kateryna Rozhkova, told a local radio station on Oct. 7 that negotiations
between Rothschild&Co and Privatbank’s former owners brought no results.
Rothschild was hired by Ukraine’s Finance Ministry to lead negotiations aimed
at the recovery of loans that Privatbank had provided to related parties before
its nationalization in December 2016. “There is no result. As of today, the
bank has started to collect [the loans forcefully],” she said. According to the
initial plan of the government, also agreed upon with the IMF, an external
advisor should have completed negotiations on recovery of Privatbank related
party loans by end-June 2017. In early July, Igor Kolomoisky, one of
Privatbank’s ex-owners, commented that negotiations would last“as long as will be needed to reach agreement.”

Alexander Paraschiy: The news
flow promises little positive for Ukraine’s government, which has already spent
UAH 139 bln on injecting capital into the bank and will likely spend another
UAH 16 bln in the near future. Now that negotiations on a peaceful loan
recovery seem to have failed (which is in line with what we expected) the only
hope of the government to recover some of the loans from former shareholders
are related to the forensic audit of the bank, which may be completed by the
end of October. Our expectation is that this audit won’t help the bank and the
government.

Also, the change of trustee of Privatbank’s senior
Eurobonds of USD 335 mln outstanding suggests that in the coming weeks we will
see the bondholders demand an acceleration of the bonds and subsequently will
file a claim in an international court to fully recover them. The bonds were fully diluted in December 2016 during a questionable bailed-in process. In our
view, the holders of senior notes have a good chance to fully recover them.