NBU officially reports on bail-in of Privatbank Eurobonds

The National Bank of Ukraine (NBU) issued a statement to the holders of Privatbank (PRBANK) Eurobonds on Dec. 26 explaining that no more payments will be made on the securities. The bank was officially nationalized on Dec. 21 after it was recognized insolvent on Dec. 19. Between these two dates, the temporary administrator of the bank, exercising its right granted by the law on the Households Deposit Guarantee System, ruled to bail-in all the bank’s liabilities related to Eurobonds, the NBU explained. It also announced that further details “will be announced in due course.”

As we explained before, the nationalization of the failed bank, based on Ukrainian legislation, allows the Deposit Guarantee Fund to bail-in the related party liabilities of Privatbank, as well as any unsecured non-deposit liabilities (like Eurobonds). To our knowledge, all such liabilities, in the amount of UAH 29.4 bln (including senior Eurobonds of about UAH 8.8 bln and subordinated Eurobonds of about UAH 5.8 bln), were exchanged for newly issued shares. After that, the Fund sold 100% of the shares in the bank for a symbolic price of UAH 1 to Ukraine’s Finance Ministry. Based on Ukrainian legislation, this single hryvnia will be “directed to replenish the Fund.”

Recall, Privatbank issued two senior Eurobonds, the first at UAH 160 mln outstanding that mature in Jan.’18, and the second at UAH 175 mln outstanding that mature in Feb.’18. In addition, it issued subordinated Eurobonds maturing in Feb.’21 that were issued in two tranches of USD 150 mln issued in 2010 and restructured in 2015, and an additional USD 70 mln issued in 2015 and purchased by related parties.

Alexander Paraschiy: The NBU’s short report on the eighth day of the bank’s insolvency indicates that none of the parties involved in the nationalization wanted to approach the bondholders with bad news. In our view, this indicates the government is not comfortable with the decision to fully dilute the international creditors of Privatbank.

In our view, this decision violates the equal treatment principle. In fact, the independent bondholders appeared to be the only creditors that got zero from their contribution to the bank. All the other creditors will recover 100%, including the bank’s depositors, or even more, as related parties took in forms of loans from the bank much more than they lost during the bail-in.

This, as well as misleading information about the real situation in the bank that was spread by the NBU, creates a pretext for the bondholders to claim partial or full recovery of the bonds, in our view.