Bakhmatyuk named as suspect in VAB Bank conspiracy

The National Anticorruption Bureau of Ukraine (NABU)
reported on Nov. 13 that it has declared Oleg Bakhmatyuk a suspect in its
criminal case involving the misappropriation of a UAH 1.2 bln stabilization loan
from the central bank. Bakhmatyuk was the major shareholder of VAB Bank, which
took the loan in October 2014, 40 days before the bank was recognized
insolvent. NABU suspects Bakhmatyuk of conspiring with deputy central bank
governor Alexander Pisaruk, which resulted in central bank’s illegal provision
of the loan to VAB Bank.

The alleged crime stems from the allegation that VAB
provided an incomplete package of documents when applying for the loan (as an
example, NABU stated that the bank did not provide a recovery program). Another
alleged violation was that VAB Bank submitted a falsified evaluation report of
collateral under the loan, in which its value was inflated by 25 times and
thereby was far below the loan’s value.

Based on the latest reports from the media, Bakhmatyuk
is currently in Switzerland, so NABU filed its notice naming him a suspect in
absentia.

Alexander Paraschiy: Our study of
this case prompts us to question the adequacy of NABU’s allegations. For
instance, the suspicion that the bank provided no recovery plan looks
ill-grounded. VAB Bank had the status of a “problem bank” at the date of the
loan provision, while Ukrainian legislation obliges such problem banks to file
to central bank their recovery plan within seven days.

The allegation of overestimating collateral value
looks more grounded, but it’s worth considering that the market value of any
Ukrainian property in October 2014 was extremely small, taking into account
uncertainties about the progress of Russian military aggression at that time,
the deep economic depression and poor condition of the financial sector.

We also do not believe in a conspiracy between the
bank and the regulator. Had central bank officials colluded with VAB bankers,
they wouldn’t have declared the bank insolvent that quickly after providing the
loan.

All in all, we expect that the case has little
prospects in the courts. At the same time, the pressure on Bakhmatyuk does not
look logical, taking into account that he has publicly declared his willingness
to settle debt issues with the state (unlike, for instance, Kostyantyn
Zhevago). Now he can use such pressure from the law enforcement agencies as a
reason to avoid any debt repayments to the state entities.

For the bondholders of Bakhmatyuk-related companies,
Ukrlandfarming (UKRLAN) and Avangardco (AVINPU), the situation promises little
positive, so we remain bearish on these bonds.