Bondholders seek arrest of Privatbank accounts, bank rejects possibility

Some holders of Privatbank Eurobonds (PRBANK) have appealed to international courts demanding to arrest the bank’s correspondent accounts abroad, Ukrainian lawyer Viktor Moroz told the ubr.ua news site on Jan. 20. He said the claims were submitted to courts in London and Paris. The arrest of accounts should speed up the conflict’s resolution between bondholders and the Ukrainian government, he said.

The same day, Privatbank issued a press release rejecting the possibility of arresting its correspondent accounts. Deputy CEO Oleksandr Dubrovin said the bank has no liabilities to Eurobond holders on its balance sheet. Instead, it was the National Bank of Ukraine and State Deposit Guarantee Fund who bailed-in the bondholders, he said. Moreover, arresting a bank’s correspondent accounts is not achieved in international litigations, he added.

Recall, Privatbank was declared insolvent on Dec. 19 and was put under temporary management of the State Deposit Guarantee Fund. The Fund decided to bail-in holders of Eurobonds, other unsecured non-deposit creditors of the bank and related party depositors on Dec. 21. Their loans to the bank, at a total amount of UAH 29.4 bln, were exchanged into new bank shares. The same day, the Fund sold all the bank’s shares to the Finance Ministry for UAH 1.0. In this way, the creditors were fully diluted.

Alexander Paraschiy: Under Ukrainian legislation, Privatbank indeed has no obligations to its bondholders and other bailed-in creditors. But we are not sure that the bank is free of obligations under English law too. That said, we believe the arrest of Privatbank’s correspondent accounts should not be completely rule out, but it does not look likely. In our view, the bank itself is last in the list of those responsible for the bail-in.

Responsibility for the bail-in should be shared by the Deposit Guarantee Fund (which issued the ruling), the NBU (which provided respective calculations to the Fund), the government (which completed the bail-in by purchasing the converted shares from the Fund), the bank’s former majority shareholders (who brought the bank to insolvency), as well as the IMF and World Bank (who helped to prepare the legislation on the bail-in).