Cargill demands clarification on bail-in of its Privatbank money

Cargill Financial Services International sent a letter on Jan. 13 to Privatbank (PRBANK) officials, top Ukrainian state officials and the U.S. ambassador to Ukraine demanding to clarify the status of the bank’s obligations to Cargill, Ukrainian journalist Alexander Dubinsky reported on his blog on Jan. 25.

In the letter, Cargill is requesting to confirm the exact amounts of Privatbank obligations to Cargill before the introduction of a temporary state administration and confirm the legal reasons “for the debiting of the obligations due to Cargill and the distribution of such obligations to Cargill to the payment under shares sale-purchase agreement.”

The company also demands the bank to confirm that its “obligations under the letters of credit issued by Privatbank under the trade-related loan agreements” remain due and payable to Cargill.

Dubinskiy today updated, based on his information, that Privatbank “is preparing money to return them to Cargill accounts.” Later on, the finbalance.com.ua news site reported that its sources in the government denied that the obligations to Cargill were bailed-in during Privatbank’s nationalization. No official response on that issue is available so far. The total amount due by the bank to Cargill is about USD 70 mln, based on various reports of the Ukrainian media.

Recall, Privatbank’s obligations in the amount of UAH 29.4 bln were bailed-in as part of the bank’s nationalization. This amount includes the bank’s Eurobonds for USD 555 mln. During the bail-in, the State Deposit Guarantee Fund exchanged such obligations into new Privatbank shares on Dec. 21, and on the same day it sold all the bank’s shares for UAH 1 to the Ministry of Finance.

Alexander Paraschiy: It looks like the government and the bank’s new management has no consolidated information about the results of the bail-in of Privatbank obligations. If the government indeed bailed-in some of Cargill’s loans to Privatbank (which is alleged by the letter of Cargill) and is going to reverse that operation (as Dubinsky assumes), this will be an excellent precedent for Eurobond holders.

But we don’t have enough reasons or evidence to believe in a such scenario. Most likely, some part of Privatbank debt to Cargill was bailed-in (with no legal way to recover it) and some part remains due.