Court may rule on Privatbank nationalization complaint on Oct. 17

The Kyiv Economic Court may announce a verdict on the
claim of Ihor Kolomoisky against the nationalization of Privatbank on Oct. 17,
the bank’s legal adviser Andriy Pozhydayev told Interfax-Ukraine after the
court concluded primary hearing on the case on Oct. 8. The court scheduled
debates on the case for Oct. 17, after which it can announce its ruling.
According to lawyers of the National Bank of Ukraine cited by Interfax-Ukraine,
the court refused to open the debates to the public, citing the sensitive content
of banking secrets being disclosed.

In this case, the court is studying the claim of
Kolomosky and Cypriot company Triantal Investments (both are former
shareholders of the bank) to recognize invalid a sales-purchase agreement
between the former shareholders and the Finance Ministry concluded on Dec. 21,
2016. Recall, Privatbank was recognized insolvent and transferred to the State
Deposit Guarantee Fund on Dec. 19, 2016. After that, the government decided to
take control over the bank, as is allowed by Ukrainian legislation. To make
that happen, the Fund, on behalf of all the bank’s shareholders, signed the
agreement to sell 100% of the bank’s equity to the Finance Ministry for a
symbolic amount of UAH 1. After the nationalization, the government contributed
UAH 155 bln (USD 5.9 bln) to bail in the bank. The nationalization was
supported by Ukraine’s financial partners, including the IMF. Meanwhile, all
IFIs are demanding the Ukrainian government to do its best to compensate losses
at the expense of the former bank’s owners.

Alexander Paraschiy: The ruling
on this case will not necessarily be announced on Oct. 17, but there is a
certain likelihood that it will happen then. It will be the ruling of a
first-tier court, therefore it won’t take effect (unless it’s not appealed,
which is almost impossible). However, even with no direct consequences from the
court’s decision, the ruling in and of itself will be important for Ukraine’s
relationships with IFIs. Namely, a ruling in favor of Kolomoisky will definitely
put Ukraine’s negotiations with the IMF on hold, which might have disastrous
consequences for the country’s investment case.

So far, it is hard to predict the court’s verdict, but
the situation around the bank creates an impression that the ruling will be
made in favor of Kolomoisky. First, the court did not satisfy important appeals
by the defendants, e.g. to make the hearing or arguments public. Second, the
recent resignation of Alex Danylyuk from the position of the secretary of the
National Security and Defense Council suggests that he sees little means to
protect the state’s position in litigation on Privatbank. Recall, he called the
Privatbank case a trigger for his resignation. He also stated before that his
presence on the presidential team won’t allow the risks involving
Privatbank to materialize.

All in all, we expect demand for Ukraine-related
securities will be postponed until Oct. 17, or until any other announcement
that will shed light on the prospects of the Kyiv court trial. Most likely,
this will result in an upward move of Ukraine’s sovereign yield curve and
increased devaluation pressure on Ukraine’s currency over the coming week.