IFC provides EUR 30 mln convertible loan to Ukrgazbank

The International Finance Corporation (IFC), Ukraine’s
Finance Ministry and Ukrgazbank signed on Jan. 25 a trilateral agreement that
was indicated as a first step of an IFI entering the equity of a state bank.
The agreement was signed in the presence of Ukraine’s president, prime minister
and the head of the central bank.

Official releases provided little details about the
deal, indicating only that the IFC will provide EUR 30 mln in loan to
Ukrgazbank, which can be converted into its equity. The loan can be converted
into up to 20% of the bank’s shares, according to the Interfax-Ukraine news
agency. According to the liga.net news site, the loan will have a five-year
tenor and interest rate of LIBOR+5.5%.

The draft of the cabinet resolution (adopted on June
3, 2020) on the IFC deal stipulates that MinFin should also sign an option
agreement that would allow the IFC at any time to sell to MinFin any shares of
Ukrgazbank.

Ukrgazbank is the fourth-largest bank in Ukraine by
assets (and also the fourth-largest state-controlled bank) with end-November
total assets of UAH 152 bln. The bank was on the verge of bankruptcy and was
nationalized in 2009. Since then, the government contributed UAH 13.1 bln into
its equity. The government and the bank were in talks on the possible
participation of the IFC in its equity as of 2017.

Alexander Paraschiy:  While
the deal could be interpreted as the start of an era of declining state
participation in the Ukrainian banking sector, such heightened attention of top
policy makers to a convertible loan agreement for just EUR 30 mln looks
inadequate. The deal implies IFC could convert its loan into the bank’s shares
at a multiple of no less than 0.5 P/B, which looks not bad for the
state-controlled bank. Meanwhile, the put option that IFC allegedly has does
not allow to claim this deal is a “privatization.”

This deal can also have implications for Ukraine’s
three other huge state-controlled banks. Taking into account that Ukrgazbank
was best-prepared for an IFI entering into its equity, and that the negotiation
process with IFC took more than three years and ended up in just a loan, we can
conclude that the timing of a privatization, or an IFI entering into another
state bank, will be quite long.