Kyiv court rules against Privatbank nationalization

The Kyiv Administrative Court ruled on Apr. 18 to
recognize as invalid the sale-purchase agreement that enabled Ukraine to
nationalize Privatbank (PRBANK) in December 2016, the court’s press service
reported the same day. The court trial began in June 2017 based on the
complaint of the bank’s biggest former shareholder, Ihor Kolomoisky. In its
ruling, the court cited the inability of the government to provide adequate
legal reasons for declaring the bank insolvent, as well as violations in the
procedure of the bank’s nationalization. The court concluded that the
government violated Privatbank former shareholders’ rights to own their assets.

 

Recall, Privatbank was recognized insolvent by
Ukraine’s central bank on Dec. 18, 2016 and transferred it to the management of
the State Deposit Guaranty Fund. Following that decision, the Cabinet decided to fully nationalize the bank.
Before the nationalization, the Fund bailed in USD 1.1 bln of the bank’s
liabilities to related parties and Eurobond holders. After that, the Fund sold
all the banks’ shares to the Finance Ministry for a symbolic amount of UAH 1.

 

The court ruling drew a wide reaction in Ukraine amid
an intense and sometimes vicious election campaign. First, the National Bank
commented that such ruling deals “irreversible damage to Ukraine’s
international image,” promising to respond with an appeal in the courts and a
complaint to Ukraine’s National Security and Defense Council. The
nationalization was “based on the fact that the bank’s regulatory capital had become
negative,” it reminded the public. Commenting on the ruling, Ukraine’s Finance
Ministry also promised to file an appeal, reminding the public that the
government had to contribute UAH 155.3 bln into the bank’s equity after the
nationalization.

 

It their turn, EBRD and U.S. Embassy in Ukraine also
expressed support for the Ukrainian government, admitting in their identical
press releases that the nationalization was “the only effective method of
protecting the bank’s depositors … and the stability of the financial system.”

 

The reaction of President Petro Porosheko, who is very
likely to lose his post following the Apr. 21 runoff vote, were far more
radical. “Such an escapade threatens with the loss of tens of millions in
clients’ money, as well as default and a new economic crisis for the whole
country,” he said.

 

Representatives of Poroshenko’s opponent, Volodymyr
Zelenskiy, commented that the ruling is the result of ineffective court reform
conducted by the president during his term. “Instead of protecting the state’s
interests, the NBU is losing a court case to Privatbank,” the Zelenskiy
campaign wrote on its Facebook page. “So then who is a puppet of Kolomoisky,
after all?,” it said, referring to the Poroshenko campaign’s repeated claim
that Zelenskiy is in fact Kolomoisky’s puppet.

 

Alexander Paraschiy: This is
merely the latest in many court rulings on Privatbank that were made in the
last couple of years. The ruling will have no direct implications unless an
appellate court affirms it, which does not look very likely. We can’t deny that
Kolomoisky’s ultimate victory in the courts for control of Privatbank is more
likely under the presidency of Zelenskiy, whose campaign is being sponsored by
the oligarch. But regardless of the outcome in the courts, it will be
technically impossible to return the bank to its former owners.

 

At the same time, this ruling could have some positive
implications for the holders of the bailed-in Eurobonds of Privatbank, which is
in line with our expectations that the chances of the bonds to be fully
recovered are higher under a Zelenskiy presidency.

 

In the context of Sunday’s presidential runoff vote,
this ruling – which is widely speculated to have been arranged on the eve of
the vote – favors Petro Poroshenko. The president’s campaign has reverted to a
last-minute strategy of raising fears about economic collapse in the event of a
Zelenskiy presidency that would be triggered, among other things, by the reversal
of the nationalization of Privatbank.

 

However, it’s a rather pathetic end to Poroshenko’s
elections campaign, which has been driven largely by fear-mongering of a
Russian takeover and other catastrophes. The latest polls still give Zelenskiy
a commanding lead that can’t be overcome mathematically.