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Privatbank bondholders demand equal treatment with Cargill

Privatbank bondholders demand equal treatment with Cargill

31 January 2017

Lawyers representing an ad hoc group of bondholders of Privatbank (PRBANK) sent a letter to the bank, Ukrainian authorities, and the U.S. and Swiss embassies in Ukraine demanding the repayment of their bonds “in accordance with their terms.” The group said the purported bail-in of the bonds is not valid as a matter of English law, and it does not adhere to “the obligations of Ukraine under various bilateral investment treaties.” 

 

The letter also referred to a recent case of Cargill Financial Services, whose loans to Privatbank were purportedly bailed-in (along with Eurobonds) but then allegedly “acknowledged as outstanding or repaid in full.” With this alleged move, the bank and/or Ukrainian authorities gave special treatment to Cargill loans so the holders are demanding the same treatment for Eurobonds, the letter said. The group is going to “to enforce the loans and seek other such relief as is necessary against the state of Ukraine” if the Eurobonds won’t be serviced.

 

The group claims there is no basis for treating its members as the bank’s affiliated or related parties. The group members reportedly have invested over USD 1 bln of their funds in Ukraine, have participated “in a number of successful restructurings of Ukrainian sovereign, quasi-sovereign and corporate debt,” and now “are worried as to whether Ukraine is an appropriate investment destination.”

 

Recall, as a part of Privatbank’s nationalization, the State Deposit Guarantee Fund of Ukraine ruled to convert Privatbank’s obligations of UAH 29.4 bln outstanding into the bank shares before selling them all to Ukraine’s Finance Ministry for a symbolic sum of UAH 1. Public information from Ukraine’s central bank indicated the UAH 29.4 bln amount includes all the Eurobonds of Privatbank in the amount of about UAH 14.6 bln. No official information of other bailed-in obligations is available. Based on acting Ukrainian legislation, the Fund had a right to bail-in only unsecured Privatbank obligations which are not current or deposit accounts, as well as any bank’s obligations to related parties.

 

Alexander Paraschiy: Thus far, we have no confirmation that Ukrainian government indeed bailed-in some of Privatbank’s obligations to Cargill, nor info on the government (or the bank) restoring bailed-in obligations. In our understanding, there were some Privatbank obligations to Cargill (e.g. unsecured loans) that were bailed-in with no recovery, while there were some other obligations (e.g. Cargill’s current or deposit accounts in the bank) that weren’t bailed-in. If so, the Cargill case won’t offer a precedent for Eurobond holders.

 

Possible alternative developments with Cargill, which will be favorable for bondholders, could have been: a) the government mistakenly bailing-in some of the obligations to Cargill in violation of Ukrainian law (e.g. current or deposit accounts, or secured loans from Cargill) and having to cancel such decisions afterwards; or b) the government indeed bailing-in some of Cargill’s assets in accordance with Ukrainian law, but nevertheless later deciding to cancel such actions. In our view, if some of the above-mentioned events happened indeed, the government, the bank and Cargill will have a chance to hide information on this from the bondholders and the public. Therefore, we don’t believe the Eurobond holders will be able to gain something (outside the courts) by citing the Cargill case.

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