Ukraine increases equity of Privtabank by additional UAH 9.8 bln

The Cabinet of Ministers ruled on Feb. 22 to issue an additional UAH 9.8 bln in local bonds that will be contributed to the share capital of the nationalized Privatbank, the government website reported. The new issue will mature in 15 years, have a coupon rate of 6% and its par value will be linked to U.S. dollars. In December 2016, the government already issued such bonds aimed at the recapitalization of Privtabank, for a total par value of UAH 64.0 bln. It also issued standard UAH-denominated bonds for UAH 43.0 bln in December.

The latest bond issue raises the government’s total contribution into the equity of Privatbank to UAH 116.8 bln, or 100% of the initial plan as announced in late December. Including the contribution from bailed-in creditors (UAH 29.44 bln), Privatbank’s share capital has increased by UAH 146.24 bln (USD 5.52 bln) since it was announced insolvent on Dec. 19.

Alexander Paraschiy: The total value of the capital contribution in Privatbank is comparable to 73% of the amount that Ukraine has received from the IMF under its Extended Fund Facility program since 2015. But this might be not the end of story. The amount is still below the potential capital gap of the bank, which was UAH 148.0 bln, according to central bank estimates provided on Dec. 19. Therefore, the risk remains that even with the latest capital increase the bank’s capital remains negative. Taking into account that the bank is also going to take on its balance some liabilities (up to UAH 5 bln) under a P2P program promoted by former shareholders under the Privatbank brand, the remaining capital gap of the bank could increase further.

The initial plan of central bank had also assumed that the former shareholders of the bank (who borrowed over UAH 150 bln from it according to the regulator) will also contribute to decreasing the bank’s capital gap via the restructuring/repayment of their debt to the bank (for up to UAH 76 bln). The recent capital increase suggests the government (the new bank management) was unable to agree with related borrowers on any repayment/restructuring of their debt. The bailed-in bondholders and Ukrainian government, therefore, took on the whole burden of recapitalizing the bank. The bailed-in creditors will sue against a full write down of their investment into the bank, which may further increase the government’s needs to recapitalize it in the mid-term future.