VAB Bank balance might be transferred to state bank, owner says

Oleg Bakhmatyuk, the 90% owner of the insolvent VAB Bank (VABANK), is going to financially support the transfer of its assets and liabilities to state Ukrgazbank, the Interfax-Ukrayina news agency reported on Dec. 16. Bakhmatyuk is ready to provide a subordinated debt to Ukrgazbank in the amount of about UAH 3.0 bln, which he earlier intended to provide to VAB Bank as a part of its recapitalization. In this way, he said he expects that most VAB Bank creditors, including the holders of its Eurobonds, will be able to receive their earlier invested funds.

Recall, in July 2014, VAB Bank restructured its USD 88 mln Eurobond for five years with amortized repayments. The bank was recognized insolvent by Ukraine’s central bank on Nov. 20. According to existing rules, after being recognized insolvent, the bank should be liquidated, which dims the likelihood of the Eurobond’s repayment.

Alexander Paraschiy: We welcome Bakhmatyuk’s attempts to act in the interests of the Eurobond holders. His proposal seems to be the only way for VAB Bank to avoid its liquidation and create some chance for the repayment its Eurobonds, but, as we understand, there is no precedent and no regulatory framework in Ukraine to support such a scenario.

It’s worth keeping in mind that Bakhmatyuk already had an opportunity to repay the bank’s Eurobond on time, in June 2014, if he had completed a UAH 1.0 bln capital injection into the bank before the scheduled repayment. The capital injection, approved in November 2013, was only completed in late July 2014, a couple of weeks after the bond’s restructuring.

With the restructuring and delayed capital injection, Bakhmatyuk effectively involved bondholders in his plan to keep the bank solvent. He was also trying to get the state involved in the bank’s financial stabilization efforts, but failed to do so, which brought the bank to the predicament in which it is now.