Government initiates battle with former Privatbank owners

Two leading Ukrainian financial government bodies
launched a campaign this weekend to recover money owed by the former major
shareholders of Privatbank, according to statements they issued. Ukraine’s
Finance Ministry reported on July 2 that it sees no significant progress in the
restructuring of loans made by Privatbank (PRBANK) to parties related to its
former shareholders. The restructuring of some loans was a part of an agreement
reached between former shareholders and the government ahead of the bank’s
nationalization in December 2016. Instead of restructuring, “we are
observing a coordinated legal and media campaign against the interests of the
state,” the Finance Ministry said in its press release. 

The National Bank of Ukraine shared the position of
the Finance Ministry, publishing the same statement in a July 3 press release.
“The deadline for the voluntary restructuring of loans of former Privatbank
owners expired on July 1, 2017. Now it can be stated that the former owners
failed to fulfill their obligations,” the NBU wrote. The state and the bank
will start the legal procedure of forced collection, according to the NBU,
which alleged that the bank was owed UAH 76 bln from Igor Kolomoisky and
Gennady Bogolyubov.

The Finance Ministry also published a letter signed by
former major shareholders Kolomoisky and Bogolyubov dated Dec. 16, 2016, in
which they asked the prime minister to take ownership of the bank in order to
increase its capital. The shareholders obliged to grant full access to all
premises and information systems and not to interfere in their work in the
future; not to pressure the bank and the government; and to facilitate the
restructuring by June 1, 2017 of their liabilities to the bank, amount of which
would be approved by an international audit company selected by the Finance
Ministry.

Recall, Privatbank was recognized insolvent on Dec. 18
and was nationalized on Dec. 21. Since then, its capital was increased by UAH
29.4 bln via conversion of some of its liabilities into equity (the bail-in)
and by UAH 116.8 bln via a government contribution to its equity, which later
swelled by an additional UAH 22.5-38.5 bln.

Alexander
Paraschiy: After a half-year ceasefire between the government
and the former Privatbank shareholders, both sides are now escalating their
legal and media attacks against each other. So far, it is hard to say whether
the government will achieve its forced collections, but the risk is emerging
that it will suffer some reputational losses from active media war with former
Privatbank owners.

The holders of the bailed-in Privatbank Eurobonds may
also activate their legal actions soon, forcing the government to fight on two
fronts. Amid all this pressure on the government, it’s possible the bondholders
may get a better chance to gain some recovery of their bonds.