MKS bankruptcy proceedings begin

Ukrainian media sources reported yesterday that on May 28 in the Kharkiv Economic Court bankruptcy proceedings began involving electronics retailer MKS (EKVIN). According to an MKS press release, the bankruptcy procedure was initiated by MKS itself with the intent to prevent the seizure of assets by VTB Bank as a consequence of a dispute that erupted over the repayment of a loan in December 2008. Respectively, MKS’ CEO, Alexander Golovchenko, has been appointed a receiver, according to daily Kommersant. MKS said that VTB demanded early repayment of the loan (though the agreement expired in Dec. 2010) and as a restructuring option, in December 2008 the bank offered repayment within 1.5 months at an annual interest rate of 45%. MKS said that as of May 2009, it had repaid 75% of the loan, but a local court ruled on May 5 to arrest the property and accounts held by MKS over the feud. MKS said it has already forwarded evidence of illegal actions by VTB Bank representatives to the local prosecutors. In its statement, MKS said that during the bankruptcy procedure, it intended to meet the claims of other creditors, suppliers, clients and employees. Andriy Gostik: According to MKS, the company owns nearly 23 ths m2 of retail property, the lion’s share of which are pledged against its credits. If MKS sells the property it owns, it should be able to repay most of its debts, yet this option is less preferable for the company. In our view, the company has a chance to survive if it acts aggressively with its creditors, pushing them for debt write-downs and restructuring. On the other hand, the ‘timeout’ that MKS will receive due to the bankruptcy proceedings might allow the company to find a strategic partner that would help the retailer repay the debts, possibly, in exchange for a controlling stake in the company.