Bondholders of Ukraine's PrivatBank challenge bail-in in London court

Bondholders of Ukraine's PrivatBank challenge bail-in in London court
By bne IntelliNews May 18, 2017

Eurobond holders of Ukraine's biggest state lender PrivatBank have filed a lawsuit in the London Court of International Arbitration challenging the bail-in for their securities during the bank's nationalisation, the Suprema Lex law firm that is advising the noteholders said on May 18.

“On behalf of some noteholders we have initiated a lawsuit regarding violation of their rights during the bail-in for PrivatBank’s notes in the international arbitration institute,” Interfax news agency quoted Viktor Moroz, managing partner of Suprema Lex, as saying. “The proceedings are at the stage of approving the arbitration procedure and selecting arbiters.”

In December, the Ukrainian government announced the nationalisation of PrivatBank after it failed to fulfill a three-year recapitalisation plan. The bank was found to have a UAH148bn (€5.1bn) hole in its balance sheet as of early December, which at the time was said to be almost entirely due to related-party financing.

Moroz also confirmed the intention of holders of Eurobonds worth $175mn with a maturity of February 28, 2018 and $200mn with a maturity of January 23, 2018 to replace a trustee during a meeting that should take place on June 5.

It is possible that the powers of the Germany-based trustee, Deutsche Trustee Company, could be withdrawn at the meeting and a new trustee, Madison Pacific Trust, will be considered, according to securities issuer UK SPV Credit Finance plc (UK), reporting on the London Stock Exchange (LSE).

Moroz attributed the replacement of the trustee to the fact that there is an agreement under which the trustee’s power is limited in challenging any steps of PrivatBank regarding the notes, which actually paralysed the possibility of protecting the noteholders.

It is also linked to a conflict of interest between Deutsche Trustee Company and the National Bank of Ukraine (NBU), Moroz added without elaborating.

To cover the capital shortfall the Ukrainian government injected UAH117bn (€4.1bn) and bailed-in PrivatBank's non-deposit unsecured creditors for the amount of UAH29.4bn ($1.1bn), including bondholders for the amount of $595mn.

In February, UK SPV Credit Finance said it will not make any payments on the notes maturing in February 2018. The issuer said it has received no payments from PrivatBank, which should have paid $40mn in bond amortisation by February 23 to reduce the amount outstanding to $120mn.

The NBU officially confirmed in December that no payments to PrivatBank bondholders will be made on the lender’s various Eurobonds. Each of the loans represented by the loan agreements was bailed-in during the temporary administration of the bank. The lender had three issues of Eurobonds maturing in 2018 ($375mn) and 2021 ($220mn).