The European Bank for Reconstruction and Development (EBRD) confirmed on June 6 that it has raised its stake in Moldova’s third largest bank Victoriabank to 27.5% through its special purpose vehicle (SPV) located outside the country, VB Investment Holding. On the downside, the bank remains without effective corporate governance as the largest shareholder is blocking procedures in this area, the EBRD stressed.

Lack of shareholder transparency remains a major concern for Moldova’s banking sector, the EBRD explained. Under the circumstances, it has cut back its financing to local financial institutions from over €40mn in 2010 to just €12.5mn in 2015.

The EBRD said it paid €6mn to Alpha Bank Romania for a 12.5% stake in Victoriabank, resulting in a price to earnings ratio (PER) that we estimated at slightly under five. Previously, EBRD’s participation was 15%. The price paid per share was MDL42 (€1.92), versus MDL100 face value. Victoriabank reported gross profit of above €11bn in 2014-2015 while the profit tax rate in Moldova is 12%.

The procedure of share accumulation in a foreign SPV, possible after the government abolished prohibitive legislation, was aimed at facilitating the direct sale and avoiding the stake being purchased by owners with uncertain identity.

The local stock exchange does not allow for direct block sales, EBRD’s firector of financial institutions for the Western Balkans, Belarus, Moldova and Ukraine, Henry Russell, explained to bne IntelliNews. He added that the stock exchange lacks transparency and IFIs are currently providing consultancy on needed revision of capital market regulations.

Visibly, the SPV procedure was aimed at preserving the transparency of the bank’s ownership under the circumstances of already unclear identity of the largest owner – Cyprus-based Insidown (39.2%).

However, Victoriabank remains without effective corporate governance since three of the seven board members have delayed submitting the required documents to the central bank, EBRD noted in the June 6 press release. The three are the ones nominated by Insidown. The existing legislation does not provide procedures to avoid such deadlocks, Russell explained.

“I call on the National Bank to ensure that … [Insidown’s nominee prepare and submit their documentation] in line with good governance principles,” Russell stated.

In 2015, the EBRD received formal endorsement from the central bank to raise its stake in Victoriabank potentially to 100%, in a move it explained would be aimed at restoring effective corporate governance and ensuring the bank’s continued sound financial performance. However, the EBRD is still waiting to complete its consolidation of the 27.5% stake before taking any other steps. Commenting about rumours on other possible deals involving the stakes of individual investors at Victoriabank, Russell said this was premature.

The EBRD’s June 6 press release highlights the importance of transparent ownership, which seems to be the key for effective corporate governance and subsequent financial profitability.

Victoriabank has been operating without effective corporate governance since September 2014, when its supervisory board was suspended by suspicious overnight court decisions. Victoriabank was “raided” – the term used in the former USSR for a fully or partly illegal attempt to take over a company – by groups planning to take control of the bank, the head of the board of directors Vlad Turcanu warned in September 2014, pointing to a couple of overnight court decisions that fully blocked shareholder control.

The main threat to ownership transparency is clearly the bank’s main shareholder, Cyprus-registered Insidown, which has not provided any formal documents to identify the final beneficiary. Victoriabank suddenly announced in December that the final beneficiary of the 39.2% stake was Sergey Lobanov, a Russian investor who is developing Arsenal insurance group. This had previously surfaced in October, when Insidown nominated its preferred board members. Previously, the declared beneficiary was a German dentist, Paul Fischer.

The EBRD succeeded in changing the supervisory board at Victoriabank in October 25, but it faces another deadlock, as the members nominated by Insidown refuse to properly undergo the necessary procedures.