After investors into PrivatBank were wiped out during the bank’s nationalisation in December, the bank’s new management has hinted they might get some compensation after all.

The National Bank of Ukraine (NBU) issued a statement on December 26 to the holders of PrivatBank (PRBANK) Eurobonds explaining that no more payments will be made on the securities.

The bank’s Eurobond holders will be the only party to get nothing from the nationalisation of the bank: depositors will see all their savings returned and the previous owners so far have been able to keep the estimated $5.6bn in related party loans they reportedly made to themselves.

Ukraine’s largest lender, owned by oligarchs Ihor Kolomoisky and Hennady Boholyubov, was officially nationalised on December 21 after it was deemed insolvent on December 19. Between these two dates, the temporary administrator of the bank, exercising its right granted by the law on the Households Deposit Guarantee System, ruled to bail-in all the bank’s liabilities related to Eurobonds, the NBU explained. It also announced that further details “will be announced in due course”.

The nationalisation of the failed bank, based on Ukrainian legislation, allows the Deposit Guarantee Fund to bail-in the related party liabilities of PrivatBank, as well as any unsecured non-deposit liabilities (like Eurobonds).

At his first press conference on December 22, PrivatBank’s newly appointed CEO Oleksandr Shlapak confirmed that all the bank's Eurobonds were converted into equity as part of a bail-in. “For some reason, Eurobonds were included into the list of financial instruments that were converted into equity,” he said. “Together with the National Bank, we will try to find common ground with the Eurobond holders. If not, then we will prove our case in court.”

Alexander Paraschiy, head of research at Concorde Capital, wrote in a research note: “The NBU’s short report on the eighth day of the bank’s insolvency indicates that none of the parties involved in the nationalisation wanted to approach the bondholders with bad news. In our view, this indicates the government is not comfortable with the decision to fully dilute the international creditors of Privatbank.”

“In our view, neither of the parties involved in the bank’s nationalisation programme is willing to take responsibility for the full dilution of Eurobond holders,” Paraschiy added. “This fact, as well as the bail-in violating the equal treatment approach of Privatbank lenders, causes us to expect that the recovery rate of PRBANK Eurobonds will be more than zero.”

A clear motive for the government to seek a mutual beneficial solution with bondholders is that the government is afraid of spoiling its relationship with private international creditors, according to Concorde. “Firstly, the MinFin is still expecting to place some market Eurobonds in the short- or mid-term future. Secondly, the government might be willing to secure support from international investors in its inevitable information and legal war against the former owners of PrivatBank,” the note said.

PrivatBank issued two senior Eurobonds, the first at UAH160mn outstanding that mature in January 2018, and the second at UAH175mn outstanding that mature in February 2018. In addition, it issued subordinated Eurobonds maturing in February 2021 that were issued in two tranches of $150mn issued in 2010 and restructured in 2015, and an additional $70mn issued in 2015 and purchased by related parties.

Ukraine’s State Deposit Guarantee Fund managed to bail in only UAH29.4bn of PrivatBank liabilities before the bank was nationalised, NBU Head Valeria Gontareva told a local radio on December 22. According to initial plan designed by the NBU, UAH32bn of PrivatBank liabilities were subject to a bail-in, she said. “That suggests about UAH2.6bn of funds (of related parties) were withdrawn from the bank in recent days,” Gontareva concluded.

Under the plan outlined by the NBU on December 19, the Fund was going to convert UAH31.2bn of PrivatBank liabilities (to related parties and Eurobond holders) into the bank’s shares, as part of the nationalisation plan. Further on, all the bank’s shares were sold to Ukraine’s Finance Ministry for UAH1. This task was completed on December 21, according to the announcement of the Fund and the ministry.

On the same day, the ex-management of PrivatBank published its own version of the bank’s nationalisation, explaining that the tough rules implemented by the NBU in recent years, unfair treatment to the bank by the regulator and information attack initiated by the NBU head were the reasons for the bank’s failure.

Meanwhile, the government will issue up to UAH116.8 ($4.4bn) of domestic loan bonds with a maturity period of up to 15 years and maximum income interest rate of 10.5% to pay for an additional issue of shares of PrivatBank.