Fixed Income Analysis /

Privatbank: Unfinished business

  • Ukraine's banking law has been passed. The IMF has reached a staff-level agreement on a new arrangement.

  • Countless court cases involving Privatbank, including the senior bondholders' case, have not been fully resolved.

  • Further progress with these cases may help in achieving this lender's strategic objectives, which include privatisation.

Tolu Alamutu
Tolu Alamutu

Credit Research Analyst, Banks

Tellimer Research
29 May 2020
Published byTellimer Research

Since we last wrote about Privatbank (PRBANK), Ukraine’s much-discussed banking law has been passed. This law strengthens the position of the National Bank of Ukraine (NBU) and prevents the return of banks declared insolvent to the former owners. Following the news that the law had been passed, the IMF reached a staff-level agreement on a new arrangement for the country. Tellimer economists expect board approval by mid-June.

Passage of the banking law does not preclude a settlement with holders of senior PRBANK eurobonds that are not linked to the former owners of the bank. In 2019, the London Court for International Arbitration (LCIA) made a partial award in favour of these bondholders. In another step forward, in March this year the London High Court determined that the senior bondholder trustee would not incur additional liabilities by making payments to some (but not all) holders of the PRBANK 10.25% and PRBANK 10.875% securities. The LCIA award and London High Court determination were made based on Privatbank’s ‘illegality defence’. PRBANK senior bondholders still need to address the 'bail-in defence'. Like the illegality defence, this is being heard at the LCIA. It is still not yet clear how long it will take for a decision to be made.

Countless other court cases remain unresolved. There are claims and counterclaims involving the bank, the former owners, Ukraine’s authorities and many other parties in Ukraine, the US, the UK and other countries. Recently, the case involving the Surkis family has been in the headlines. Ukraine’s courts have so far ruled in favour of the family, challenging the decision to bail in deposits of companies linked to them as part of the 2016 nationalisation. The Supreme Court of Ukraine is due to hear the appeal from the bank and some of Ukraine’s authorities on 15 June. These court cases are time-consuming and may involve significant cost. However, PRBANK has continued to perform relatively well. 

The importance of Privatbank in Ukraine cannot be overstated. At the beginning of March, this lender accounted for 60% of state-owned bank assets and almost 36% of banking sector total assets. In the period to March 1, Privatbank generated net income of almost UAH10.2bn based on data from the NBU. This compares to UAH11.9bn for all state-owned banks and UAH15.9bn for the whole banking sector. Thus, PRBANK alone generated 64% of banking sector profit and 85% of profit from state-owned lenders. In addition, after reporting losses in 2016 and 2017, the bank now makes significant payments to the state. For 2018, Privatbank paid 90% of net income of UAH12.8bn to the state as dividends. For 2019, 75% of net income of UAH32.7bn is to be paid in dividends. It is unclear what impact the recent recommendation from the NBU to ‘refrain from dividend distribution’ will have on future payments by Privatbank.

The bank’s strategic plan envisages privatisation in 2021-2022. Like many things, it is possible that the Covid-19 pandemic may affect this – there has been no update on the timing of the planned privatisation yet. Nonetheless, further progress towards resolving pending court cases, including those involving PRBANK eurobonds, may prove important if the privatisation goal is to be achieved. What eventually happens with PRBANK senior bonds may also have implications for other Ukrainian banks seeking to access the eurobond market in the future.

For more on Privatbank, please see the reports at the links below:

Privatbank: Another step forward for senior bondholders

Privatbank: A win for the bank. Now what?

Privatbank: Good things come to those who wait

Privatbank: One small step for PRBANK, one giant leap for all senior bonds