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Concorde Capital Research: Kyiv court rules against Privatbank nationalization

April 19, 2019 | Cbonds

The Kyiv Administrative Court ruled on Apr. 18 to recognize as invalid the sale-purchase agreement that enabled Ukraine to nationalize Privatbank (PRBANK) in December 2016, the court’s press service reported the same day. The court trial began in June 2017 based on the complaint of the bank’s biggest former shareholder, Ihor Kolomoisky. In its ruling, the court cited the inability of the government to provide adequate legal reasons for declaring the bank insolvent, as well as violations in the procedure of the bank’s nationalization. The court concluded that the government violated Privatbank former shareholders’ rights to own their assets.

Recall, Privatbank was recognized insolvent by Ukraine’s central bank on Dec. 18, 2016 and transferred it to the management of the State Deposit Guaranty Fund. Following that decision, the Cabinet decided to fully nationalize the bank. Before the nationalization, the Fund bailed in USD 1.1 bln of the bank’s liabilities to related parties and Eurobond holders. After that, the Fund sold all the banks’ shares to the Finance Ministry for a symbolic amount of UAH 1.

The court ruling drew a wide reaction in Ukraine amid an intense and sometimes vicious election campaign. First, the National Bank commented that such ruling deals “irreversible damage to Ukraine’s international image,” promising to respond with an appeal in the courts and a complaint to Ukraine’s National Security and Defense Council. The nationalization was “based on the fact that the bank’s regulatory capital had become negative,” it reminded the public. Commenting on the ruling, Ukraine’s Finance Ministry also promised to file an appeal, reminding the public that the government had to contribute UAH 155.3 bln into the bank’s equity after the nationalization.

It their turn, EBRD and U.S. Embassy in Ukraine also expressed support for the Ukrainian government, admitting in their identical press releases that the nationalization was “the only effective method of protecting the bank’s depositors … and the stability of the financial system.”

The reaction of President Petro Porosheko, who is very likely to lose his post following the Apr. 21 runoff vote, were far more radical. “Such an escapade threatens with the loss of tens of millions in clients' money, as well as default and a new economic crisis for the whole country,” he said.

Representatives of Poroshenko’s opponent, Volodymyr Zelenskiy, commented that the ruling is the result of ineffective court reform conducted by the president during his term. “Instead of protecting the state’s interests, the NBU is losing a court case to Privatbank,” the Zelenskiy campaign wrote on its Facebook page. “So then who is a puppet of Kolomoisky, after all?,” it said, referring to the Poroshenko campaign's repeated claim that Zelenskiy is in fact Kolomoisky's puppet.

Alexander Paraschiy: This is merely the latest in many court rulings on Privatbank that were made in the last couple of years. The ruling will have no direct implications unless an appellate court affirms it, which does not look very likely. We can't deny that Kolomoisky's ultimate victory in the courts for control of Privatbank is more likely under the presidency of Zelenskiy, whose campaign is being sponsored by the oligarch. But regardless of the outcome in the courts, it will be technically impossible to return the bank to its former owners.

At the same time, this ruling could have some positive implications for the holders of the bailed-in Eurobonds of Privatbank, which is in line with our expectations that the chances of the bonds to be fully recovered are higher under a Zelenskiy presidency.

In the context of Sunday's presidential runoff vote, this ruling – which is widely speculated to have been arranged on the eve of the vote – favors Petro Poroshenko. The president's campaign has reverted to a last-minute strategy of raising fears about economic collapse in the event of a Zelenskiy presidency that would be triggered, among other things, by the reversal of the nationalization of Privatbank.

However, it's a rather pathetic end to Poroshenko's elections campaign, which has been driven largely by fear-mongering of a Russian takeover and other catastrophes. The latest polls still give Zelenskiy a commanding lead that can't be overcome mathematically.

Company: PrivatBank

Full company namePrivatBank PJSC
Country of riskUkraine
Country of registrationUkraine


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