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8:31 AM Friday, December 15, 2017
Tech
A Clear, Computerized Window on NPLs in Ukraine
Shuttering half of Ukraine's banks left a mountain of nonperforming loans; now investors can sort through them electronically and bid from overseas in transparent auctions
image/svg+xml Kyiv Lutsk Rivne Zhytomyr Lviv Ternopil Khmelnytskyi Uzhgorod Chernivtsi Vinnytsia Chernigiv Sumy Kharkiv Poltava Cherkasy Kirovohrad Lugansk Dnipropetrovsk Donetsk Zaporizhzhia Mykolaiv Odesa Kherson Simferopol Sevastopol Ivano- Frankivsk

ODESA – Ukraine’s nerd tribe is cleaning up the mess left behind by Ukraine’s fraudster tribe.

Since the Revolution of Dignity of 2014, Ukraine’s central bank has closed half of the nation’s 180 banks. They were often fraudulent operations where deposits were funneled to friends and family members of the bank owners.

After padlocking dozens of banks, the state Deposit Guaranty Fund inherited non-performing loans worth, on paper, $15 billion.

“Of this, there is $4 billion in realizable assets,” estimated Oleksii Sobolev, project lead of ProZorro.sale, a new, internet-based auction platform. “We have a huge NPL problem.”

Revenge of the Nerds: Oleksii Sobolev is launching the tech attack on Ukraine's Bad Asset Mountain. The ProZorro.sale graph shows the mounting volume of non-performing loans sold this year at internet auctions. (James Brooke)

Easy for Foreign Investors

Tapping on a laptop on the margins of the Ukrainian Financial Forum here, Sobolev showed how an investor can search for opportunities – and bid – from Toronto to Tel Aviv.

Let’s say an investor is interested in expanding in Ukraine’s hotel industry. All he or she has to do is type ‘hotel’ in the search window of the new bilingual English-Ukrainian site -- https://prozorro.sale.

Investors can set up alerts for loans coming up for sale in sectors of interest.

To avoid surreptitious, over the weekend, buddy-buddy sales, ProZorro.sale is linked to 40 commercial internet sales platforms. With a financial incentive to market and publicize the loans, each platform makes a 3 percent sales commission for each sale that goes through their system.

KPMG Deal Room to Join

To further the overseas reach, ProZorro.sale’s system will link next month to KPMG Deal Room, a major international selling site.

ProZorro.sale has operated on a trial base since March, selling about $115 million in properties and loans.

“The easiest to sell are cars and scrap metal,” said Sobolev. “Loans are hard because people need time to do due diligence.”

Whales for Sale

More than selling used cars, ProZorro.sale is to sell big whales.

Coming up for auction is Respublika, a massive construction project on Kyiv’s Ring Road, near Teremki Metro station. Construction started in 2011 and largely stopped in 2014.

“The biggest shopping and entertainment center in Ukraine,” the Respublika website beckons. “For the first time in Ukraine the biggest shopping and entertainment center will be integrated into top quality residential area of more than 1.2 million square meters.”

The starting price may be the hyrnia equivalent of $60 million, Sobolev estimated.

2018 Goal: Sell Half of NPLs

Planning for a massive ramp up, the ProZorro.sale goal is to earn about $2.3 billion in 2018 through sales of property and loans.

On Oct. 1, this web-based auction house moves to “Dutch auction” rules. The starting price will be the face value of the loan. The price will move down until a bid is received. The item will go for the last bid.

“If no one picks it up for 20 percent of face value, the Fund will call a new auction in one month,” said Sobolev, a chartered financial accountant.

The ProZorro.sale presentation drew many attendees at the Ukrainian Financial Forum, sponsored by ICU investment bank Friday in Odesa. (James Brooke)

Transparency

In the interests of transparency, after the sale is finalized, the names and bid prices of all bidders will be posted on the site.

ProZorro.sale was designed by local developers with some foreign funding and advice, notably from Transparency International Ukraine. In June in India, it beat 19 finalists to win an international contest maintained by Citibank, the Citi Tech for Integrity Challenge, or T4I.

In Odesa on Friday at the Ukrainian Financial Forum of ICU investment bank, Sobolev spoke on a well-attended panel, “Bad assets and non-performing loans.” Presenting a common front to the investor audience, he was joined by Kateryna Rozhkova, a deputy governor of the National Bank of Ukraine, and by Svitlana Rekrut, deputy managing director of the Deposit Guarantee Fund.


For comments and story tips, email UBJ Editor in Chief James Brooke at james.brooke@theubj.com

Posted Sept. 22, 2017

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