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6:25 AM Saturday, November 18, 2017
Finance
Ukraine to Issue Almost $1 billion in Bonds for PrivatBank
Documents seen by Bloomberg show capital shortfall was bigger ;Government mulling punishment for PwC, person familiar says
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Bloomberg: UKRAINE GOVT TO ISSUE UAH22.5B OF BONDS FOR PRIVATBANK: MINFIN


By Timothy Ash

:Big number - $22.5bn is $850m in bonds, or around 1% of GDP.

Privatbank portfolio is worse than expected. This is a significant cost to the Ukrainian state for bailing out the bank.In terms of increased public debt it is more than I expected and the market expectation.

Given UAH107bn injection in December, UAH9.8bn early this year, and now another UAH38.5bn planned (USD22.5bn in bonds immediately) UAH155bn -- $6bn -- or 7% of GDP, and $150 per head for the Ukrainian population is the cost of bailing out PrivatBank.

Thank Mr Kolomoisky!

Questions will be asked as to whether he will be brought to account for this.


By Daryna Krasnolutska and Kateryna Choursina

KYIV -- Already reeling from a $4.5 billion bill to save its ailing No. 1 lender, Ukraine now is bracing for an even costlier rescue, and says audits by PwC’s local office were instrumental in the bank’s failure.

The government may have to stump up 38.5 billion hryvnia ($1.5 billion) more to recapitalize Privatbank after last year’s state takeover, according to documents seen by Bloomberg. The figure is from due diligence carried out by Ernst and Young Audit Services LLC, which estimated a “conservative” shortfall of 192 billion hryvnia before nationalization. EY declined to comment publicly on client work.

Ukraine has already injected more than 100 billion hryvnia into Privatbank, while also wiping out holders of the lender’s bonds. The cabinet will approve the additional capital this week, two people familiar with the matter at the central bank told Bloomberg, asking not to be identified as the information isn’t public.

Black Hole? It appears the owners of Privatbank gave out about billions of unsecured loans to friends and business partners. PwC audited the bank from 2007 to 2015. (UNIAN/Vladimir Gontar)

PwC: Privatbank’s Auditor

The new figure compares with a hole of 148 billion hryvnia as calculated by the central bank before nationalization. The lender’s accounts were audited by PwC from at least 2007 to 2015. Ukraine is considering banning the company from auditing any more banks, according to a person at the central bank who asked not to be identified. PwC said by email that it remain’s committed to Ukraine, and that its 2015 audit of Privatbank met international standards.

“At the time of issuance of the 2015 opinion Privatbank had agreed with the National Bank of Ukraine a comprehensive restructuring plan,” it said, “The National Bank of Ukraine confirmed that restructuring was on track in a meeting with PwC Ukraine the day before signing the audit opinion.”

‘No Progress’

The additional costs, equivalent to almost a 10th of Ukraine’s $17.5 billion international bailout, underscore the challenge in remodeling the former Soviet republic’s economy after years of corrupt rule. As well as the rising expenses, legal action is possible over the fate of the bank’s related-party loans and from disgruntled former bondholders.

Privatbank’s nationalization marked the culmination of efforts to shore up the financial industry in the wake of a revolution and a Russian-backed insurgency.

The central bank said Tuesday that while nationalizing Privatbank solved a systemic problem, it created a long-term challenge stemming from the state now accounting for more than half of banking assets and deposits. “There’s been almost no progress in reforming state lenders in the past year and the strategy approved by the government isn’t being implemented,” it said in a report on financial stability.

Privatbank was the biggest contributor to this year’s increase in non-performing loans, according to Vitaliy Vavryshchuk, head of the central bank’s financial stability department. The figure represented almost 57 percent of total loans in April, compared with 38 percent in January, according to the report. Privatbank’s NPLs were confirmed after nationalization.

Credit Quality

Related-party loans are also an issue, comprising 99.4 percent of Privatbank’s corporate portfolio at the end of 2016. EY said in its report that 164 of the 168 borrowers it analyzed are certain to default. Repayment of interest on the loans also declined after nationalization, it said.

“There’s a lack of instruments for adequate control over credit risks,” according to the EY report. “A lack of constructive dialogue with the previous owners strengthens the uncertainty over the credit portfolio’s quality.”

Igor Kolomoisky and Gennady Bogolyubov, the billionaires who owned Privatbank until requesting government assistance in December, have promised to restructure related-party loans by July 1. The government hired Rothschild & Co. to help handle those talks. Companies affiliated with the tycoons are suing the central bank and the government in a bid to undo the nationalization.


To contact the reporters on this story:
Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net;
Kateryna Choursina in Kiev at kchoursina@bloomberg.net

Posted June 22, 2017

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