Concorde Capital Research: Privatbank sells UAH 26 bln in state bonds to Ukraine central bank

December 30, 2016 - Cbonds


The National Bank of Ukraine (NBU) purchased from Privatbank (PRBANK) UAH 25.8 bln in state bonds that were contributed by the Finance Ministry to the bank’s equity as part of the bank's recapitalization, it announced in a Dec. 29 press release. The purchase, which occurred on Dec. 28, was aimed at recovering refinancing loans that the NBU provided to the bank during the last week. According to the NBU, it provided Privatbank with UAH 15 bln in a 13-day loan on Dec. 18, as well as another refinancing loan for about UAH 10.8 bln on Dec. 22. The loans were directed to secure Privatbank’s liquidity amid a heavy outflow of customer accounts.

Recall, the NBU declated Privatbank insolvent on Dec. 19, and the bank was nationalized on Dec. 21.

The NBU also commented on Dec. 29 that the recent devaluation of the local currency (the hryvnia has lost 2.9% vs. the U.S. dollar since Privatbank was declared insolvent) is not related to the nationalization and deposit outflows from Privatbank. According to NBU data, an increase in residential deposits with other banks exceeded the outflow of such deposits from Privatbank over the last ten days, hinting that the withdrawn deposits from the biggest bank did not enter the ForEx market.

Alexander Paraschiy: The NBU seems to have taken the role of the key newsmaker about Privatbank, while other entities involved in the nationalization are silent. In particular, we still have yet to learn how much in state bonds has MinFin contributed to the bank’s equity so far (the plan was to bring in UAH 43 bln by year-end). Nor has it indicated what type of bonds it has contributed (the government mentioned 15-year local currency notes at a 10.5% rate; as well as 6%, 15-year notes with their par value linked to the UAH/USD rate).

This is evidence of poor preparedness of other state entities for the nationalization, or even just a lack of professionalism. In turn, such incompetence is positive for the bondholders of Privatbank, which were bailed-in last week. With such people in charge, it looks like their chances to recover the value of their bonds looks solid.

We are also surprised by the NBU data revealing that inflows of residential deposits to Ukrainian banks are exceeding outflows from Privatbank. Taking into account that Privatbank was offering excessively high deposit rates, we see a risk that people withdrawing their money from it have been bringing their cash to other banks that offer similarly high rates, in the hopes of getting the generous returns they were expecting from Privatbank. Yet these depositors don't seem to be considering that the high rates are an indication of their risk and these banks are on the verge of bankruptcy too. This speculation will enable the risky banks to extend their life support for a while, but will only increase budget costs when they fail.
Issuer: PrivatBank
Outstanding issues:
3 issuesUSD595,000,000
5 issuesUAH100,000,000
Issuer rating:
UCRAWithdrawn/National Rating Scale08/01/2013
Moody's Investors ServiceCa/StableLT- foreign currency11/24/2015
Moody's Investors ServiceCaa3/StableLT- local currency11/24/2015
Moody's Investors Scale (Ukraine)09/25/2013
S&P Global RatingsCCC+/StableForeign Currency LT04/26/2017
S&P Global RatingsCCC+/StableLocal Currency LT04/26/2017
Fitch RatingsRD/LT Int. Scale (foreign curr.)12/30/2016
Fitch RatingsCCC/LT Int. Scale (local curr.)12/20/2016
Fitch RatingsBB(ukr)/National Scale (Ukraine)12/20/2016