Cablegate: Concluding the Saga of Ukraine's Most Troubled Bank
DE RUEHKV #2021/01 3240415
ZNR UUUUU ZZH
P 200415Z NOV 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 8839
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHZG/NATO EU COLLECTIVE
UNCLAS SECTION 01 OF 02 KYIV 002021
STATE FOR EUR/UMB, EEB/OMA
E.O. 12958: N/A
TAGS: EFIN EREL ELAB ECON ETRD PGOV PREL XH UP
SUBJECT: CONCLUDING THE SAGA OF UKRAINE'S MOST TROUBLED BANK
REF: KYIV 1916
KYIV 00002021 001.2 OF 002
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION
1. (SBU) Summary. Nadra Bank, the much troubled Ukrainian
financial institution, may be close to finalizing a deal with at
least 75% of its external creditors, who hold $570 million of
Nadra's total debt. Nonetheless, the Ukrainian government is giving
signals that it could be changing tack and may not recapitalize the
bank. Nadra's liquidation would likely lead to a purchase and
assumption arrangement, either with a private investor or with a
state-owned bank akin to the mechanism employed by Rodovid with now
defunct Ukrprombank. The former arrangement would be unprecedented
in scope, while the latter would add more shaky liabilities and
distressed assets to the GOU's balance sheet. End summary.
NADRA RESTRUCTURING STALLED...
2. (SBU) Ministry of Finance director for bank recapitalization
Teimur Bagirov said publicly that negotiations with Nadra's foreign
creditors had stalled. Bagirov suggested it was not possible for
the Cabinet of Ministers to make a final decision on whether to
recapitalize the bank. He noted that the Cabinet had devised a
"Plan B" to liquidate Nadra in the event its external debt remained
outstanding. Nadra's liabilities and viable assets would be
transferred to a state-owned bank, similar to the process currently
underway with Rodovid and Ukrprombank.
...OR CONTINUING APACE?
3. (SBU) However, NBU deputy governor Volodymyr Krotiuk told
journalists that roughly 70% of Nadra's total foreign debt ($870
million) had been restructured. This figure was corroborated by a
senior Nadra official, who indicated to us that the bank had nearly
restructured 75% of its foreign debt. After the 75% threshold had
been reached, according to Krotiuk, the Cabinet of Ministers would
decide whether to nationalize the bank.
4. (SBU) Nadra officials confirmed to Econoff that the bank was in
"active conversations" with its creditor committee, comprised of
Commerzbank, Standard Bank, OTP Bank, Fortis, and Cargill Financial,
among others. The Nadra representatives said there were differing
opinions among creditors about terms of a negotiated deal, with some
looking for "special conditions" that Nadra had determined were "not
realizable". A letter outlining proposed terms had been sent to the
creditor committee and likely would be answered by November 20 or
early the following week.
5. (SBU) A senior London-based representative from Commerzbank told
us that the creditor committee had nearly reached an internal
agreement on the Nadra debt restructuring. Fellow bankers were
cognizant that Nadra's non-performing loans (NPLs) and a "massive"
outflow of deposits indicated further credit deterioration, making
its speedy resolution a necessity for economic and political
reasons. Ukrainian authorities were playing a "wild card" with
Nadra over nationalization. Commerzbank viewed the possibility that
an investor would buy Nadra as "science fiction".
POSSIBLE SUITORS FOR NADRA
6. (SBU) Nonetheless, Nadra temporary administrator Valentina
Zhukovska told the media that the bank was entertaining three
offers, without disclosing any suitors.
7. (SBU) Stockholm-based East Capital, a private equity fund that
holds a 6.6% share of Nadra, confirmed it had considered a further
investment in Nadra. According to East Capital senior advisor
Margot Jacobs, any potential deal would be determined by the GOU's
plans for recapitalization.
8. (SBU) A second foreign investor hinted that it also had designs
on a major Nadra investment. Platinum Bank -- owned by Horizon
Capital, a U.S. managed private equity firm in Kyiv -- announced its
willingness to take over Nadra's liabilities and viable assets in
the event Nadra was liquidated. Platinum Bank chairman Greg Krasnov
told a public forum that Platinum's shareholders were particularly
interested in Nadra's 700 retail branches.
9. (SBU) Separately, a Horizon Capital representative confirmed to
us that Platinum would attempt to expand its untarnished brand,
thereby allowing Horizon to "deploy piles of cash" that had been
raised prior to the crisis. That Horizon and Platinum had
approached Nadra was confirmed to us by a source close to Bagirov,
who is allegedly being used as an intermediary between Prime
KYIV 00002021 002.2 OF 002
Minister Tymoshenko and President Yushchenko and their respective
allies in the Ministry of Finance and the NBU (reftel).
10. (SBU) A purchase and assumption arrangement with East Capital,
Platinum Bank, or a third undisclosed party would represent the
first private sector resolution of a failed bank in Ukraine since
the start of the crisis.
RAPID DETERIORATION AT NADRA
11. (SBU) In addition to debt restructuring talks, Nadra's chief
concern was a rapid deterioration of its loan portfolio, with
creditors still broadly refusing to make monthly payments. Nadra
officials would not comment on the overall level of non-performing
loans, but said the bank did not have enough capital to continue
operating without outside assistance.
12. (U) Nadra was taken under temporary administration on February
11. It is now Ukraine's eleventh largest bank, with total household
deposits of UAH 7.9 billion ($970 million).
SNAPSHOT OF CREEPING STATE CONTROL
13. (U) With the nationalization and recapitalization of
Ukrgasbank, Bank Kyiv, and Rodovid in 2009, Ukraine's banking sector
is now 28% state owned. The government had already infused the
three newest state banks with UAH 9.5 billion ($1.16 billion) before
its decision this week to add another UAH 5.69 billion ($700
million) in statutory capital to Rodovid to ease its assumption of
14. (U) The three newly nationalized banks have signaled a need for
more capital "top-offs" of up to UAH 2 billion ($245 million).
Furthermore, since the beginning of Ukraine's financial crisis, the
GOU has added UAH 15.4 billion ($1.9 billion) in capital to the
Soviet-era state savings bank (Oshchadbank) and the Export-Import
Bank of Ukraine (Ukrexim).
15. (SBU) Ukrainian banks have universally suffered from
deteriorating loan portfolios since the beginning of the crisis,
with banks under temporary administration being particularly hard
hit by a lack of public confidence.
16. (SBU) It was alleged that Platinum's previous bid for
Ukrprombank had been turned down, in favor of newly nationalized
Rodovid, to protect vested political interests. The Ukrainian
government may no longer have the means to offer such a generous
liquidation package to cover Nadra's depositors, even though Nadra
has comparatively much better assets than Ukrprombank. With
authorities giving mixed messages over the bank's progress on debt
restructuring, and with time running out for a resolution to protect
depositors before the presidential election, Nadra's saga may soon
be coming to a dramatic conclusion.