Fitch has explained the rating downgrade of PrivatBank

International rating Agency Fitch Ratings on the eve of the New year downgraded the Issuer default rating (IDR) in foreign a rating of PrivatBank (Dnipro) to “CCC” to “RD” (restricted default), removing it from Rating Watch Evolving (RWE).

As stated in the Agency report, this decision followed the announcement of the national Bank of Ukraine about the fact that third parties, who unsecured and subordinated creditors of the Bank, was involved in the process of recapitalization and came under the procedure of bail-in on the eve of the nationalization of the Bank on 21 December 2016.

In fact, all investments by such creditors into Eurobonds and subordinated debt of PrivatBank, was used for its recapitalization, says Fitch.

The Agency adds that the ratings of senior unsecured Bank debt was reduced to the level of the lowest possible level “C”/”RR6” and withdrawn in connection with the cancellation of the securities.

The affirmation of support rating at “5” and support rating at “No Floor”, according to the Agency, reflects the lack of state support, which failed to prevent losses for creditors, and which cannot be relied upon in the future. Fitch also points to the limited ability of the authorities to support foreign currency if necessary.

The Agency said that the long-term IDR in the national currency and the national rating remain unchanged, as Fitch currently insufficient information affected whether the procedure bail-in of senior unsecured liabilities in local currency to third parties.

The viability rating was also maintained at the level “E” because the recapitalisation of the Bank was not completed and after the bail-in capital deficit remains considerable: it is estimated at 4.3 amount of regulatory capital at the end of the third quarter of 2016.

Fitch expects that the revision and updating of IDR in foreign currency and the viability rating of the Bank will occur after receipt of sufficient information about its credit position after the recapitalization.

As reported, the Cabinet of Ministers on the proposal of the national Bank and the shareholders of PrivatBank 18 Dec 2016 decided on the nationalization of financial institutions. The issue volume of bonds of internal state loan for the Bank’s capitalization is estimated in the range of 116.8-148 billion.

In the framework of the nationalization of the PrivatBank’s obligation to a specially created by the British company UK SPV Credit Finance plc is the Issuer of Eurobonds – have been subject to the procedure of bail-in and were exchanged for shares of the additional issue of the Bank. Then the Fund of guaranteeing deposits of natural persons, which introduced a temporary administration in the financial institution, sold shares to the state Bank for 1 UAH.

We are talking about three issues of Eurobonds: at $175 million at a rate 10,875%, maturing February 28, 2018, $200 million at a rate of 10.25% maturing on 23 January 2018 and $220 million at a rate of 11% (bonds and subordinated debt), maturing in 2021.

“Eurobonds somehow got into the list of those financial instruments that were transferred into capital. It was a decision of the National Bank, and therefore, I think, we, together with the national Bank and will try to find a common language with the holders of Eurobonds, if not, we will be in court to prove innocence, ” commented the new head of the Board of PrivatBank Alexander Shlapak.