When the levee breaks: Nadra Bank lenders lobby Ukraine to extend withdrawal moratorium

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While the International Monetary Fund doubles down aid to Ukraine, lenders to the country’s most indebted private bank, Nadra Bank, are scrambling to head off a run on deposits, Debtwire reports.

Nadra has been able to tightly control outflows of deposits since February thanks to a six-month moratorium on creditor claims. As the 10 August expiration of that grace period approaches, the bank’s creditors are lobbying Ukraine’s political leaders for an extension until they hammer out a comprehensive debt restructuring, said a lender and a source close to the situation.

The aim is to persuade lawmakers to allow Ukraine’s central bank to extend the moratorium on creditor claims until the end of 2009. This would allow Nadra Bank time to restructure nearly USD 2bn of debt, according to the source.

The six-month moratorium, imposed by the National Bank of Ukraine (NBU) back in February, has been acting like a dam allowing Nadra to control deposit outflows. If the moratorium is not extended, the levee could break and money might come flooding out of the bank.

A letter signed by members of a Nadra Bank creditor committee was sent to Prime Minister Yulia Tymoshenko on Tuesday (21 July), said the lender and the source. “Foreign investors want to make sure their rights are protected and that was the main message of the letter [to Tymoshenko],” said the lender.

Those efforts coincide with the anticipated release of USD 3.3bn in IMF funds and a downward revision by the multilateral of its forecasted 2009 GDP contraction to 14% from 8%.

Nadra Bank officials and creditors are hoping that an extraordinary session of the Ukrainian parliament this Friday (24 July) will pass the legislative changes needed to allow an extension. There is no guarantee, however, that the legislation will pass or even that the session will take place.

Nadra remains Ukraine’s fourth-largest bank by deposits, according to data from the Association of Ukrainian Banks. Its USD 2bn debt burden is the largest in Ukraine’s financial services sector after state-owned Ukreximbank, said Valentina Zhukovska, the temporary administrator appointed by the NBU in February to oversee Nadra.

“The bank [Nadra] is currently under control and is functioning, but that control will be lost when the moratorium expires,” Zhukovska said.

No quarter

At a meeting in Kiev last week, Nadra Bank investors agreed on a proposed timetable that envisages restructuring terms being signed in October, the lender and the source close to the situation said. But creditors made it clear they will not be able to sign any documents on a restructuring before they understand what the current situation at Nadra Bank looks like, both noted. External auditor Ernst & Young will not complete due diligence on the Ukrainian lender until mid-August, according to Zhukovska.

Commerzbank, Fortis Bank, Rabobank and Standard Bank are acting as the lead institutions on Nadra Bank’s lender committee, which also includes trade-finance specialist Cargill, Slovenia-based Nova Ljubljanska banka and Hungary’s OTP Bank, as reported.

Holders of a USD 175m Nadra Bank Eurobond due in 2010 have been asked to accept an 85% write-down, or agree to a 60% haircut with a five-year maturity extension. The bonds are currently quoted around 15, according to a London-based trader.

Bank lenders and export credit agencies (ECAs) were asked to weigh up two options of their own – a long-term rescheduling with no haircut or a shorter-term extension with a haircut.

Nadra Bank is being advised by Rothschild and law firm Salans.

Nadra Bank’s total debts of USD 1.93bn include USD 408m of trade-related loans, local bonds worth USD 68m and two smaller pieces of syndicated bank debt. It owes the National Bank of Ukraine about USD 1.1bn and the Ukrainian government may approve a state-funded equity injection of UAH 5.5bn (USD 700m) later this year, if an agreement on the bank’s debt restructuring is in place.

Good times, bad times

Nadra Bank used the first five months of its moratorium to revive operations and restructure its lending book. It has fully restored its operational activities, identified all the counterparties on its corporate lending book, and approached almost all significant corporate borrowers to restructure loans, Zhukovska said.

The bank’s deposit base has dropped to UAH 9bn from UAH 10.5bn since the start of the year, with the bank repaying customers up to 50% of small deposits and up to 20% of deposits up to UAH 500,000 (USD 66,123). Around 60% of the bank’s customers have taken advantage of the offer so far, agreeing to prolong the remainder of their deposits by six to nine months, Zhukovska said.

All told, Nadra has repaid about UAH 1.5bn from private individuals’ current accounts this year, increasing the amounts from UAH 3,000 a month during the early stages of temporary administration to UAH 15,000 a month now. The bank can remain under temporary administration for up to one year, whereas the creditor-claim moratorium only lasts six months.

About UAH 15bn of Nadra Bank’s UAH 23bn (USD 3bn) loan portfolio is comprised of retail loans and the remaining UAH 7.8bn is made up of corporate loans, Zhukovska said. “We know every client on the corporate side, and we are currently in the process of compiling a database of retail accounts with smaller loans,” she noted. The bank expects to complete the database by the end of August.

“From monthly cash flows, we need to be repaying our depositors, ensuring the bank’s maintenance and paying salaries,” Zhukovska added. “The remaining cash will go towards debt repayment.”

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