Problems of VAB Bank scared away foreign investors

PUMB scared off foreign investors even more than the insolvent VAB Bank

Photo: Konstantin Melnitsky

Eurobond holders of Ukrainian banks are panicking. Last week the National Bank of Ukraine declared VAB Bank insolvent. This means that the probability of returning the money invested in the Eurobonds of the Ukrainian bank is close to zero. On November 26 the yield of Eurobonds of VAB Bank was 276%, while on October 15 it was 50%. Since the start of the year the prices of securities fell 92%. They are traded at 6% of their nominal value. Today, VAB Bank’s liabilities to investors on Eurobonds amount to US $88.25 mn. The bank performed restructuring on these bonds back in June, having extended their maturity by five years to June 2019.

Rolling blackouts

The problems of VAB Bank affected the value of Eurobonds of other Ukrainian issuers. Analysts primarily pointed to the wave of sales of Eurobonds of agrarian companies owned by Oleh Bakhmatyuk, who is also the owner of VAB Bank.

«On Tuesday, the quotations of Avangard bonds in the amount of US $200 mn maturing in October 2015 dropped by 3.8% to US $0.76 per US $1 of their nominal value. This led to the growth of their yield to 44%,» said Head of the Analytical Department at Eavex Capital Dmytro Churin.

The prices of Eurobonds of Bakhmatyuk’s key asset — UkrLandFarming Agro Holding — in the amount of US $500 mn that will mature in 2018 dropped by 10.9% on Monday to US $0.53 per US $1 of their nominal value. The yield of these bonds grew to 36%. For comparison, the yield of Ukrainian state Eurobonds that will mature in 2018 was 13.5% yesterday.

The prices of Eurobonds of all Ukrainian banks also dropped. For example, as of October 15 the yield of PrivatBank’s Eurobonds maturing next year was 36.4%, while yesterday it was already 54.2%. «The declaration of VAB Bank’s insolvency and the earlier announced restructuring of Eurobonds of PUMB (First Ukrainian International Bank) had a negative impact on the market. More and more market players believe that restructuring of other Ukrainian Eurobonds is imminent, believes Head of the Stock Market Operations Department at OTP Bank Oleh Serdyuk. Market players willing to receive excess profits over a short period of time are ready to buy Ukrainian debt instruments.

Digital focuses

The yield of Eurobonds of PUMB is much higher than that of VAB Bank. At that, it also increased over the past several weeks from 202% annual as of October 15 to 350% as of yesterday. This is despite that PUMB is one of the five financial institutions that successfully passed the stress test. Head of the Financial Ratings Department at IBI-Rating Anna Apostolova believes that such a yield of Eurobonds of the bank owned by Rinat Akhmetov is due to their term of maturity (December 2014) and a large discount. «This is arithmetic. The securities of VAB Bank are traded at 6% of their nominal value and PUMB — at 71% of their nominal value and the „maturing“ happens in a month,» explains Head of the Analytical Department at Concorde Capital Oleksandr Parashchiy. Moreover, PUMB is currently negotiating with investors in an attempt to postpone the repayment of its debt. If the new conditions proposed by PUMB are accepted, the yield of its bonds will amount to around 33% at the current price, says Parashchiy.