Recently, Investment Capital Ukraine (ICU) agreed to release the hostages it had been holding for months. It offered bondholders to exchange the frozen unrestructured Loan Participation Notes (LPNs). To replace them with the same bonds, but already restructured ones. They belong to ICU in other issues.
In my opinion, this is a very good and ethical thing for the company to do. It can really correct the injustice that has been going on for quite some time. If you are not up to date, let me briefly remind you.
Even before the full-scale invasion, Alfa-Bank’s VIP depositors were offered a special investment product – Loan Participation Notes (LPN) issued by the Dutch company EMIS Finance B.V. These were securities with higher yields in foreign currency. In order to guarantee the safety of the money from Ukrainian legislation risks, the LPNs were issued by the Dutch company EMIS Finance B.V. and are in some way separated from the bank.
Alfa-Bank returned the funds raised to Ukraine and used them to issue new loans, and then shared the profits with its VIP clients. The deal was mutually beneficial, and Alfa Club became the most powerful VIP banking system in Ukraine. But with the outbreak of a full-scale war, the bank was nationalised, and the money of Ukrainian depositors was “suspended”.
The former owners of Alfa agreed to return the money, but asked to wait. They proposed a restructuring scheme for multiple tranches of LPNs. Most of the LPN issues have already been restructured. The scheme was used by influential Ukrainian families and companies, including (it turns out) ICU. Now they just have to wait for their money.
But there are just a few tranches left, the majority stake in which were bought up by the ICU group. The company began to play its own game, apparently demanding money from EMIS Finance B.V. not later, but immediately. They refused, and the situation “hung”. The LPN holders, who had a minority of votes, were held hostage (I will refer to them in this way below) and therefore could not influence the negotiations. After unsuccessful requests for restructuring (Investment Capital Ukraine did not agree), they began to use leverage. In particular, they could have influenced the imposition of sanctions against Petro Poroshenko, who is considered to be affiliated with ICU. I wrote about this here.
Time passed, but the situation did not change. On the contrary, ICU has recently gone on the offensive. The company proposed to change the trustee and paying agent of the blocked LPN tranches from BNY Mellon to Global Loan Agency Services Ltd (GLAS). Why? BNY Mellon is a world-renowned financial group with an impeccable reputation. Its business is simply to serve the process. GLAS, however, specialises in distressed and disputed assets. It often acts in the interests of the customer, not the market. It looks like ICU is going to get its money’s worth with the help of GLAS.
Of course, this upset the “hostages” even more, because for them, replacing the trustee would mean the failure of the restructuring, and the LPN debts would finally “hang”. But they had no chance to change this scenario, because the ICU holds the majority of votes.
For some time, it seemed to me that the main purpose of replacing the trustee was to force the “hostages” to sell their LPNs to the group at a large discount. In fact, ICU has professed this philosophy before: buy cheaply while everyone believes in the crisis and then sell at a premium.
Nevertheless, a pleasant miracle happened. Mr Paseniuk and Mr Stetsenko offered the “hostages” to replace the LPNs with the same securities, but already restructured (from other tranches). This is a gentlemanly act.
I don’t know who to thank for this. Perhaps Petro Poroshenko, who could have conveyed a simple message to the company’s co-owners Makar Paseniuk and Kostiantyn Stetsenko: the most dangerous opponent is the one who has nothing to lose. If we believe that it was the “hostages” who influenced the imposition of sanctions against Poroshenko, we can imagine what they would have done next. For ICU, this pressure could have been fatal and resulted in personal sanctions against the company and its owners. If this is the case, I think I would be very right to convey the gratitude of several families to you, Mr President.
Of course, another motivation might have worked. Messrs Paseniuk and Stetsenko could have soberly judged that it was not worth going to war with outraged “hostages” in the rear. After all, sanctions have already happened in Petro Poroshenko’s life, but they may yet appear in theirs. As for the possible reasons, it doesn’t take too long to find them. The professional biography of ICU’s leaders is closely intertwined with Russia’s VTB.
The main thing in sanctions is not the presence of facts, but the decision to let them develop. This is exactly what the danger was for ICU. In the event of sanctions, one can kiss goodbye to one’s reputation and financial career in Ukraine, the UK, and Europe. And I’m not even talking about the monetary losses. I’m sure that current ICU clients would be very much against such a scenario. If so, the company’s decision is a manifestation of common sense.
In any case, a gentlemanly act is a gentlemanly act. It is a credit to Messrs Paseniuk and Stetsenko. It releases ICU from confrontation with the “hostages”.
Albeit, as my sources ironically point out, one part of ICU’s problems has been solved, but the other is just beginning. In their opinion, the company is at risk.
Here’s the thing. ICU is moving to an aggressive stage of pulling out its money. To do this, they need GLAS.
I may be wrong, but ICU’s actions are unlikely to threaten EMIS Finance B.V. This structure is simply a so-called SPV – a transit company that gives money only after it receives it. Where is the real money? Maybe in Russia? No.
The money will be paid by…
three…
two…
one…
Ukraine.
That’s right. Ukraine.
My interlocutors told me a dark secret. The only chance to return the money to the holders is to negotiate with Ukraine on compensation for the nationalised assets. In their opinion, this will require waiting for the end of the war. Although I cannot imagine how Ukraine will agree to this.
If you want the money faster, sue Ukraine. Therefore, according to my interlocutors, ICU will sue Ukraine. After all, it was Ukraine that nationalised Alfa, it was Ukraine that made it impossible to get the LPN money back.
To a large extent, I believe in such a scenario. The fact is that the ICU is serviced by Cleary Gottlieb, an international law firm. It was this company that was the architect of the warrant deal in Jaresko’s time. Let me remind you that the holders of these securities receive hundreds of millions of dollars if Ukraine’s GDP grows by more than 3% over the year. If GDP growth is between 3% and 4%, Ukraine pays 15% of the amount exceeding 3%. If GDP growth exceeds 4%, it pays 40% of the total amount of growth over 4%.
It is very likely that these securities were once made possible thanks to Poroshenko’s political support, and for many years they have been alive thanks to old connections. So, even today, Cleary Gottlieb services warrant holders. It is quite possible that ICU or its clients are among the holders of these securities, but I have no facts about this.
But let me remind you that we still don’t know who the warrant holders are. International lawyers protect the anonymous owners. Ukrainian society is outraged by their actions, but this outrage is very abstract. No one knows the stakeholder.
In the case of LPNs, it’s a completely different story. The holder of the bonds is either ICU or a client that the company cannot name. This is a completely different configuration. A financial company with Ukrainian roots and revenues in Ukraine… will sue Ukraine.
It’s not pretty, no matter how you look at it. International courts may decide that Ukraine owes money. But what will be the reaction of society? It is insidious and inhumane to extract money from a country in the midst of a war to make super-profits. Especially for a Ukrainian company.
I’m not too sure about their colleagues either. If Cleary Gottlieb conducts this project, I will speculate further. But is Global Loan Agency Services Ltd (GLAS) ready for reputational losses? Does the company know from whom they will have to collect the money? This is very intriguing.
Of course, some other scenario is possible. But something tells me that this is exactly what it looks like: ICU v. Ukraine.
So far, this has not happened. We’ll see how it goes. Let me remind you that I still have not received any comments from ICU.
In conclusion, I would like to compliment the company once again. Messrs Paseniuk and Stetsenko acted like gentlemen. It is possible that this happened under the influence of Petro Poroshenko, for which he will receive a compliment of his own.
To be continued. Or not.
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This is a text of gratitude. A good thing happened in the financial market