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. Last Updated: 07/27/2016

Agroprombank Declared Bankrupt




Moscow's arbitration court on Thursday ruled in favor of liquidating Agroprombank, the debt-ridden subsidiary of banking giant SBS-Agro, and said it would start selling whatever assets remain.


But the court still has to appoint an external manager to control the sell-off, a task that is likely to prove difficult since the head of SBS-Agro group Alexander Smolensky has mounted a war against the court's preferred candidate, the independent Vladimir Limonov.


"The key question now is whether the court will stick to its guns over the appointment," said Margot Jacobs, a banking analyst at United Financial Group. "Smolensky seems to want to make sure he keeps hold of the reins of the bankruptcy process and keep anyone independent out."


SBS-Agro itself filed the bankruptcy suit against its sister structure last month, saying it wanted to retrieve hefty debts owed to SBS by Agroprombank.


But the process spun out of control for SBS-Agro when the arbitration court appointed Limonov as temporary manager and proposed he be retained as external manager.


Smolensky cried foul, claiming a clash of philosophies with Limonov over how to liquidate the bank.


Smolensky argues that SBS-Agro, as Agroprombank's main creditor, has the right to appoint the external manager.


Analysts have suggested that SBS-Agro may want to control the bankruptcy process in order to conceal any trace of previous covert transfers of assets from Agroprombank to SBS-Agro - a claim SBS-Agro denies.


"The court has to consider the proposals of the bank's main creditors. The disagreement is not about control, but that the bankruptcy is conducted in the interests of the main creditors: SBS-Agro and the state," said SBS-Agro spokesman Sergei Meshcheryakov.


In a rapid turnaround from its position as a backer of a quick bankruptcy, SBS-Agro on Thursday appealed to the court to postpone the hearing because it had not even had time to hold a creditors' meeting. During the meeting, creditors could have voted on the bank's future.


An SBS representative attending the hearing Thursday also said that Limonov's analysis of the bank's finances was incomplete, Prime-Tass reported.


"Even though the ruling was fair in that there are no funds available to restore Agroprombank's payment system, by law it should have waited until ARKO [Russia's Agency for Restructuring Credit Organizations] made a decision on whether to restructure the SBS-Agro banking group," he said.


ARKO is due to make that decision Oct. 17, he said. Agroprombank's debts are now more than 17 billion rubles ($659 million), of which 500 million are owed to the federal budget, Limonov said during the hearing.


Meshcheryakov said the bank owes 15 billion rubles to SBS-Agro.


SBS-Agro took over Agroprombank from the state in 1996 when it was on the verge of collapse. In return for gaining control of Agroprombank's regional branch network, it agreed to take on its huge debt portfolio and maintain its work in the agricultural sector.


"We restored its payment system from a total collapse," Meshcheryakov said.


But there is very little left of Agroprombank to sell off to repay debts. The SBS-Agro banking group has already taken over part of Agroprombank's largest asset - its extensive branch network in the regions. According to some reports, the bank's assets currently stand at just 2 billion to 3 billion rubles. Meshcheryakov was unable to confirm the figures.


SBS-Agro itself is plagued by huge losses wrought in the banking crisis of August last year. In a probe of the Russian banking system earlier this year, the World Bank singled it out as one of Russia's biggest banking problems and calculated its capital deficit to be more than $1 billion.


Analysts have suggested SBS's original move to file for bankruptcy was an attempt to shift blame for the poor state of its finances onto Agroprombank.


"SBS may have been trying to score political points," analyst Jacobs said. "By taking on Agroprombank from the state when it was already collapsing, SBS could now be trying to shift blame for its financial collapse onto the state for contributing to its downfall."