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. Last Updated: 07/27/2016

Minority Opposes Uneximbank Restructuring

With less than two weeks to go before a court is to decide the fate of the defunct Uneximbank f either sending it to bankruptcy or approving a debt restructuring f a minority group of the bank's creditors is attacking the restructuring deal.

The Moscow Arbitration Court is to consider Uneximbank's situation July 3. To avoid bankruptcy, Uneximbank's managers must demonstrate that the claims of all its registered creditors have been satisfied.

But one of the clauses in the Eurobond agreement states that if 75 percent of bondholders accept a restructuring, the bank can proceed over the objections of the others.

Uneximbank went under after the August 1998 financial crash with debts of about $2 billion on board, including about $800 million owed to foreign creditors, $400 million to domestic lenders and $600 million on forward contracts.

The bank's Eurobond holders, in a May 4 vote of 85.95 percent, accepted a restructuring proposal f a mix of cash and new securities f that Flemings UCB, Uneximbank's financial adviser for the restructuring, estimated returned about 20 percent of their original investments.

Creditors met and voted again May 22 and again approved the deal, this time with 89.4 percent of the vote.

But Shimoda Capital Advisers, which acts as coordinator of a group of nonconsenting creditors who hold about 10 percent of Uneximbank's bonds, the equivalent of some $25 million, remains dissatisfied, said Andreas Rialas, senior investment officer with Shimoda.

Rialas has been leading the charge against the Uneximbank restructuring deal. He says he was hired in February to oppose it on grounds that it would return not 20 percent, but 10 percent to 14 percent, and also because minority shareholders were not sufficiently included in the negotiations.

Rialas also said that Eurobond holders were given the text of restructuring proposals just a few days before the May vote and were not able to study it properly.

Rialas also argued creditors would not be worse off by bankrupting Uneximbank and being reimbursed from the sale of its assets.

As evidence, he cited a March interview published in the newspaper Vedomosti with Vladimir Potanin, who founded Uneximbank as part of his Interros financial-industrial holding. Potanin said then his holding controlled the equivalent of 3 percent of the nation's gross domestic product of $190 billion, or about $5.7 billion.

"We are not some obscure economic agent: Interros group makes up 3 percent of the GDP," Potanin was quoted as saying. "And these 3 percent will, I assume, develop comfortably under Putin's rule."

A May 4 article in The Financial Times describes a report on Uneximbank and its debts assembled by the KPMG consulting company.

The Financial Times did not report how it obtained the report, but said it made "frequent references to information which the bank's managers refused to release to KPMG or to allow the accountants to circulate to creditors."

"[The report] indicates that a high proportion of Unexim's loans were with 'related parties,'" the FT wrote. "The report also shows that a number of loans were made on terms which it suggests were below market rates."

Uneximbank noted that the report in question was only an interim one and had been superceded in the past year by further work by KPMG.

But legal lines of responsibility between defunct Uneximbank and Interros are no longer clear. And Uneximbank and its advisers argue that bankruptcy would be bad for creditors, not good.

They say Shimoda has kept silent through almost two years of talks and now has gone public with complaints.

Todd Schafer, a lead counsel with Uneximbank's legal advisers, the law firm Hogan & Hartson, said in a statement that creditors were given "an information statement describing in detail the restructuring plan" in October, about six months before they had to vote.

"The actions of Rialas are designed to obstruct the closing of the restructuring and force the [arbitration] court to liquidate Uneximbank, thereby harming the material interests of the creditors," Schafer said.

Rialas said that the nearly 90 percent of Uneximbank creditors who voted yes to restructuring were unfamiliar with the objections and concerns of the remaining 10 percent. He said Uneximbank had seized upon a technicality to prevent Rialas from calling a June 7 meeting of Uneximbank's creditors f and then, after having approved a July 17 meeting, edited the content of the notice to delete a statement of the objectors' concerns.

"In addition, they deleted my name in order to prevent any other bondholders from getting in touch with the nonconsenting bondholders group," he said.

Schafer of Hogan & Hartson said "the first attempt to call the meeting on June 7 was unsuccessful because Rialas' group failed to understand the clear provisions of the relevant Agency Agreements and the operational realities of Euroclear and Clearstream."

"It is not surprising that in a transaction of that size and complexity there are some people who do not agree," said Christopher Granville, managing director of Fleming UCB.

Rialas said that the U.S. investment house Merrill Lynch, which represented the Eurobond holders in negotiations, hasn't protected the minority's interests.

"Merrill Lynch, being a bank, has a different perspective than private indivudals," Rialas said. "We represent private bondholders who are unhappy with the way that restructuring was handled and [with] the lack of information, which has not allowed them to play a role in the negotiations."

Merrill Lynch declined to comment. But Michael Richman, a partner with the international firm Mayer, Brown & Platt who serves as a counsel to the Eurobondholders' Committee of Uneximbank, said Merrill Lynch's role was merely secretarial.

"Under the resolution and other restructuring documents, the role of the Eurobondholder representative is purely ministerial f to sign documents on behalf of bondholders in effectuation of the closing f and involves no discretion, decision-making authority or other responsibility whatsoever," Richman said.