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. Last Updated: 07/27/2016

Unexim Settles With Creditors




Uneximbank announced Wednesday it has reached a final settlement with its creditors, just under two years after it first defaulted during the August 1998 crash.


"During the next few days, Citibank is due to distribute to creditors the cash and instruments, subject to the completion of certain formalities," said Uneximbank's financial adviser, Fleming UCB, in a statement released Wednesday.


The deal was based on votes earlier this year when creditors holding 95 percent of all claims for the bank's $1.4 billion in outstanding debts f including a super-majority of nearly 90 percent of creditors holding Eurobonds and floating rate notes f agreed to accept the terms on offer.


The plan had been held up after a local company, Visa, filed suit to try and bankrupt Uneximbank. After a Moscow arbitration court threw out that suit Monday f and the Central Bank extended Uneximbank's license a further three months f the restructuring deal was able to go ahead.


Uneximbank has agreed to make cash down payments of $105 million, Fleming reported.


The restructuring deal covers obligations that arose under forward contracts f deals through which foreign investors hedged against foreign exchange risk f at an agreed exchange rate of 8 rubles to the dollar, Fleming said.


At the time of the 1998 financial crash, forward contracts were among the biggest bones of contention between foreign creditors and local banks. The exchange rate of 8 to the dollar is well below the exchange rates of 15 to the dollar and lower that prevailed within weeks of the Aug. 17 devaluation and treasury bill default.


A dissenting group of bondholders who had complained about Uneximbank's offer is now left without a technical opportunity to negotiate better restructuring terms, said parties acting for Uneximbank on the deal.


"Euroclear and Clearstream will block the accounts of bondholders pending the escrow release date, and upon written certification to them, the interests of the bondholders in the bonds will be canceled," said Todd Shafer, partner at Hogan & Hartson, the bank's legal adviser in the restructuring deal, speaking in an interview earlier this week.


Representatives for the dissenting Eurobond holders said earlier this week they will continue to contest the restructuring deal through a suit filed in Cyprus against the International Company for Financing and Investments, a company formerly affiliated with MFK bank, which, like Uneximbank, is part of financier Vladimir Potanin's Interros group of companies.


Fleming said the deal's success became possible because, "Uneximbank's franchise had been preserved in the period since August 1998 in Rosbank."


Uneximbank's restructuring could be followed by peaceful settlements with creditors of other major banks, namely Rossiisky Kredit and probably Imperial, opening the way to a wave of mergers and acquisitions in the banking industry, analysts said.


Alfa Bank stated two reasons for the revival of moribund banks in its report on the state of the banking sector issued at the end of last month.


Under local law, claims of private foreign creditors are fifth in line after private depositors and the federal budget.


Once liquid assets were transferred to bridge banks, only private depositors and sometimes public authorities were able to recover some of their holdings in the bankrupted banks.


"Thus, restructuring negotiations often appeared to be the least painful solution, even if reaching acceptable terms was a lengthy process," reads the text of the report.


Second, the local economy recovered at a faster pace than previously expected, meaning that there is again a chance to attract foreign investment. However, before they could approach potential new foreign partners, bank owners needed to mend fences with their old foreign partners in order to rescue their reputations.


"Also, companies have more money this year to propose better restructuring terms," the report states.


Uneximbank's shareholders approved Wednesday the text of the agreement approving a merger with Rosbank, Prime-Tass reported.


Boards of the two banks will hold a joint meeting at the start of August to decide on the prospective merger of the two banks, tentatively scheduled for September.