NBU ATTEMPTS TO FACILITATE DEBT TO EQUITY CONVERSION BY BANKS

Avellum Partners, Kyiv, Ukraine
Fri, Jan 23, 2015

 
With effect from 18 January 2015 the National Bankof Ukraine (“NBU”) allowed prepayment of cross-border foreign currency loans bybanks, if the funds of prepaid loans will be used to increase their chartercapitals. The change was introduced by NBU Regulation No. 22 “On Introductionof Changes to Resolution of the National Bank of Ukraine No. 758 dated 1December 2014” dated 15 January 2015 and is aimed to improve the situation withcapitalization of banks in Ukraine. 

Notwithstanding the fact that the NBU lifted theabove-mentioned currency control restriction, which was one of the obstaclesfor debt to equity conversion, the process of debt to equity conversion remainsoverly burdensome for banks in Ukraine from the regulatory authorisations andtiming perspective. It consists of the following key steps: (i) repayment ofthe loan followed by the actual cross-border transfer of funds by the borrowingbank to the lender, and (ii) increase of the charter capital of the borrowingbank followed by the cross-border transfer of funds by the lender to purchasethe shares of the borrowing bank. Given the fact that Ukrainian banks areundercapitalized and require approximately UAH60 billion of capital, it is timefor Ukrainian regulators to take steps to ease the procedural formalities tofacilitate debt to equity conversions by Ukrainian banks. 

For further information on the topic please contact us bytelephone +380 44 220-0335 or via e-mail.