It is almost exactly two years since I first heard a theory that, at the time, seemed far-fetched in the extreme – to whit, that Ihor Kolomoisky, Ukrainian oligarch par excellence and former owner of Privatbank, was plotting to regain control of the recently nationalized lender.
“He wants to create a managerial vacuum and prevent the government restructuring the bank,” a senior Ukrainian banker told me. “He will then come back in a year and buy it back for one hryvnia.”
Fast forward to February 2019. Ukraine’s largest bank is still in state hands and, under new chief executive Petr Krumphanzl, restructuring is proceeding apace – although attempts to recover part of the $5.5 billion that went missing pre-nationalization recently suffered a setback in the High Court in London.
Far from fading away, however, the notion that Kolomoisky has his sights set on taking back ownership of Privat appears to be gaining currency in the run-up to the first round of presidential elections in Ukraine at the end of March.
Since the start of the year, three candidates for the top job have distanced themselves from the rest of the pack: incumbent president Petro Poroshenko, veteran politician Yulia Tymoshenko, and actor/comedian Volodymyr Zelensky.
Tymoshenko – dubbed the “gas princess” after building a fortune in the energy sector in the 1990s – was the early frontrunner. By mid February, however, she had lost her lead to political newcomer Zelensky, who was polling 10 percentage points ahead of his more experienced rivals.
What does all this have to do with Privatbank? If Poroshenko wins, the answer is it almost certainly nothing. The sitting president backed the nationalization of the bank in December 2016 and is extremely unlikely to reverse it.
What is worrying Ukraine’s reformers and international backers is where Tymoshenko and Zelensky stand. Neither has raised the Privat issue on the campaign trail but both are widely believed to have received support from Kolomoisky for their campaigns.
Tymoshkeno hails from Dnipro in eastern Ukraine, where Kolomoisky’s sprawling business empire is based and where he briefly served as governor after the Maidan revolution. Zelensky is a lesser-known quantity – but sceptics note that he has received copious airtime on Kolomoisky’s TV channels.
Reports of more direct ties between the candidates and Kolomoisky have also proliferated on the internet in recent months.
“There is concern that Tymoshenko and Zelensky are backed by Kolomoisky and that the price for that will be the return of Privatbank to its former owners,” says Tim Ash, an emerging market strategist at BlueBay Asset Management.
A western banker working in Ukraine agrees. “I think Kolomoisky will be looking to get his bank back after the election,” he says.
Not everyone is convinced that Kolomoisky is after Privat. Another senior banker suggests that his target is not the bank but Ukraine’s largest oil producer, Ukrnafta, in which Kolomoisky is a minority shareholder and which he effectively controlled until 2015.
(It was his decision to send armed men to Ukrnafta’s Kyiv offices in March of that year that prompted Poroshenko to sack him as governor of the Dnipropetrovsk region.)
The banker says Kolomoisky is now backing “everyone” against Poroshenko in the presidential race in a bid to regain control of Ukrnafta. “The rumoured deal is that Kolomoisky will drop all his law suits against the state relating to Ukrnafta and get the company back,” he says.
With regard to Privat, he adds, Kolomoisky may be looking for the state to abandon attempts to recover assets from himself and fellow former shareholder, Gennadiy Bogolyubov, but can’t realistically expect to resume ownership of the bank.
“They couldn’t give Privat back to him,” says the banker. “There would be an international outcry. It would be tantamount to branding Ukraine as a rogue state.”
Ash agrees that it would be a “deal breaker” for Ukraine’s international backers. As he notes, the nationalization of Privat and the wider reform of the banking sector by the country’s newly independent central bank have been among the biggest achievements of the post-Maidan administration.
“Returning the bank to its former owners, after a bailout costing more than 5% of GDP, would be anathema to official creditors,” he says. “If the next president tries to mess with Privatbank, and by extension undermine the independence of the central bank, then the IMF should and will disengage.”
If the IMF walks away, Ukraine will have another economic and financial crisis- Tim Ash, BlueBay Asset Management
By any measure, that would be a disaster. Ukraine’s economy has to some extent recovered from the turmoil of 2014 and is growing at a reasonably healthy 3% per year. At the same time, policymakers have yet to convince foreign investors – or anyone else, for that matter – that they are prepared to tackle endemic and debilitating corruption.
Inward investment is almost non-existent, while external financing needs remain high. Ukraine has close to $10 billion of external debt coming due in 2019/20, according to Standard & Poor’s, of which $4.8 billion is owed to holders of sovereign Eurobonds.
In December, the IMF approved a new $3.9 billion programme for Ukraine. If that support were withdrawn post-election, the finance ministry’s chances of refinancing its external liabilities would be slim to vanishing.
As Ash put it in a note on February 19: “If the IMF walks away, Ukraine will have another economic and financial crisis. Simply put, Ukraine is still not macro sustainable without the IMF backstop.”
But if handing Privatbank back to its former owners would amount to economic suicide, it would be rash to rule it out. Stranger things have a habit of happening in Ukraine, and Kolomoisky is the country’s great survivor.
Time and again over the past two decades he has successfully resisted attempts to erode his power base. Ukraine’s well-wishers will have to hope that this year’s presidential elections won’t provide him with another opportunity to flex his political muscles.