Sell PrivatBank and others. What changes does the bill on the privatization of state banks bring?

New Banking Privatization Law: What Changes Did Bill No. 11474 Introduce?

The Verkhovna Rada adopted bill 11474 on September 19, which simplifies the privatization of state banks. President Volodymyr Zelensky has already signed the document.

Financial analyst Andriy Shevchishin explains: the approval of the new law on the privatization of state banks was a structural signal from the IMF, aimed at reducing the share of state banks, which currently exceeds half of the banking sector in Ukraine. "Consequently, this would impact Ukraine's funding and the regularity of aid inflows, which have already been far from sufficient. I don't believe this would affect relations with partners, as both the NBU and the Ministry of Finance fully understand the necessity of privatizing state banks. Moreover, the issue of privatizing state banks was discussed even during their nationalization," notes the expert.

The explanatory note to the project states that the document:

• expands the pool of potential investors that the state is willing to consider for sale;
• allows the sale of any state share in a bank (not just 100% of state shares, as stipulated in the current law);
• increases the requirements for legal entities that can be engaged by the state as financial advisors for the sale;
• includes international donors in the procedure for selecting financial advisors and the sale process;
• updates the rules for price determination and auction conduct in line with World Bank recommendations;
• takes into account the likelihood that only one potential investor may participate in the auction;
• aligns the requirements for the sales contract with market practices;
• prevents negative influences on the sale process (such as halting the sale) from former beneficial owners.

Sales via Prozorro Even with One Participant: How State Banks Will Be Sold

An interesting innovation in bill No. 11474 is the transfer of the procedure for selling state shares to the Prozorro.Prodazhi system. Experts say that bank shares are sold differently worldwide than planned in the approved parliamentary bill. "The requirement to use the system is more of an attempt by Ukrainian lawmakers to make privatization more transparent and efficient, in line with Ukrainian legislation. However, in global practice, such operations occur either through sales on the stock exchange in various packages or through direct deals with large financial groups/companies. Since our banks are not represented on exchanges (which could determine market price), we will be talking about direct deals. Accordingly, these will be conducted through Prozorro.Prodazhi," notes Andriy Shevchishin.

According to Oleksiy Bebel, Deputy Chairman of AO "Alibi," selling share packages through the Prozorro system is a standard solution that can ensure the acquisition of ownership rights to these securities under fairly competitive conditions.

Experts consider the inclusion of international donors in the procedure for selecting financial advisors for the sale of state banks to be a successful solution laid out in the draft law. "Representatives of international financial organizations, the European Union and its member states, as well as other international and foreign organizations that provide Ukraine with international technical assistance, will be invited with their consent to participate in the sales commission, with the right to express their position and the right to request and receive information from the sales commission, as well as provide recommendations related to the preparation and conduct of the competition. This is done to enhance investor confidence and minimize risks of political or corrupt influence on the privatization process,” says Maria Tomilina.

The possibility of one participant in the auction does not pose a serious threat, lawyers say.

Andriy Shevchishin adds: privatizing a large bank typically means there are not many buyers even at the due diligence stage, of which only one may reach the final sale stage. "Thus, this should not be a blocker for nationalization. In conditions of military action, post-war recovery, and economic instability, it is hard to expect an influx of foreign investors who will be jostling for position and driving up prices," comments Shevchishin.

Not Everything Is Accounted For, or When Will the State Sell PrivatBank, Ukrgasbank, and Sense Bank

Meanwhile, economic experts predict real privatization processes in the state bank segment will occur only after the war. "High-yield and competitive privatization is possible only after the active phase of the war concludes. At the same time, partial privatization of state banks can be realized now, for instance, with the involvement of international financial organizations. This will serve as a stimulus for promoting future 'large' privatization of state banks in Ukraine," noted Maria Tomilina.

According to Andriy Shevchishin, in wartime conditions, banks can only be sold at a discount, meaning Ukraine could potentially miss out on funds if the government agrees to such sales.

Overall, experts consider laying the legislative groundwork for the future sale of state bank share packages to be an important element of the government's plans to privatize Ukrgasbank, PrivatBank, and Sense Bank. Meanwhile, the government states that it does not consider the possibility of privatizing Oschadbank and Ukreximbank, as announced by Prime Minister Denys Shmyhal in September.

Experts predict real privatization processes in the state bank segment will occur only after the war.