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bne December 2021 Eastern Europe I 55
volumes, a good barometer of banker’s confidence and the state of the sector, rapidly fell back to normal levels. It seemed like prompt action by the regula- tor had nipped a disaster in the bud and things went back to normal.
ACRA downgrades
Mints tells the story a little differently. His father and the patriarch of the fam- ily, Boris Mints, had been a shareholder in Otkritie and on the board of directors, but sold his stake in 2013. However, Otkritie remained very important for the group and had provided $500mn
of loans for “general corporate invest- ments,” the son told bne IntelliNews. He claims that the CBR in effect engineered the crisis with the intention of taking the banks over and at the same time remov- ing the independently owned commer- cial banks from the market.
As bne IntelliNews reported at the time, the problems began in April 2017 when the CBR introduced new rules that required all of Russia’s banks to get a credit rating from the Russian Analytical Credit Rating Agency (ACRA) credit rat- ing agency that had been set up to break the monopoly on ratings by the big three agencies of Moody’s, Fitch and Standard & Poor’s (S&P). The trouble is, most of the Garden Ring banks didn't make the cut.
Under the new rules top Russian com- mercial banks could only hold the funds of state-owned enterprises (SOEs) and state pension fund money if they got the equivalent of a A- rating from ACRA. That meant that those banks had to return the SOE cash, which hurt their businesses.
“Otkritie had ratings from the international ratings agencies and if
you translated their international
ratings scale to the national one then the rating was sufficient to meet the CBR’s criteria. However, ACRA gave the bank
a rating two notches lower that triggered the outflows of SOE and pension fund money,” said Mints.
Up until July 2017, international rating agencies issued ratings on two scales, international and national. From Stan- dard & Poor’s, Bank Otkritie received a B+ rating on the international scale,
and an A rating on the national scale. The ACRA rating received for Bank Otkritie was two notches lower than the Standard & Poor’s international rating and four notches lower than the Stan- dard & Poor’s national scale rating for the bank, Mints explains.
Losing the SOE and pension fund money was bad enough, but what really did the damage was the lack of confidence the new status caused and Mints said that the banks began to see a slow moving run on their deposits.
“At that time, all someone from the CBR had to do was come out and say these were systemically important banks and that the central bank would support them. It would have stopped the runs dead in their tracks. But for almost two months there was silence,” Mints said.
the restructuring and wanted to turn the bonds back into debt.
“The temporary administrator didn't like the restructuring deal. We tried
to accommodate them and offered to change the terms but they started a court case against us in Russia in Octo- ber 2017 and wanted us to return the loans,” says Mints.
Another part of O1 Group’s business is its ownership of the Budushee (Future) pension fund, which also came under attack. The fund had $200mn of callable deposits in Promsvyazbank.
“Here the problem was due to the low rating Promsvyazbank was assigned [where the pension funds were held and that was also taken over]. Those funds should have been returned to the pen-
“No one in Russia expects fair treatment from the Russian court system, especially if you are in open conflict with something as influential as the CBR”
O1 was caught up in Otkritie troubles as CBR wanted the group to pay back its $500mn loan to shore up Otkritie’s bal- ance sheet. Mints said they were willing to negotiate with the authorities and Otkritie was willing to return the SOE and pension cash to their owners, but they were not given a chance.
On August 31 the CBR announced it was taking Otkritie over and installed a temporary administrator. At the same time, the CBR promised all the deposits still in the bank would be protected and thus stopped the run.
Bond Deal
O1 had already restructured its loan
to Otkritie in August. As the pressure mounted the bank started casting round for cash and the O1 debt was restruc- tured and turned into bonds. “It is easier to raise liquidity against a bond than
a credit,” says Mints.
However, when the temporary admin- istrator took over control it objected to
sion company, but the temporary admin- istrator would not release the funds. At the same time, another department in the CBR said because the funds had not been returned it was in breach of the regulations,” says Mints.
Mints is stoical about the spot his family found themselves in. It was a fight they were not going to win. The pressure on O1 built as the demands for money grew. Eventually they sold the pension funds to “structures associated with [Rosneft CEO Igor] Sechin,” Mints told bne IntelliNews. The family then left for London in Febru- ary 2018 and went into exile.
“No one in Russia expects fair treatment from the Russian court system, especially if you are in open conflict with something as influential as the CBR,” says Mints.
Planned in advance
Critics claim that ACRA’s low ratings of the Garden Ring banks were unfair and designed to trigger the crisis. However, another piece in the puzzle was the
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