|
Rigas Komercbanka restarts operations based on EBRD restructuring proposal
Rigas Komercbanka Plc (RKB), one of Latvia’s most important commercial banks, resumed operations today following the Riga Regional Court’s decision on 13 October 1999 to declare it solvent. It was authorised to re-open under the new name of Pirma Latvijas Komercbanka (PLK, or First Latvian Commercial Bank). RKB had been declared insolvent on 7 March 1999.
The basis for the restructuring plan had been proposed by the European Bank for Reconstruction and Development (EBRD) to Einars Repse, Governor of the Bank of Latvia, in September 1998, when RKB’s difficulties had become apparent.
"The resumption of operations for RKB, in the form of PLK, a new bank, marks an important milestone for the EBRD’s countries of operations," said Charles Frank, First Vice President of the EBRD. "The re-opening of PLK is the result of an amicable settlement among shareholders, lenders and depositors of an insolvent bank, and is the first settlement of such significance in the region. The Bank of Latvia contributed to the negotiations in an extremely proactive and constructive manner, and Deloitte & Touche, advisor to PLK, was instrumental to the success of the operation.
Mr Frank added: "The fair treatment of all shareholders, lenders and depositors, and the priority given to lenders and depositors over shareholders as required under Latvian insolvency law, sets an example to be applied in Russia and other countries in the region."
The cost of the restructuring was primarily borne by the shareholders, lenders and depositors of RKB, and by the Bank of Latvia. "The Government of Latvia was not called upon to make a significant budgetary contribution, despite its critical role," added David Hexter, Deputy Vice President of the EBRD.
The restructuring required existing shareholders to reduce their equity interest in RKB significantly to make way for the conversion of claims of creditors and depositors into equity. In order to achieve this conversion, however, the law governing securities transactions in Latvia had to be amended. Mr Hexter commented: "Quick action by the Latvian Parliament was essential. The co-operative attitude of the Latvian legislators contributed substantially to the success of the operation."
The settlement involved an equal reduction in claims by all original equity investors of 95.6 per cent. It also involved a 50 per cent conversion to equity of claims by all large creditors and depositors. The EBRD agreed to write down its equity interest of US$ 5.0 million (EUR 4.7 million) to zero, if necessary, to allow debt and deposits to be converted to equity. As part of RKB's recapitalisation, the EBRD committed US$ 9 million (EUR 8.4 million) and agreed to participate alongside the Bank of Latvia in the restructuring on an equal basis with other large lenders and depositors.
|
