EBRD says more restructuring needed for Parex

  • 2009-07-29
  • Staff and wire reports
RIGA - European Bank for Reconstruction and Development's (EBRD) Peter Reiniger expressed concerns that a rush to sell Latvia's shares in Parex bank would not be in the interests of the state, as additional restructuring is needed to make it more attractive to potential investors, reports news agency LETA.

Reiniger, Business Group Director for Central Europe and the Western Balkans at EBRD, says that though they are "determined to work together with the government and Parex bank in its privatization, there is no haste. Patience and time is needed to take the necessary steps to restructure the bank," reports business daily Dienas Bizness. The EBRD will buy 25 percent plus one share in the bank.
He remains cautious that in today's economic climate, "it will be very hard to find strategic partners that will be able to make investments and increase the bank's value." As a precondition for the EBRD to acquire the shares, with the deal expected to be completed in August, the European bank on July 23 signed a subordinated loan agreement in the amount of 22 million euros with Parex.

Parex bank's chairman, Nils Melngailis, said that, "thanks to the subordinated loan agreement, Latvia will receive 70 million lats (100 million euros). If [the remaining state's share of] Parex is sold, it is unknown yet whether EBRD will sell its stake in the bank to the new bank owner, or continue as a shareholder," he said. The 70 million lats total consists of the subordinated loan, and proceeds from the expected share sale.
The Latvian government plans to sell its remaining share holdings in the bank, though Reiniger says that "An investor who is ready to pay the right price must be found, and the investor has to be prepared to make investments in the bank's development, which also means in the economic development of Latvia."

He continued that the EBRD "looks forward to completing our investment in Parex, which will be our largest transaction in Latvia to date. EBRD's participation in the recapitalization of Parex is an indication of our confidence in the recovery process of both the bank and the Latvian economy."
Public unrest however is rising, in view of the government's ongoing activities with international financiers, which are regularly marked as 'confidential' and conducted behind closed doors.

Finance Ministery State Secretary Martin Bicevskis has sent a letter to the previous Parex owners, Valerijs Kargins and Victors Krasovickis, with the invitation to agree to publish the agreement under which the state bought a majority shareholding; the agreement remains off-limits to the public.
Bicevskis has said that this is in an effort to improve public transparency, so that objective information on the government takeover of the bank's shares reaches the public.

The Latvian government took over control of Parex on November 10, 2008, acquiring a 51 percent share as the global banking crisis forced the state to step in to save the bank from collapse. Parex banking group's net losses in 2008 totaled 131 million lats, with the bank separating out its share of the losses at 124 million lats. First quarter 2009 losses reached 6.9 million lats.