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Successful restructuring of Latvia’s Pirma Latvijas Komercbanka completed with sale of stakes by EBRD and major shareholders
Following the successful restructuring last year of Rigas Komercbanka Plc, now known as Pirma Latvijas Komercbanka (Pirma Banka, or First Latvian Commercial Bank), the European Bank for Reconstruction and Development (EBRD) has agreed to sell its shares in the bank to Norddeutsche Landesbank Girozentrale (Nord/LB), a strong strategic investor.
This transaction marks the conclusion of a remarkable restructuring of Rigas Komercbanka following its 1999 insolvency, and was brought about without any significant new cash contribution from the Government of Latvia.
Numerous parties contributed to the effort. The restructuring was led by the Bank of Latvia and the EBRD, and was supported from an early stage by syndicates of creditor banks led respectively by Fuji Bank and Landesbank Schleswig-Holstein. All parties, including the Bank of Latvia, the Government of Latvia, the bank syndicates, a large number of depositors and the EBRD, shared the burden of the restructuring and recapitalisation. A special-purpose subsidiary of the Bank of Latvia was established and became the largest shareholder in the restructured bank. In addition to its initial equity investment in 1996 of US$5.0 million (€5.5 million), the EBRD contributed US$ 4.5 million (€4.9 million) to the transaction in 1999 in the form of new cash equity.
To accommodate a substantial capital increase in the insolvent bank, the restructuring transaction required that the original equity in the bank be substantially diluted. Through a partial conversion of outstanding claims into equity by all large creditors and major depositors, the capital in the bank was increased, and the bank’s position of negative equity was restored to solvency. The primary objective of the bank’s rehabilitation was achieved when the bank re-opened in October last year.
Under the agreement, all the major shareholders, whose combined holdings exceed 90 per cent of the voting shares of Pirma Banka, will sell their shares to Nord/LB. Nord/LB’s acquisition of Pirma Banka represents the successful achievement of the second key objective in the bank’s rehabilitation, namely, attracting a strong strategic investor to the bank.
"The successful rehabilitation of Rigas Komercbanka represents the first voluntary bank restructuring in Latvia, and possibly the first in central and eastern Europe. While this sale amounts to only a small recovery of the EBRD’s total investment, it greatly supports the transition toward a stronger bank and a stronger banking sector," said David Hexter, the EBRD’s Acting Head of Banking.
"The EBRD played a leading role in the rehabilitation of the bank. By contributing new cash equity to the transaction, the EBRD was instrumental in restoring the bank to solvency, thus enabling it to resume operations," said Charles Frank, the EBRD’s Acting President of the EBRD. "The strategic acquisition of Pirma Banka by Nord/LB represents a further important step in the successful rehabilitation of the bank."
"We are delighted to welcome Nord/LB as a strategic investor in Pirma Banka," said Einars Repse, Governor of the Bank of Latvia. "Nord/LB is a first-class banking institution, and its presence in Latvia will contribute to the strengthening of the banking sector in our country. We are pleased that the efforts by all the parties to restructure the bank have led to a successful conclusion."
Visit the Bank of Latvia’s website at: www.bank.lv
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