Citadele sale stalls the day before signing

After the surprise resignation of Privatization Agency (PA) board chairman Ansis Spridzans and board member Guntis Lausks Thursday, Friday's planned signing of the Citadele sale agreement with investor group Ripplewood Holdings can no longer go forward.

A last-minute scramble by the Economics Ministry to find two sufficiently qualified replacements to install at the PA came up short at the end of the day, with only one prospective candidate, Vladimirs Loginovs, named. Thus the Cabinet had to accept the fact that the five-year circle that began with the 2008 state bailout of Parex Bank could not be closed on Friday as hoped.

Visibly annoyed before television cameras, Prime Minister Laimdota Straujuma warned that the now former PA officials would have to answer for their surprise move should it prove to torpedo the deal entirely. She questioned Spridzans’ professionalism and called his decision “fear of responsibility”, given that he and the agency had been preparing the deal all this time, yet hadn’t explicitly stated its reservations about it to the government.

She claimed that any further delays for the limited time of negotiation risked losing the interest of the investor group. “The issue in question was whether they would wait another month or two, because they can always take their monies elsewhere,” the premier said. She warned that if the sale falls through, a new sales team might need to be appointed by the European Commission, inevitably forcing down the price further, even if the same investors remain interested.

Interviewed on LTV evening news program Panorama, Spridzans himself explained his personal reasons for  stepping down the day before the contract was to be signed.

“From previous experience I know that if there’s the chance to keep negotiating, especially for two whole months, then it’s clearly quite possible to win further concessions, better terms. So clearly the government, the Republic of Latvia would be far better off continuing to haggle rather than rushing to sign the agreement as is,” he told Panorama.

He outlined some of the ‘tripping stones’ inherent in the deal that prompted him and Lausks to resign from the board.

“The range between the lowest- and highest-allowable future sale price could have been diminished through further negotiation, as it stands now it is a very wide-ranging potential difference in outcome down the road between the opportunity to score big or the risk of losing big. It would all just depend on how well the bank performs after the sell-off.

“Right now the bank is operating with very good results and I don’t doubt that it could continue to do so. Therefore I believe the publicized estimates for recovering €74m from the deal will be reached, and could even theoretically be exceeded. But one must realize that the price isn’t the only provision in the agreement. It’s a 70-page document with plenty of appendices. There are lots of built-in risks that we could still be discussing there. All of which could have been done in the remaining two months before the sell-off deadline, to try to minimize their potential impact on the eventual results,” he said.

“One of the several risks involved in the current deal is the two-year time period allowed for future divestment of the stock.  Then there’s the issue of potential court-mediated disputes over the commitments expected from the Privatization Agency towards the investors."

As for his assessment of the Ripplewood group, Spridzans went on:

“What is known about them is that they are mostly risk capitalists and the basic formula for risk capitalism is not to stay in for long, you get in, make your money, get out and move on. Of course whether or not they might make a public offering, or recruit a further strategic investor cannot be predicted at this time.

“I’ve never used the phrase ‘for the cost of a butter sandwich’ and never will, but to sell the bank for these terms that the government has managed to negotiate with the buyers… I’ve resigned because I believe there were still two months left to allow for the possibility of improving these terms through more negotiation and achieve a better result.

“It’s hard for me to comment on why the politicians felt they needed to make such haste with signing the deal. I’m not a politician. Politicians take decisions according to their own considerations. Here at the PA for the past two years we’ve been working on this, striving to stay above the political fray, even when I was appointed I was free of any political affiliations. Strange as it may seem at the PA.

“So our task was always to try to achieve the best-case scenario – a private seller, a private buyer, in a private environment. I’m convinced that private investors would not have signed off on such conditions as they stand now. The state is a different kind of seller. The state might find such conditions necessary and acceptable because it has other strategic considerations, which is well and good, yet I must personally make a decision whether the strategic commitments that the state has agreed to and is ready to sign off on don’t contradict what I feel are my principles, as a cautious and caring custodian, that I am obliged to observe at the PA,” he concluded.

Investigative journalist Agnese Margevica, who has followed the Citadele story closely, told LTV Panorama in an interview that, contrary to the surprise expressed by Straujuma and Economics Minister Vjaceslavs Dombrovskis, the government had heard on Tuesday not only the qualms of the PA board, but also concerns from the State Chancellery, which recommended the agreement not be signed yet, in light of “unclear investor structure and their not always successful previous dealings.”

“This looks more to be like the politicians angrily turning against the civil servants,” Margevica characterized the government’s response. Without offering further remarks, she raised two questions about the Citadele story that may yet come to light in the ensuing days and weeks left before the EC’s deadline for Latvia to complete the sell-off:

“What gave (Spridzans) the gumption to come forward at the last minute?”

“Why at all costs did the deal have to be signed by this (Straujuma) government, when next week there may be almost the same (Straujuma) government newly approved?”

Stay tuned to LSM.

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