State needs to recover €130 million from Citadele

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Estimates by the Privatization Agency (PA) show that Latvia still needs to recover €130.3 million euros for the shares it invested in commercial bank Citadele in the aftermath of the Parex Bank bailout of 2008-2010.

As reported, on Wednesday the European Commission ruled that public support measures granted by Latvia to joint-stock companies Reverta and Citadele were in line with EU state aid rules and has therefore closed its in-depth investigation of the state bailout of Latvia’s second-largest commercial bank.

The PA is now continuing talks with potential investors and says conditions are favorable for selling off the shares, though it wouldn’t forecast whether earnings from the sell-off would cover the entire sum.

Previously leaked information about potentially interested buyers could threaten hopes to sell the shares at the highest possible price, believes financial expert Martins Krutainis. He told Gunars Valdmanis of Latvian Public Radio Thursday that the leaks distort competition among potential investors, as they learn of each others’ interest in the purchase they can make assumptions about the sale price.

On the other hand, given that details about the second round of the sell-off have not yet gone public, Krutainis said this keeps alive hopes that talks with investors can henceforth proceed undisturbed by speculation.

In June Latvian Public Television reported that among the interested investors are commercial banks Rietumu and Norvik, as well as two US-based capital funds (one of which is believed to be linked to Latvian enterprise holdings), and Russian billionaire vodka magnate Yuri Sheffler, who already has Latvian assets via his indirect control of the famous Latvijas Balzams distillery.

Citadele was established in August 2010 as the successor to the restructured private commercial bank Parex, whose owners Valerijs Kargins and Viktors Krasovickis asked for a government bail-out in the fall of 2008 following liquidity difficulties caused by the global financial crisis.

The cost of bailing-out Parex forced the government to turn to the International Monetary Fund for a 7.5-billion-euro bailout of its own, heralding years of harsh austerity to repay the debt.

At the time the government ruled to take over its current 75% share of the bank, with the European Bank for Reconstruction and Development (EBRD) assuming control over the remaining 25%. The restructuring plan calls for the sale of Citadele to be completed by the end of 2014. 

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