Russian Tatfondbank Raised $60 million in Ireland Just Before Collapse


According to a Bloomberg report, while the management and shareholders of one of Russia’s biggest regional lenders, Tatfondbank, deep in unsuccessful talks with the central bank about how to save it from collapse last November, an obscure company in Dublin sold $60 million of bonds on its behalf.

The amount wasn’t nearly enough to cover the estimated 97 billion ruble ($1.6 billion) hole in Tatfondbank PJSC’s balance sheet, and a month later the Russian regulator began the process of revoking its license. The bonds’ prospectus, meant to be a detailed look at the risks involved, made no mention of the shortfall or the central bank’s concerns, which had been raised since May. The notes are now almost worthless and the lender’s chief executive officer has been arrested on fraud charges related to the collapse.

“Why is a Russian bank in the middle of nowhere raising dollars through an Irish SPV using brokerages in Hong Kong?” said Shaen Corbet, a finance professor at Dublin City University. “Ireland says it’s locked down on this kind of stuff, but it hasn’t really.”

Ireland is one of the world’s hubs for SPVs, entities typically with no employees that offer tax and regulatory benefits to the corporations using them. The Central Bank of Ireland began amassing data on SPVs in late 2015 as part of a global push to better understand the risks posed by non-bank financial firms, or shadow banks, Bloomberg reported last year. The regulator found hundreds of entities with 324 billion euros of assets, including about 54 billion euros in Russia, according to an October report.

Talks to save Tatfondbank, one of the nation’s 10 largest regional lenders, were drawn out from May until the end of November as the bank’s shareholders offered verbal assurances that they would not let it collapse, the Bank of Russia’s First Deputy Governor Dmitry Tulin said earlier this month, when the central bank disclosed the 97 billion-ruble shortfall. It was placed under temporary administration in December and lost its license March 3.

“I didn’t think they’d placed Eurobonds since May,” Tulin said in response to Bloomberg questions. “If they did, it means we didn’t have a legal justification to forbid it. But we had a very open dialogue with them.”

Fraud Allegations

Several instances of fraud allegedly took place during the negotiations and before the SPV marketed its bonds, Russian authorities said. In one, Tatfondbank employees provided the central bank with “fictitious” information about the availability of a highly liquid asset in order to secure a loan, according to local law enforcement.

The proceeds of that loan, which exceeded 3 billion rubles, were transferred to accounts of companies affiliated with Tatfondbank, the republic’s Investigative Committee said this month in a statement on the arrest of CEO Robert Musin over the allegations.

Musin pleaded not guilty at a hearing following his arrest, Interfax reported March 6 from the court room.

In another case, some 2,500 clients were tricked into moving their insured deposits into unprotected bonds at a subsidiary following an October central bank ban on accepting new deposits, Tass reported March 3, citing regional deputy prosecutor Marat Dolgov.

Russia’s central bank is purging weak and fraudulent lenders in a campaign to clean up the nation’s financial industry. The regulator closed almost 100 banks in 2016, including Vneshprombank Ltd., which used an Irish SPV to raise $225 million before the central bank said it uncovered evidence of falsified accounts.

Tatfondbank executives had already used that bank’s Irish entity, which was created in 2007, to raise more than $500 million before the November deal, according to data compiled by Bloomberg and Irish regulatory documents.

Political Connections

In the 551-page prospectus dated Nov. 7, the Tatfondbank entity flagged risks swirling around the Russian economy and the nation’s banks, which have been hobbled by US sanctions, a plunge in commodities prices and souring loans. Still, the lender believed that “its funding sources, its credit standing and its liquidity and risk management policies allow it to meet its liquidity needs,” according to the document.

The veracity of the information in a prospectus is the responsibility of an issuer and its directors, Steven Cull, a spokesman for the Irish central bank, said in an email. The regulator reviews the document to ensure it contains the necessary disclosures, he said, declining to comment on individual cases.

Lutz Roehmeyer, who in November invested in a separate batch of Tatfondbank notes issued in 2014 by the Irish entity, said he was encouraged by the fact that the bank appeared closely linked with local authorities in Tatarstan, an oil-rich and predominantly Muslim region in central Russia. The republic’s Prime Minister Ildar Khalikov was the chairman of the bank’s board and Musin was a deputy in the regional government and a member of President Vladimir Putin’s ruling party United Russia. Khalikov wasn’t accused of any wrongdoing.

“Normally banks aren’t able to issue bonds just days before losing their license,” said Roehmeyer, who helps oversee 12 billion euros at Landesbank Berlin Investment GmbH in the German capital. “The banks in Tatarstan are more or less interwoven with the government of the region, so we expected some form of government support due to this responsibility.”

TFB Finance is managed by an Irish subsidiary of TMF Group BV, an accounting firm based in Amsterdam, statements show. Katie Martin, a spokeswoman for TMF in London, declined to comment. Attempts to contact the bond’s global coordinators, Hong Kong-based firms SC Lowy and Merdeka Capital, were unsuccessful.

“Based on the information we have now, there’s a good chance this money was never going to be repaid,” Dublin City University’s Corbet said. “If there were questions about this bank prior to the bond issue, if there were questions in the markets, you’d have to wonder why the Irish central bank didn’t pick up on it.”


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