The Slovenia Times

Stress Tests: Junior Bondholders Will Be Wiped Out


"The rules of the game should have been clear in advance. When these bonds were issued it was clear the bondholders can lose everything only in the event of bankruptcy. There is no bankruptcy," says Rajko Stankovič, the boss of the Small Shareholders of Slovenia.

His association is one of two groups of bondholders that have petitioned the Constitutional Court to stay the amendments to the banking act, adopted after the early-September start of supervised liquidation of Factor banka and Probanka, which make it possible to bail in junior bondholders.

The provisions stipulate that the central bank may order as part of extraordinary measures the termination of qualified liabilities of banks such as share capital or hybrid debt instruments.

Governor Boštjan Jazbec and Finance Minister Uroš Čufer reiterated Thursday that under EU state aid rules the state is allowed to recapitalise the bank with public funds only after existing shareholders and holders of subordinated debt participate in the restructuring.

Shares are a high-risk instrument and one may reasonably expect to lose everything, but this is not the case for bonds, according to Stanković. "The people in charge have been explaining these measures as being better than the banks going bankrupt. For the holders of junior bonds, this is not true."

Moreover, the government and central bank are referring to EU bail in rules that are not yet adopted and were not due to be transposed into national law until 2018, Stanković noted.

The write-off of subordinated debt will total EUR 257m at NLB, EUR 64m at NKBM and EUR 120m at Abanka. There are just under 2,000 holders of the bonds slated for the write-down, almost half of them private individuals.

The bail-in amendments to the banking act are being challenged by two associations of small shareholders as well as the National Council. They are also requesting a stay of execution of the act, which could derail the bank bailout plan if confirmed by the country's top court.

This was also highlighted today by the government, which said in a formal opinion it will submit top the court that staying the act would have "damaging consequences".

Staying the challenged provisions would bring the bailout plan in breach of EU rules and could "make the restructuring of the banking system unsuccessful".


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