Financial Services, Latvia, Legislation, Loan, Transport

Riga City Council will turn to the bank's administrator claiming that the deal be called off, and find a buyer for airBaltic shares that would be ready to buy them for as high a price as possible.

Krajbanka’s decision to sell 47.2% stake in airBaltic to the government for just LVL 224,453 may be seen as damaging to the other Krajbanka creditors, including Latvian businessmen, local governments, municipal and state companies, believes the Riga City Council. The government has in fact made a decision to bail out one company, airBaltic, at the expense of all Krajbanka depositors and creditors, thereby reducing their chances of getting their money back. This decision may be interpreted as a gross violation of the law, which is why the Riga City Council will turn to the bank's administrator, claiming that the decision on selling airBaltic shares to the government be revoked, and other opportunities considered for rescuing airBaltic.

As reported, the Transport Ministry, using its pre-emptive right, earlier this week bought airBaltic shares that previously belonged to the airline's now-former minority shareholder Baltijas Aviacijas sistemas (BAS), but were pledged as security at Krajbanka. The public was informed that this was done to ensure efficient protection of Krajbanka depositors' interests and prevent a decrease in the value of the bank's assets. The Transport Ministry bought 47.2% of airBaltic shares, which BAS pledged as security with Krajbanka, for the nominal value of the shares, LVL 224,453, and the sate now therefore holds 99.8% of airBaltic shares.

"As far as we know, 47.2% of airBaltic shares were pledged as security with Latvijas Krajbanka for several loans worth dozens of millions altogether, including LVL 15 million meant for increasing the airline's share capital. Therefore, the price of the security should have been determined not according to the nominal value of the shares but the amount of the loans," the Riga City Council says in a statement, adding that 47.2% of airBaltic shares does not cost LVL 224,453 but at least LVL 50 million. Therefore, Krajbanka unsecured creditors may suffer substantial losses.

Also, the Financial and Capital Market Commission announced that it would file for Krajbanka’s insolvency on November 28, however, this was only done in the afternoon of December 1, which indicates that the Commission had been waiting for the government to buy airBaltic shares, because after insolvency procedures commenced, no transactions with Krajbanka property would be permitted.