Value of Dublin funding vehicle plunges after missed payment by Russian bank

Tatfondbank set up Irish special-purpose vehicle in 2007 to raise debt financing

 Seeking greater  control over Irish special-purpose vehicles: the  Central Bank. Photograph: Matt Kavanagh

Seeking greater control over Irish special-purpose vehicles: the Central Bank. Photograph: Matt Kavanagh

 

A Dublin funding vehicle used by a collapsed Russian bank at the centre of a fraud investigation has warned debt investors that it has not received an interest payment from Tatfondbank.

The value of $60 million (€55.9 million) of bonds sold by the Irish special purpose vehicle, TFB Finance, in November has plummeted to 5.5 cents on the dollar, reflecting concerns about the ability of Tatfondbank, which had its licence pulled on March 3rd, to meet its obligations.

Tatfondbank, based in the city of Kazan, 720 kilometres east of Moscow, set up an Irish special-purpose vehicle (SPV) in 2007, initially to raise $200 million for the second-largest bank in the oil-rich Russian republic of Tatarstan.

Irish SPVs, established under 1997 laws to make the IFSC an attractive “tax-neutral” place for banks, companies and private equity firms to raise debt, came under the spotlight last year due to political controversy over how funds had been using these vehicles to buy property loans after the crash. The Government moved to tax Irish property in SPVs late last year.

Unregulated

However, global organisations such as the Financial Stability Board and International Monetary Fund have been pressing Irish officials to look more closely at the activities of unregulated SPVs.

In late 2015, the Central Bank forced SPVs to start providing it with information on their assets and liabilities as it joined in the global hunt to find financial risks in this darkest part of the world of “shadow banking” – financial activity that takes place outside the traditional banking sector.

More than €700 billion of global assets are contained in SPVs and related vehicles in Ireland. Russian banks and companies are among the biggest users of Irish SPVs to raise debt, according to the Central Bank.

The activities of SPVs have little to do with the Irish economy. The TFB Finance bonds are understood to have mainly been sold to Russian investors. However, the size and scale of the industry in Ireland opens the country to reputational risks in the event of a vehicle blowing up.

Administration

Tatfondbank was put into temporary administration in December as it ran into financial difficulty, six weeks after the Dublin funding unit TFB sold the bonds. The Russian central bank pulled the lender’s licence earlier this month, saying it had a $1.7 billion hole in its balance sheet.

A spokesman for the Central Bank of Ireland, which approved the bond prospectus, said its practice is to review a prospectus to ensure it contains all disclosures required by law. Information in the document, however, is solely the responsibility of the company issuing the bonds and its directors, he said. The directors of TFB didn’t respond to a request for comment.

Meanwhile, Russian investigators opened a criminal case against the chairman of Tatfondbank’s management board earlier this month, on suspicion of fraud, while they are also probing the activities of some employees at the bank.

Tatfondbank’s collapse is the biggest of a Russian lender since a bank called Vneshprombank, which had a Dublin funding operation, imploded in January last year. The Irish SPV, called VPB, defaulted on its $225 million of bonds last year.