Ukraine’s oligarch-backed business and financial groups will be affected by the pending bank deposit tax in Cyprus. Although the immediate impact for Ukraine will be insignificant, some experts say the move could significantly lessen the Mediterranean country’s attractiveness as a transaction center for post-Soviet clientele.
A favorite offshore destination and company
incorporation hotspot for many Ukrainian companies, Cyprus on March 15 brokered
a $13 billion bailout package with the European Union and International
Monetary Fund that includes a one-shot levy on bank deposits.
Although still being negotiated, the
measure foresees shaving 9.9 percent off individual and corporate Cypriot bank
accounts with balances of more than 100,000 euros; and 6.75 percent off
accounts with less.
Cyprus President Nicos Anastasiades said accountholders would
be compensated with bank shares. He emphasized
that pension
and provident funds will remain untouched.
But the amount of exposure Ukrainian banks,
corporations and individuals have in Cyprus is inconsequential, experts said.
Elena Redko, a Moody’s analyst, told the
Kyiv Post that the direct exposure of Ukraine’s banking sector in Cyprus
corporations and banks is up to $100 million.
Meanwhile, Ukraine-related business in
Cyprus, according to Tomas Fiala, managing director of Kyiv investment bank
Dragon Capital, “may have about 10 times less money than Russian-related
business in Cyprus,” implying a loss of up to $200 million for Ukrainian
depositors.
“The impact (for Ukraine) will be
negligible,” said Jorge Intriago, a partner at Ernst & Young in Ukraine.
“And those that sustain a loss will get shares in exchange” from their banks.
Intriago added that many Cyprus-registered holding
companies affiliated with Ukrainian businesses hold bank accounts in other
European countries.
“The (Cyprus) holding doesn’t mean you’ve
got money sitting in Cyprus,” he said.
Ukraine’s largest conglomerate, System
Capital Management owned by multi-billionaire Rinat Akhmetov, said the measure
won’t “affect the financial standing of the SCM group in any way.”
However, Craig Richardson, partner at
international auditor KPMG in Ukraine, told the Kyiv Post that in the
short-term he wouldn’t advise shifting dividends from Ukrainian trading
companies into Cyprus holding companies and in the “medium- to long-term,
consider a possible restructuring of the (business-financial) group.”
Some say, this could potentially spell the
doom of Cyprus as a preferred financial services destination for post-Soviet
oligarchic businesses.
“…If this thing drags on, for a week or so,
with the Cypriot parliament blocking the bailout, and deposits stay frozen,
this is going to impact on the use of Cyprus as a transactions hub for
Russian/Ukrainian corps…” said Timothy Ash, head of emerging markets research
for Standard Bank.
As an offshore center, Cyprus has often
been alleged to be the recipient of proceeds from tax evasion and money-laundering
around the globe, especially from Russia and Ukraine, charges the island strenuously
denies.
As for individual Ukrainians their numbers
are in the insignificant hundreds because of strict central bank rules on
holding foreign accounts, said Oleksandr Zholud, senior analyst for the
International Center for Policy Studies, a Kyiv-based policy center.
Russia on the other hand, according to
Moody’s, could be hit harder. The ratings agency estimates that Russian banks
had placed $12 billion in Cypriot banks at the end of 2012, with corporate
deposits at $19 billion, implying a loss of up to $2 billion or even more.
The pending move aroused the ire of
Russia’s leadership.
Russian President Vladimir Putin called the
proposed tax “unfair, unprofessional and dangerous,” hi s spokesman Dmitry
Peskov said on March 18.
The proposed move already could be
impacting transactions for Ukrainian businesses incorporated on Cyprus, from
where 74 percent of foreign direct investments came in 2012, or $3.37 billion.
The proposed measure caused a run on ATM’s
across the 1 million-person island over the weekend and today was a banking
holiday there.
Cyprus’ parliament postponed a vote on the
deposit tax for March 19, and the island’s central bank extended today’s
banking holiday to March 21 to allow the legislature to amend the measure and
prevent a run on banks.
BBC reported the measure might be amended so
that the upper-tier savers pay more while those with less than 100,000 euros
pay around 3-4 percent, instead of the proposed 6.75 percent.
If the measure isn’t approved, Cyprus could
go bankrupt and be kicked out of the 17-nation Euro zone.
Kyiv
Post editor Mark Rachkevych can be reached [email protected].
