* Appeal hearing to decide if 2016 bank nationalisation was legal
* New president Zelenskiy has pledged to tackle vested interests
* IMF and investors watching to see if he can stand firm
* PrivatBank ex-owner Kolomoisky won first case, denies wrongdoing
By Natalia Zinets and Karin Strohecker
KIEV/LONDON, Dec 18 (Reuters) - Ukrainian authorities will square off against one of the country’s wealthiest tycoons in court on Thursday over the nationalisation of PrivatBank, a case that could weigh on Ukraine’s chances of getting billions in foreign loans.
The government took Ukraine’s largest lender into state hands in 2016 as part of a donor-backed clean-up of the finance system, saying that shady lending practices under then-owner Ihor Kolomoisky had driven the bank close to insolvency.
Kolomoisky denies wrongdoing and disputes the central bank’s characterisation of PrivatBank’s finances at the time, and is demanding compensation or a share of his bank back.
The issue is seen as a test of President Volodymyr Zelenskiy’s reform agenda and willingness to tackle the deep-rooted vested interests that have long held back Ukraine’s development.
Since his election in April, investors in particular have been heartened by Zelenskiy’s commitments and the strong parliamentary backing he has secured, giving Ukraine’s sovereign bonds a huge 31% return this year.
The central bank, which oversaw the nationalisation, has accused Kolomoisky of disrupting its work and hampering negotiations with the IMF through protests and media smears.
Kolomoisky, whose TV station carries the sit-com that launched Zelenskiy’s political career, rejects the allegation.
Asked about the court case, Kolomoisky told Reuters he expected a “fair verdict” unaffected by politicians or officials.
“I do not want to create pressure on the court,” he said by phone. “But everyone knows the nationalisation was not fair.”
A court found in April that the nationalisation had been illegal. On Thursday, a higher court will hear the central bank’s appeal.
PrivatBank’s fate is a crucial issue in negotiations with the International Monetary Fund, which has given conditional approval to a new loan deal worth $5.5 billion.
The IMF cares less about the verdict than about how Kiev responds if it loses.
The IMF wants to be sure the nationalisation is not reversed and that the government does its best to recover money spent propping up lenders. Kiev says it spent $6.4 billion on PrivatBank alone.
First Deputy Central Bank Governor Kateryna Rozhkova said on Tuesday that the IMF is watching the case but understands that authorities cannot influence the court:
“The ability of the National Bank and the government to provide financial stability, the ability of Ukraine to recover lost state funds is more important.”
The government wants to pass a bill to prevent insolvent banks returning to their former owners.
And the central bank, for its part, has devised a strategy in which, if it loses the case, the state would withdraw the money given to PrivatBank, declare the lender insolvent, and renationalise it.
James Hart at Hillmont Partners, an adviser to Ukraine’s prime minister, said the case would be “huge for sentiment”.
“Sometimes courts don’t take the decisions that we would want,” he said, “and sometimes that’s because of corruption and sometimes that’s because the legal arguments and the legal defence.”
Tim Ash of BlueBay Asset Management said Ukraine’s assets had had a stellar year, adding: “We just want to make sure this continues.” (Additional reporting by Marc Jones in London; Writing by Matthias Williams; Editing by Kevin Liffey)