Depositors in the failed banks of Ukrainian agricultural tycoon Oleg Bakhmatyuk say they were robbed.
At least $108 million belonging to 15,000 depositors in Bakhmatyuk’s VAB bank disappeared after the bank collapsed in November 2014. Those whose savings exceeded the state guaranteed insurance sum of Hr 200,000 ($8,000) seem to have no chance of seeing their money returned.
But Bakhmatyuk’s representatives say he and his firms are victims of a vendetta by the National Bank of Ukraine. Central bank representatives are out to destroy Bakhmatyuk’s businesses, they say.
But the deposit owners aren’t giving up.
While the Ukrainian authorities were largely inactive, the bank’s clients brought actions against Bakhmatyuk in courts across Ukraine and abroad, trying to recover their savings.
“The money wasn’t burned in the bank,” says Irena Ross, a representative for a group of VAB clients. “It was just stolen.”
Egg-and-poultry empire
Bakhmatyuk, a 41-year-old Ukrainian agricultural tycoon, had an estimated net worth of $138 million and was the 28th richest Ukrainian, according to a Forbes ranking earlier this year.
Much of that wealth appears to come from London-listed egg producer Avangardco, a subsidiary of his agricultural holding UkrLandFarming
Avangardco, based off the first poultry factory Bakhmatyuk bought in 2003 in western Ukraine, yielded $200 million from a 2010 initial public offering.
Meanwhile, Bakhmatyuk’s empire in Ukraine was booming, particularly following his 2011 purchase of VAB bank. Within two years, he bought more than 20 agriculture companies, including a leading national distributor of crop protection products, Rise, and the sugar refineries of agricultural firm Dakor, all for an estimated $140 million. His land bank increased to 650 hectares. All the growth turned UkrLandFarming into the biggest agrarian holding on the Eurasian continent.
A woman protests in front of the Deposit Guarantee Fund on June 21 in Kyiv to demand the return of the money they stored in Mykhailivsky Bank which went bankcrupt and closed on May 23. (Anastasia Vlasova)
Since then, Bakhmatyuk has not faired as well – as part of this wave of expansion, Bakhmatyuk tried his hand on the U.S. market in February 2011. He bought century-old poultry processing factory Townsends Inc. in North Carolina for $24.9 million. That didn’t go well: He closed the factory in 2012, saying the U.S poultry market was oversaturated.
Nearly 130 American chicken farmers sued Bakhmatyuk for the failed venture. They claim that they borrowed to build chicken houses, expecting that the Ukrainian investor would fulfill a three-year contract with them.
UkrLandFarming has had to postpone its own IPO on the London and Hong Kong stock exchanges multiple times because of Ukraine’s economic crisis.
Bank buster
But Bakhmatyuk’s failure in the banking sector is far more serious than his poultry follies.
In January 2014, Kyiv attorney Arsen Marinushkin entrusted his savings to VAB bank, which specialized in crediting the agricultural sector.
The institution, owned by Bakhmatyuk since 2011, was rated 16th biggest in the country at the time.
But like many other financial institutions in Ukraine, the key shareholder appears to have used his bank as a wallet. The scheme involved setting up a bank, collecting money deposits from the population, and then loaning money to affiliated firms.
“Our bank vacuumed up deposits from everyone, but gave loans only to the business of one person, Oleg Bakhmatyuk,” Marinushkin told the Kyiv Post.
Similar schemes have destroyed many banks in Ukraine, starting from 2014.
The Ukrainian economy and banking system were hit by Russia’s annexation of Crimea and the war in eastern Ukraine. Bakhmatyuk’s businesses also reeled from a 30 percent drop in global grain prices.
“As a result of insider lending, these firms were not returning loans, and when the bank was recognized as troubled, he started siphoning off assets and the bank failed,” Marinushkin said.
According to the National Bank of Ukraine, related party lending boomed in both of Bakhmatyuk’s banks: VAB and Finansova Initsiatyva (Financial Initiative), which he founded in 2004.
Valeria Gontareva, the NBU governor, said in an interview on Oct. 2, 2015, that the banks had 64 percent and 96 percent of their loan portfolios infected by insider lending, respectively.
Bakhmatyuk’s representative, Ihor Petrashko, UkrLandFarming’s deputy CEO, denies this, saying that VAB’s portfolio had less than 30 percent insider credits.
“VAB bank had $135 million insider loans issued to UkrLandFraming,” Petrashko said. “There were no direct credits with Finansova Initsiatyva, but it held the bonds of our group.”
But in spite of this, the NBU issued more than Hr 10 billion ($400 million) in stabilizing loans to Bakhmatyuk’s two banks until their collapse. The NBU declared VAB insolvent on Nov. 20, 2014, one month after reaching a temporary refinancing deal with Bakhmatyuk.
Finansova Initsiatyva bank went into temporary administration on June 23, 2015. The NBU had given Finansova Initsiatyva more in loans than the bank had lost due to deposit flight.
Asset recovery
According to the VAB depositors, Bakhmatyuk did not use the government loans to stabilize the banks or pay back deposits, but rather used the refinancing for more related party lending.
According to the state registry of court rulings, at least nine companies with links to the UkrLandFarming empire have been sued by VAB bank’s liquidator for not servicing debts worth a total of $126 million.
For instance, the state-financed Deposit Guarantee Fund sued Ukrkhlibprodukt for the return of a $12.8 million loan that it took from VAB bank in January 2014. The founders of the company include Extrar Holding Ltd., an offshore company that often appears in the list of founders of VAB bank’s delinquent debtors. It is also one of the founders of Yugtranzitservis-Agroprodukt, which has Bakhmatyuk listed as its main beneficiary.
Blame game
The office of UkrLandFarming in the outskirts of Kyiv serves as the brains for the agricultural giant.
It was there that Ihor Petrashko, the deputy CEO of Bakhmatyuk’s flagship holding, scheduled an interview with the Kyiv Post.
The holding has just clinched a number of successful restructuring deals with Deutsche Bank, Russian Sberbank, and the U.S. and European export credit agencies for debts totaling $1.6 billion, Petrashko said.
But Bakhmatyuk is having his fiercest fight at home, with the central bank.
On May 18, the courts arrested all of Bakhmatyuk’s property at the request of the central bank. The NBU sued the egg tycoon for the return of a $50 million refinancing loan, which was issued under the personal assurances of VAB’s owner. In two weeks the arrest was lifted. The central bank appealed against the court ruling.
Petrashko accused the central bank of behaving unreasonably.
“The position of the NBU comes down to stiffing all other creditors, but returning their own money,” he said. “This is being done with one goal: to ruin the company.”
Petrashko denied that any insider companies have any court cases against them over non-performing loans. He said that UkrLandFarming is in talks with VAB bank’s liquidator on restructuring the $135 million worth of insider loans that affiliated businesses took in VAB before it went into administration.
According to Petrashko, it was impossible to save the banks because the central bank refused to delay the deadline to increase authorized capital, restructure NBU loans, and reduce the share of insider credits.
The bank got in trouble after nearly 60 percent of clients stopped servicing their loans due to the devaluation of the national currency, the hryvnia, Petrashko said. The reserve funds were eating into the regulatory capital of the bank. It would have been unrealistic, he said, for shareholders of any big banks to find nearly half a billion dollars in October 2014 to increase authorized capital, as the central bank required.
But it remains unclear why Bakhmatyuk signed the VAB rescue plan and received the $50 million loan from the NBU if he knew that he would not be able to meet his commitments.
Petrashko says this was because of the unexpected deterioration in economic conditions as well as the national currency’s devaluation against the dollar. He assumes this was encouraged by the NBU, which was allegedly aiding former President Viktor Yanukovych to take his money out of the country.
“At that time the vision was different,” he said. ‘We did not expect this scale (of devaluation). As you know, the statistics come with a delay… The memorandum (rescue plan) was violated not by the shareholder, but by the NBU.”
Another bank, Finansova Initsiatyva, was taken out of the market for “purely political” motives, Petrashko said. While the VAB had many nonperforming loans in Donetsk and Luhansk Oblasts as well as inherited credits from the previous owner, Finansova Initsiatyva had more insider credits, which the owner serviced, he said.
“The only issue was liquidity,” he said. “Why? Because paying 20 percent interest on the NBU loans required a huge amount of funds. But the central bank refused to restructure the refinancing loans and receive them in full in five or seven years.”
Court battles
According to VAB bank’s administration, as of June 7, the owners of large deposits won’t receive any reimbursement.
The depositors went to courts to retrieve their money. And Marinushkin, who is also a lawyer, managed to win $401,000 for a client in a case against Bakhmatyuk.
In his lawsuit, he referred to a law adopted in March 2016. It allows bank managers and beneficiaries to be held criminally responsible for bringing an institution to insolvency by their actions, and obliges them to compensate for losses caused by a bank’s liquidation.
“The process was a long one because all of the documents that prove that the bank owner violated the law are protected by bank secrecy,” Marinushkin said.
At first, he sued the NBU, demanding that the liquidation of VAB bank be declared illegal. But it soon became clear from documents that the NBU brought to court that the insolvency was the fault of the owner.
So after that, Marinushkin brought an action in the civil court against Bakhmatyuk and requested more documents from the NBU. These were provided at a closed court hearing. According to the lawyer, Bakhmatyuk is filing an appeal.
Ideally, the state law enforcement bodies should bring the beneficiaries of failed banks to justice. But in Ukraine, where rich bank busters have friends in government quarters, deposit owners have to seek compensation for their losses on their own, Marinushkin says.
“All of them are using political immunity,” he told the Kyiv Post. “This is obvious. That is why the depositors understand that in the current political reality, bringing any banker to justice is impossible.” n
