Ukrainian tycoon and former politician Vasyl Khmelnytsky is in the spotlight as Ukraine’s State Property Fund gets ready to put the Bilshovyk machinery plant in Kyiv up for auction on Oct. 27 at a minimum bid of $51 million.
The 35-hectare property could sell for double or triple the starting price, but the deal has scared off potential buyers who want to avoid likely legal disputes with Khmelnytsky.
In 2019, private companies linked to Khmelnytsky and his business partner Andriy Ivanov illegally bought five workshops on the property, taking up a total of 6,300 square meters. The workshops are spread out, rendering it impossible to build contiguously. This makes it virtually impossible for someone else to buy the land and develop it without getting into long and costly legal battles.
Industry experts believe that Khmelnytsky has the upper hand in the opaque auction.
Khmelnytsky, 55, whose net worth reached over $310 million in 2020, made his fortune by investing in various businesses — from pharmaceutical production and renewable energy to information technology and real estate. He previously said he wants to build new things rather than buy old ones.
“We are now setting our minds on building factories. It is not worth buying an old property,” Khmelnytsky claimed in an interview with the news agency Interfax-Ukraine in 2016.
Bilshovyk’s shabby machinery plant doesn’t align with this vision. However its location at the crossroads of two busy transport arteries leading to Kyiv’s main street, Kreshchatyk makes it a valuable asset.
Khmelnytsky-Ivanov duet
The millionaire’s highest-profile investments are in UNIT.City, an industrial park for tech people, UDP Renewables, a solar power plant developer and pharmacy company Biopharma.
His company UFuture is a majority shareholder of UDP development company, which specializes in large infrastructure projects, the Kyiv Sikorsky International Airport owned by Kyiv’s municipality, and ITernal, a group of IT companies. Khmelnytsky also organizes the annual Kyiv International Economic Forum.
In 2010, Khmelnytsky signed a 49-year lease agreement with Kyiv Sikorsky International Airport. Since then Ukraine’s second-largest international airport is managed by the company Master-Avia, registered in Cyprus.
Khmelnytsky owns 82% of the company’s shares, according to YouControl. Another 10% of the company belongs to his partner Denys Kostrzhevsky, who is now the airport’s chairman of the board. In the last 10 years, Khmelnytsky has invested over $90 million in the development of the airport through his investment group UFuture.
Kyiv Sikorsky International Airport is a municipally-owned corporation. The share of the state in the enterprise, according to the register of the State Property Fund of Ukraine, is 0%.
Over his 20-year business career in Ukraine, Khmelnytsky and his partner Ivanov have been the shareholders of a dozen significant assets, including Ukraine’s fourth-largest steelmaker Zaporizhstal, telecoms operator UMC (later MTS and now Vodafone Ukraine), utility company Kyivenergo and soft drinks producer Rosinka, among others.
While Khmelnytsky is a successful businessman, he has also dabbled in politics, which hasn’t always burnished his reputation.
At one point, he was a lawmaker for the Batkivshchyna Party. Then, in 2007, he switched to the Party of Regions of fugitive former President Viktor Yanukovych, something he called an “unavoidable move” to save his business at the time. He left the Party of Regions in 2013, right before the EuroMaidan Revolution that ousted Yanukovych.
Rags to riches
Khmelnytsky met Ivanov in Russia, in the 1990s.
Born in a low-income family in Kazakhstan, Khmelnytsky grew up in Ukraine and started working as a welder and foreman at construction sites in Russia’s St. Petersburg (named Leningrad at the time) during the late 1980s.
He met Russian tycoon Dmitry Varvarin in 1989, who offered him work in his import-export holding, Orimi Concern. Khmelnytsky met his future partner Ivanov during a meeting with Varvarin.
Varvarin was killed near his house in St. Petersburg in 2000 in what police said appeared to be a contract hit most likely connected with his business activities but unrelated to Khmelnytsky. Back then, Khmelnytsky had already moved to Ukraine, where he was developing his own business.
Varvarin started processing oil and selling it in Russia through a company called Orimi Oil in 1990, which set up a branch in Ukraine to sell it here too. Khmelnytsky became the head of this Ukrainian branch in 1991, which separated off from the group in 1994 to run independently.
And that’s how he earned his first million, he claimed. “They had no money to pay us, so we took our pay with oil, processed it at the Angarsk refinery, and sold it in Russia and Ukraine,” he said in a corporate interview in 2016.
With this money, Khmelnytsky started building his business empire, investing in traditional sectors first, such as real estate and infrastructure, and later in pharmaceutical production, renewable energy, and IT.
After earning his first million by selling oil from Russia to Ukraine, Khmelnytsky decided to expand his business empire in Kyiv. Khmelnytsky and Ivanov founded the Kyiv Investment Group (KIG), a private equity fund in the middle of the 1990s. The fund was buying and selling securities of various companies to earn profit.
“We didn’t have a competency — we were buying everything at once,” said Sergey Pavlenko, one of KIG’s shareholders.
At the time, Khmelnytsky decided to focus on real estate and put all his efforts into the development company UDP, which he founded with Ivanov in 2002. In 2008 Khmelnytsky’s investment group flourished, controlling almost 150 projects, valued at approximately $700 million in total.
Old buildings
Bilshovyk’s auction is not the first time Khmelnytsky has shown his interest in abandoned buildings.
Khmelnytsky bought Kyiv’s state motorcycle plant for nearly $8 million in 2012 to build UNIT.City, an industrial park for techies. The 25-hectare park offers over office spaces to 100 Ukrainian and foreign tech companies, cultural projects and investment funds.
Khmelnytsky dreams of creating the analog of the U.S.’s Silicon Valley in Ukraine.
“It will be a place where startups, production, and research companies will develop innovative technology,” Khmelnytsky said.
As construction began in 2013, some activist groups took Khmelnytsky to court, accusing him of misappropriating public land for the park.
Khmelnytsky won the case at the beginning of 2016 and opened the park in 2017. As of 2020, only 10% of the park’s original plan was completed.
Apart from UNIT.City, Khmelnytsky’s UDP is behind the construction of the residential complex Unit Home, built in partnership with Ukraine’s other prominent developer, KAN Development.
According to the concept, Unit Home, designed to host nearly 4,500 people, will sell apartments for the Ukrainian “creative class” meaning the emerging middle class of IT workers.
Khmelnytsky told Forbes Ukraine in November 2020 that he plans to focus on technology and innovation for its next investments.
“What drives me today is everything new, modern and innovative,” he said back then. “I have no interest in construction.”
Read more: Shady Sales: Will Bilshovyk auction be latest in a long line of sham privatizations?
