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US investors are relaunching a key Ukrainian grain export terminal after wresting control from alleged looters, in a test of Kyiv\u2019s ability to attract capital to rebuild its economy in its fourth year of war.<\/p>\n
US-based funds Argentem Creek Partners and Innovatus Capital Partners have taken over the Olimpex terminal in the port of Odesa, after securing victory in a saga of alleged loan fraud that underlines the challenges of reviving international investment in wartime Ukraine.<\/p>\n
Sustained Russian attacks on infrastructure and fading hopes for a ceasefire this year are threatening to add to a reconstruction bill that the World Bank has already estimated at more than $500bn, versus Ukraine\u2019s current GDP of around $200bn.<\/p>\n
With official funding for Kyiv\u2019s war effort increasingly uncertain, President Volodymyr Zelenskyy\u2019s government is trying to persuade private investors to take on riskier projects, but he has to convince them Ukraine has legal protections and is winning an internal war on corruption.<\/p>\n
Zelenskyy\u2019s administration recently helped the two US funds enforce a $95mn debt against the Odesa tycoons who previously owned the terminal and defaulted on loans \u2014 and who in the chaos of Russia\u2019s invasion allegedly misrepresented grain supposed to be held as collateral.<\/p>\n
After the arrest in May of one of the businessmen, Volodymyr Naumenko, on charges of defrauding creditors, on Wednesday the Ukrainian supreme court signed off on a handover of the terminal, which has an annual capacity of close to 5mn tonnes, making it one of the biggest in the country. <\/p>\n
\u201cLike in any emerging market, there are certain things you have to be prepared to deal with when they come at you,\u201d said John Patton, partner at Argentem Creek. \u201cBut in Ukraine, even in the war, we have been able to follow through the rule of law. It\u2019s taken longer, but we are getting there, and that has always been my thesis about Ukraine.\u201d<\/p>\n
The US funds previously won a $150mn international arbitration and several UK court rulings but had a long fight in Ukrainian courts before Wednesday\u2019s handover.<\/p>\n
\u201cOur role in this case was purely coordinative \u2014 we drew the attention of the relevant authorities,\u201d Andriy Yermak, head of the Ukrainian president\u2019s office, said. \u201cThis case is yet another confirmation that Ukraine is a rule-of-law state.\u201d<\/p>\n
\u201cUkraine has so much potential to attract investment but it has to shake off the reputation that doing business in Ukraine is high risk due to fraud,\u201d said Carl Sturen, a veteran Swedish entrepreneur in Ukraine who will manage the grain terminal.<\/p>\n
This case was important, Sturen added, because alleged \u201cattempts to defraud US investors failed and those culpable are out of business.\u201d<\/p>\n
Prosecutors allege that GNT \u2014 Naumenko\u2019s group that owned the terminal \u2014 defrauded Innovatus on a $20mn loan, in particular through a scheme that misrepresented the availability of grain as collateral, and then \u201csimulated the destruction\u201d of the allegedly spoiled product in the months after Russia\u2019s invasion.<\/p>\n
\u201cThe very first starting point of this was the disappearance of pledged grain\u2009.\u2009.\u2009.\u2009allegedly incinerated with a company that had never paid an electricity or gas bill, in Sumy \u2014 hundreds of miles away from Odesa, almost inside the war zone,\u201d Patton said. <\/p>\n
Ukrainian authorities have been fighting an illicit grain export trade. The country\u2019s Bureau of Economic Security, an anti-corruption watchdog, has been investigating claims that the state lost billions of hryvnia in customs and tax revenue for its war effort because of so-called black grain.<\/p>\n
Ukraine\u2019s Security Service has led a crackdown in Odesa in the last year that significantly suppressed the trade, people familiar with the matter said.<\/p>\n
\u201cI think [Olimpex] was the centre of black grain in Odesa. It was one of the centres at least, probably the biggest one,\u201d Patton said.<\/p>\n
GNT has denied any wrongdoing and accused Argentem Creek of using the loans to mount a \u201chostile takeover\u201d of the terminal, which the group tied up in the dispute by pledging it as security for loans from Ukrainian banks. In April a Ukrainian commercial court of appeal overturned the bank loan deals, paving the way for the US funds to take control.<\/p>\n