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The nationalisation of UkrTelecom – or not

January 8, 2018

In 2011 the Ukrainian State sold 92.79% of Ukrtelecom to a company called ESU for UAH10.6 billion.  ESU was a subsidiary of EPIC, an Austrian company.

In 2011, the UAH – US$ exchange rate was approximately UAH8 = S1, so the sale raised +/- $1.3 billion (for somebody, as this was during President Yanukovych’s reign, so who knows where the funds ended up).

In 2013 Raga Establishment Ltd (formerly trading as Epic Telecom Invest Ltd), a Cypriot company owned by Ukrainian banker (and London resident) Denis Gorbunenko, bought Ukrtelecom from ESU.

Raga also occasionally appears in the orbit of Sergei Liovochkin.  Perhaps unsurprisingly as Denis Gorbunenko was head of Rodovid Bank (until it went bankrupt in 2010) as this bank then orbited around the Firtash empire – and Sergei Liovochkin is a creature of Mr Firtash.

That same year, Raga Ltd sold Ukrtelecom to Rinat Akhmetov’s SCM empire – at $465 million cheaper than the initial 2011 privatisation.

What’s going on?  A reader may well suspect shenanigans between the then leading backers of Party Regions via a trusted intermediary (Mr Gorbunenko and his Cypriot offshore vehicle).  Living rather nicely in London, Denis Gorbunenko did not become a former Ukrainian banker worth in excess of $230 million by losing money – but he probably became one by facilitating perhaps nefarious transactions before the bank he ran went bankrupt.

2014 brought about the ouster of President Yanukovych (and an on-going war with Russia).  Many of SCM’s assets have fallen behind enemy lines and have subsequently been legally declared beyond the control of SCM.  Needless to say, financial forecasting made in 2013 has little relevance to today for SCM.  Loans and bonds to Oschadbank and Ukreximbank (to name but two) relating to UkrTelecom have not been repaid when due in March 2017.

These two State owned banks had their loans backed by shares in UkrTelecom.

Whatever the failures of reform and policy change in Ukraine, the cleanliness and transparency of banking sector, though not perfect, has dramatically improved.

Thus claims against SCM and Ukrtelecom were forthcoming, and Ukrtelecom and SCM lost in the Ukrainian courts – twice.

The second hearing occurring almost two months ago, provided for the State (via the State Property Fund) to take control of Ukrtelecom.  However The State has not yet taken control, pending a final appeal in the Ukrainian courts the result of which is imminent.  Perhaps the more “out of favour” oligarchs would not be treated so graciously.

However, prior to the await exhaustion of Ukrainian due process, Raga Establishment Ltd (or Mr Gorbunenko) has now made a claim against UkrTelecom and SCM for breach of the sale contract, claiming only $100 million has thus far been received – and that $100 million was paid in 2013.  Raga, being a Cypriot registered company made a claim through the Cypriot courts, freezing $820 million of SCM (thus Rinat Akhmetov) assets.

A reader may rightly ponder just why Raga (or Mr Gorbunenko) has said nothing of apparently outstanding $ hundreds of millions until now?

The why now is clear – to make the claim before the Ukrainian State can take control of UkrTelecom.  The mens rea behind the timing, a reader may suspect has nothing to do with any outstanding funds – if there are any that were ever meant to be repaid regardless of what any contract may say.

A reader may rightly suspect that this Cypriot action has been instigated to either prevent the nationalisation of UkrTelecom or to frustrate and dissuade any potential buyer interest in a future privatisation.

In short a last minute, deliberate legal muddying of the waters – perhaps on behalf of, and to the benefit of Mr Alkhmetov – despite the initial perception of the Cypriot court decision.

Mr Akhmetov’s lawyers are currently in Cyprus.  No doubt the waters will be yet muddier by the time they have done their work.

A reader will be mindful that Ihor Kolomoisky and the on-going PrivatBank court cases will also not be “resolved” until after the 2019 elections.  Perhaps “solutions” may be found should Mr Kolomoisky’s media empire be favorable to the current presidential incumbent during campaigning (which has unofficially started).

Thus if a cynical reader is perhaps wondering why the State (via the SPF) had not already assumed control after two court decisions in its favour, (rather than wait for the last appeal to be exhausted in the immediate future), and thus allowed a last minute legal intervention, then it would be wise to recall that Mr Akhmetov also owns some rather influential media – media that would be perceived to benefit President Poroshenko if it were on his side for the 2019 elections.  “Solutions” regarding UkrTelecom may therefore be found should legal gymnastics drag on (and on, and on) relating to SCM debts to the State owned banks if President Poroshenko is reelected – depending upon favorable media coverage, or not.

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