The situation I found myself in Oleg Bakhmatyuk, known in business slang as a "stretch." Each of his major creditors is willing to defer payments only if they agree to defer payments with the others. Meanwhile, the "agrarian baron" has nothing to offer them—all his assets are either fictitious or already pledged. Furthermore, Bakhmatyuk faces accusations of fraud with international investors' funds. According to these allegations, when he listed on the stock exchange, he submitted inflated financial statements and misrepresented Ukrainian assets. And the proceeds from the Eurobond issue were used to build poultry farms only on paper, but in reality, they were used to purchase a troubled bank and were used in financial schemes.
The three-year deferment on $200 million in Eurobond debt recently received by Avangard, a company owned by Ukrainian businessman Oleg Bakhmatyuk, is only a visible success.
To survive, he needs to negotiate a deferment with other creditors, the largest of which are the National Bank of Ukraine, as well as Deutsche Bank and Sberbank of Russia. However, this will be much more difficult to achieve: Deutsche Bank and Sberbank of Russia are demanding that the businessman repay $200 million in June 2016. Meanwhile, the National Bank is attempting to collect the debt from Bakhmatyuk's bankrupt banks by selling the assets he held as collateral. And even through the courts: to secure a claim for the return of refinancing funds, NBU lawyers secured a freeze on the accounts of the agrobaron's companies at Financial Initiative Bank, totaling 1,2 billion hryvnias. However, this is only a small portion of the collateral for the more than 12 billion-ruble debt.
Creditors are the key problem for the "egg king," who, according to ZN.UA, is trying to negotiate the purchase of his collateral assets from the Deposit Guarantee Fund. Having "cleared" himself of the National Bank's claims, the businessman plans to offer his largest foreign creditor banks an increase in collateral coverage and a loan repayment plan. However, a string of stories involving inflated financial statements filed with the London Stock Exchange, the closure of American factories, and manipulation of funds from Eurobond placements make reaching an agreement with creditors virtually impossible.
Oleg Bakhmatyuk's situation is known in business jargon as a "stretch." Each of his major creditors is only willing to defer payments if he has agreed to a deferment with the others. Meanwhile, the "agricultural baron" has nothing to offer them—all his assets are either fictitious or already pledged.
Furthermore, Bakhmatyuk faces accusations of fraud with international investors' funds. According to these allegations, when going public, he submitted financial statements containing inflated figures and false information regarding Ukrainian assets. Furthermore, the proceeds from the Eurobond issue were used to build poultry farms only on paper, but in reality, they were used to purchase a troubled bank and were used in financial schemes.
Thus, after the bankruptcy of the banks “Financial Initiative” and “VAB”, which belonged to the entrepreneur, it turned out that almost their entire loan portfolio, amounting to about
18 billion hryvnias in loans to companies within Bakhmatyuk's agricultural holding, Ukrlandfarming. To put this into perspective, the list of companies to which, according to the NBU, the "agrobaron's" "pocket" banks issued loans runs 21 pages.
Moreover, as it turned out, these loans were 80% financed by the state: the debt of Bakhmatyuk’s bankrupt banks to the NBU, according to data from the regulator provided to ZN.UA, amounted to 12,2 billion UAH as of November 1, 2015.
The Deposit Guarantee Fund, which is tasked with the sale of assets from Financial Initiative and VAB banks, told ZN.UA that loans to companies linked to Bakhmatyuk are secured by collateral. However, the Fund declined to disclose what kind of collateral or the actual value of the collateral—"an assessment is underway..."
ZN.UA has obtained a report from the Main Control and Audit Department, which, back in 2011, uncovered the fictitious nature of one of the largest poultry farms, Chornobaivska CJSC in the Kherson region, which had raised funds from foreign investors through the placement of Eurobonds. The inspection also revealed the absence of 12 poultry facilities, which, according to documents, were supposed to have been commissioned back in 2008.
At the same time, Bakhmatyuk successfully obtained loans for the construction of this facility, effectively deceiving international investors and the state with fictitious reports. Furthermore, he managed to obtain partial compensation for interest on loans taken out to purchase equipment for this factory. The loans to Chernobaevskaya CJSC were provided by the Financial Initiative and then funneled through the accounts of Bakhmatyuk's companies to purchase agricultural equipment at inflated prices and then transferred to offshore companies.
"At the construction site, the commission documented several rows of driven piles and some equipment that had been lying in the open air and deteriorating since 2008," the Main Control and Audit Office (GlavKRU) wrote in its report. The budget also compensated Bakhmatyuk for the interest on these loans, totaling 137 million hryvnias.
As it turns out, the fake reports are also known abroad. ZN.UA has obtained appeals from investors of Avangard PLC, whose Eurobonds are listed on the London Stock Exchange, to the exchange itself. These appeals concern articles in the Ukrainian press alleging Bakhmatyuk's fraudulent dealings with third-party assets, as well as violations of environmental standards and production technologies. There is also a petition to the Hong Kong Stock Exchange demanding that the listing of a company engaged in financial reporting manipulation be prevented.
And it's clear that investors aren't interested in other people's property or the health of Bakhmatyuk's chickens, but rather in the potential export ban resulting from such violations, as well as the likely bankruptcy of his companies. And the subsequent inability to repay the bonds, the maturity of which Avangard PLC has already postponed by three years—to October 2018.
Incidentally, ZN.UA sources claim that the key obstacle to the restructuring of Avangard PLC's debts was the scheme (see figure), according to which Bakhmatyuk did not use the funds raised from international investors in the IPO to build agricultural enterprises, but instead purchased VAB Bank, which, as mentioned above, he used to finance his business.
Even Americans suffered from the pseudo-oligarch's activities. In 2011, he acquired Townsends Inc., a North Carolina chicken processor with a more than century-old history. As recently as 2009, Townsends Inc. produced approximately 310 tons of meat and 1,3 million eggs, ending the year with over half a billion dollars in revenue. But a year later, due to the predominance of Brazilian chicken drumsticks, it filed for bankruptcy, owing $127 million in debt. Bakhmatyuk took over. However, the Ukrainian businessman was never able to make his American subsidiary profitable. He halted production and filed for bankruptcy, sparking outrage among North Carolina chicken suppliers. Some 130 farmers sued Omtron for breach of contract, which obligated them to raise chickens for Townsends for three years, and demanded compensation for damages. In turn, several senators even initiated a ban on Bakhmatyuk entering the United States. The American press reported at the time that seizing fertile land in Ukraine and enjoying the privileges of domestic law proved much easier than doing business with American farmers.
Those who missed these facts at the time are now looking for any clue to avoid being left without money. Among those affected by Oleg Romanovich's entrepreneurial genius are a number of Ukraine's largest banks (UniCredit Bank, Raiffeisen Bank Aval, Ukreximbank, Oschadbank), as well as the aforementioned Sberbank of Russia and Deutsche Bank, which lent the businessman $500 million (of which $200 million remains unpaid).
While Bakhmatyuk has so far been able to reach an agreement with representatives of local banks, he hasn't been able to reach an agreement with foreign banks like Deutsche Bank and Sberbank of Russia. As Igor Petrashko, Deputy General Director of Ukrlandfarming, reported in a commentary for ZN.UA, Sberbank of Russia (in its Moscow office) presented Bakhmatyuk with "exorbitant conditions," demanding the immediate repayment of the entire 200 million rubles outstanding.
Negotiations are still ongoing, but the Russians' conditions remain very tough. According to an internal risk management document from Sberbank's risk department, obtained by the editorial staff, "there is a high probability that the Ukrlandfarming agricultural holding will default on the loan." The document states that, in order to improve the holding's financial performance, Oleg Bakhmatyuk merged another holding, Avangard, into it. "Furthermore, it is possible that non-existent assets and assets pledged to other banks, including Financial Initiative and VAB, were pledged as collateral for the loan. For example, it is known that non-existent sugar reserves were pledged to UniCredit Bank and Raiffeisen Bank Aval," the document notes. And most importantly: “Considering the above facts, it would be advisable for Sberbank of Russia to organize work to verify the property transferred as collateral, and also to review the risks regarding the loss of invested funds.”
In banking terms, this means: "Either pay off the loan, add more collateral, or file for bankruptcy." As mentioned above, Bakhmatyuk's only option is to increase the collateral, but... he currently has no real, unencumbered assets at his disposal. And no sensible investor will give him any new loans.
In this regard, it is crucial for the "agricultural baron" to reach an agreement with the Deposit Guarantee Fund on the "proper" liquidation of VAB Bank and Financial Initiative. Essentially, it would involve buying out the collateral assets at the maximum discount to clear Ukrlandfarming of its debt obligations and then transferring the "cleaned" assets to creditors as additional collateral.
However, it appears they can't reach an agreement. And Bakhmatyuk is in "convulsions": he has filed an injunction against the Deposit Guarantee Fund, which, at the request of Perusta Constructions LTD, prohibits the Fund from taking any action to liquidate the Financial Initiative (where Bakhmatyuk's assets from VAB Bank, backed by a UAH 3 billion refinancing from the NBU, had previously been successfully transferred) and where UAH 1,2 billion of the "agrobaron's" assets have been seized at the request of the National Bank.
Bakhmatyuk's current goal is to prolong the process of loan repayments and debt repayment to the state as much as possible, so that after the next round of devaluation he can buy back his assets for 20-30% of their real value.
However, this is a do-or-die game. Therefore, if the problems of the agricultural holding, with debts exceeding $2 billion, are left unchecked, bankruptcy awaits. Bakhmatyuk has practically no reserves left, as his entire empire is clearly a vast pyramid scheme built through inflated assets, the use of public funds (NBU refinancing loans, compensation for budget loans for equipment purchases in Chornobaivka, loans from the Agrarian Fund, and deposits from individuals at inflated interest rates), and the deception of international investors.
Therefore, the state needs to resolve the issue of its debts and its creditors as quickly as possible, who must either receive their money or divide among themselves the remains of the empire of the inflated "agrarian baron" before he finally buries it (by withdrawing all the funds).
After all, the bankruptcy of another major agricultural holding following Mriya would severely impact the ability to attract foreign investment into the domestic agricultural sector. And this is perhaps the only real sector in Ukraine that can still develop and contribute to the budget.
On November 25, ZN.UA contacted the press offices of the Ukrlandfarming and Avangard holdings—O. Bakhmatyuk's entities—inviting them to comment on or refute the above information. Despite the expiration of the statutory deadline for responding to information requests, no response had been received by the time this material went to press.
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