Bad Luck London: New court ruling against Kolomoisky reveals sale of Kryviy Rih mine for $926 to Russian citizen Voevodin

6 February, 06:15 PM
Ihor Kolomoisky (Photo:НВ)

Ihor Kolomoisky (Photo:НВ)

Prior to the nationalization of PrivatBank, Ihor Kolomoisky entered into an unusual agreement with Russian businessman Mikhail Voevodin. Kolomoisky sold Voevodin shares in an iron ore plant, but continued to manage it. PrivatBank is now looking for the money received for the asset.

On January 31, 2023, the High Court of London handed down a decision on strengthening a court order on a WFO (Worldwide Freezing Order) of the former owners of PrivatBank, Ihor Kolomoisky and Gennadiy Bogolyubov.

Now this WFO can be applied to transactions carried out in the last 5 years, that is, after the introduction of the worldwide asset freeze. This applies to dividends, their distribution or other income, as well as bank accounts in excess of £1 million. The court did not consider arguments from Kolomoisky's side.

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As the PrivatBank press service stated in a comment to NV Business, the decision of the British court to grant the bank permission to obtain court orders to seize assets abroad and require the defendants to provide further information on the disclosure of assets is “an extraordinarily positive development for the bank,” which will allow the company to carry out the enforcement of court orders to seize assets.

The reason for the decision is the “accounts receivable” of the Kryviy Rih iron ore plant, as explained in the case file.

NV has discovered what is hidden behind these complex formulations, and why the events around the plant are so important for PrivatBank and its former owners. About $1 billion are at stake in the matter.

Valuable Ore

Ten years ago, the Kryviy Rih iron ore plant was at the center of a multimillion-dollar lawsuit between Ukrainian oligarchs. At that time, Viktor Pinchuk was demanding compensation from Kolomoisky, whose company had legally privatized the plant.

Firstly, Pinchuk was demanding the return of the money spent on its purchase, because it was he who had financed the agreement. Secondly, he was demanding the payment of all dividends from the moment of privatization. In total, this amounted to about $2 billion.

This dispute was settled in Pinchuk’s favor. A month after its signing, half of the shares of the plant changed ownership, according to materials from the British risk management consultancy Themis.

For reference: The Kryviy Rih Iron Ore Combine (KZRK, KZhRK in its Russian approximation) was privatized in 2004 by Solime, controlled by Kolomoisky and Bogolyubov. In 2006 they sold 50% of KZRK to the company SCM owned by Rinat Akhmetov. From then until 2016, ownership in the enterprise was shared equally: Kolomoisky-Boholyubov on the one hand and Akhmetov on the other controlled 49.9%, each in the Cyprus-based Starmill Limited, the direct owner of 99% of the plant's shares. KZRK mines iron ore, which was supplied mainly to steel plants in Mariupol and exported to the countries of Eastern Europe. In 2022, production was 2.8 million tons — a third less than a year ago. In 2021, KZRK received 11.2 billion UAH in revenue and earned 4 billion UAH in net profit.

Here is a brief chronology of events.

On February 23, 2016 (before the nationalization of PrivatBank), Ihor Kolomoisky sold the second 50% stake in KZRK to Mikhail Voevodin for $926.8 million, Kolomoisky's legal representative said. This is according to materials from the British court case PrivatBank v. Kolomoisky and Bogolyubov, published in June 2022.

Under the terms of the agreement, Voevodin must pay this amount from dividends, sales profits or other payments from the KZRK business.

On June 30, 2017 (after the nationalization of PrivatBank), Kolomoisky transferred his stake in Newsteel Holding Ltd (Belize) to Voevodin and his wife Natalya Selivanova. She is a 100% shareholder in Kadis, which owns a 50% stake in Starmill Limited.

The owner of Newsteel, Cypriot national Michael Tsitsekkos, said that he holds all of its shares in the trust of Mr. Voevodin and Mrs. Selivanova. Tsitsekkos is a longtime partner of Kolomoisky, the judge noted in the decision – he owns shares in 16 of his holdings, totalling $500 million in value.

An Amazing Deal

There are several surprising features in the agreement, a representative of PrivatBank noted during a meeting. Firstly, the initials of the parties to the agreement, rather than their full names, are indicated on the document. Secondly, the term in which payments must be completed is not indicated. Thirdly, jurisdiction for resolving disputes is not indicated, although at the top of the document it is indicated that it was signed in Geneva.

Under the terms of the agreement, Kolomoisky continues to manage the stake he has sold until the settlement is completed, and Voevodin agreed to limit his right to dispose of the shares.

“The [KZRK] agreement is remarkable for its informality,” the judge noted in June. “It is surprising  that an agreement recording an obligation to pay almost US$1 billion on the satisfaction of certain conditions should take this form.” He also agreed with the conclusion of the representative of PrivatBank that the agreement testified to the existence of close relations and a high degree of trust between Kolomoisky and Voevodin.

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Voevodin and Selivanova were among the people named as beneficiary owners of KZRK in the state register of corporations in 2019-2020, but now only Rinat Akhmetov is there.

Are they still beneficiaries?

SCM has no information about who currently owns the second half of the plant.

 “The share of the SCM group in the Kryvyi Rih iron ore plant is 49.94%,” Akhmetov’s press service told NV.

“This share has not changed since its acquisition more than 15 years ago… We also do not have information about the ultimate beneficiaries of other companies that own KZRK.”

What about PrivatBank?

In a British court, PrivatBank accused its former owners of taking almost $2 billion out of the company. Currently, according to PrivatBank, the amount stands at $4 billion, including interest. In 2017, the High Court of London ruled in favor of the bank, imposing a WFO on the assets of Kolomoisky and Boholyubov until the dispute is finally resolved.

In the list of assets that Kolomoisky provided to the court in 2018, entry number 112 included the right to receive $926.8 million in compensation for him and Bogolyubov for 100% of Kadis, which owns 50% in Starmill Limited, the direct owner of KZRK.

PrivatBank tried to extend the WFO, including payments to Kolomoisky and Bogolyubov for the shares of the plant, according to the case file.

The decision handed down on January 31st could potentially allow this, but there is a nuance.

Unnecessary millions

It is still not clear from the court records whether Voevodin ever made even one payment in compensation to Kolomoisky. Technically, this is not a violation of their agreement, but PrivatBank sounded the alarm.

On May 28, 2021, shareholders of KZRK approved the payment of dividends for 2013-2020, totalling UAH 8.84 billion or $326 million. The share owed to Kadis, which Kolomoisky and Bogolyubov should receive along the chain, is $163 million. The recalculation of funds could have taken several days, but the story dragged on.

Before December 7, 2021, Kadis received $60 million to its account with Credit-Dnipro bank, and another $5 million was to be transferred to the same bank from the Kadis account at First Investment Bank (PIN). Before the start of Russia's full-scale invasion of Ukraine, the money never made it to Newsteel, the next company in the chain, the case notes. After the start of the war, the transfer of funds was made impossible by the restrictions imposed by the National Bank of Ukraine. Nothing is known about the rest of the dividends paid — about $100 million, according to the case file.

“Given the amount of money at stake, it is difficult to understand why it was that the first defendant [Kolomoisky — ed] was not more assertive than he appears to have been in his efforts to procure the payment by Mr. Voevodin and the receipt by him of the proceeds of the dividend,” the judge noted in a decision published in June 2022.

This new decision should help in the search.

“The claimant submitted that this additional disclosure can now be seen to be necessary in the light of what has occurred since the WFO was first made,” the court said in the January decision.

Kolomoisky's side insisted that the form of the terms that Privatbank was looking for was unacceptable, incomprehensible, and indefinite in scope. But the court did not agree with this.

“[T]he concept of a payment made "in respect of [the first defendant's] interest" [Kolomoisky – ed] in an underlying asset is a simple one,” the court declared..

“It covers payments made by a corporate entity to the first defendant or some other person in circumstances in which the payment derives from the first defendant's interest in the identified asset. Where that is the case, the payment will have been made in respect of that interest and it will be disclosable. The only thing complicating this is the opacity with which Kolomoisky owns his assets.”

Who is Voevodin

In Ukraine, Mikhail Voevodin, together with Russian businessmen Yevgeny Giner and Alexander Babakov, was for many years called the non-public co-owner of the VS Energy group, which owned several oblast energy utilities, hotels, shopping centers, agricultural business, and the First Investment Bank (PIN Bank).

In 2006 Kolomoisky, Boholyubov, Pinchuk, Voevodin, Babakov and VS Energy President Mikhail Spektor agreed in Geneva to create a joint ferroalloy holding. Voevodin and his partners received 20% of the holding.

From the end of the 2000s, VS Energy managed the Dniprospetsstal plant. Among its co-owners are companies controlled by Kolomoisky and Viktor Medvedchuk, as discovered by journalists from the Skhemy project in the summer of 2020.

Context: After the annexation of Crimea, the group was reorganized. The Ukrainian VS Energy would now exclusively manage energy. Its public owners are Latvian citizens Arturs Altbergs, Valts Vigants, Villis Dambinsh, and German citizens Oleg Sizerman and Giner's wife, Marina Yaroslavskaya. The hotel chain Premier Hotels is owned by the co-owner of KZRK, Natalya Selivanova and Dambinsh. Selivanova received assets in the process of divorcing Mr. Voevodin, Dambinsh claimed in an interview with Forbes Baltics.“[T]he evidence about him is somewhat opaque,” ​​the British judge said in his June decision. He mentions an Interpol Green Notice against him at the request of Russia in 2019.

In May 2019, Ukraine’s National Police issued a request to the State Border Service to ban Voevodin from entering Ukraine on the basis of this green notice, and this request was granted. The businessman, who has Russian, Slovak, and Israeli citizenship, appealed against this decision in court, and in April 2021 got the ban removed, according to court decisions.

In particular, his lawyers provided letters and certificates from the Office of the Prosecutor General of Ukraine, Europol, and Russian law enforcement officers about a lack of information indicating that he was accused or suspected of any crime. In addition, the National Police withdrew its request to the Border Service.

On October 19, President Volodymyr Zelenskyy enacted a decision by the National Security and Defense Council imposing sanctions against a number of Russian businessmen and members of their families. Among others, the document lists the current owner of PIN Bank — Yevgeny Giner and Mikhail Voevodin.

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