GNT Group Response to the Financial Times: Advancing the Interests Dishonest Off-Shore Vulture Funds Does Not Make Ukraine More Attractive for Business

The Creditors, it is said, are "reviving" the terminal after it was looted by GNT Group. The purpose of this document is to address the allegations made in the article against GNT Group and its owners, Mr Groza and Mr Naumenko.

Background

Mr Groza and Mr Naumenko spent 20 years building one of the largest grain terminals in Ukraine. They were assisted by the European Bank of Reconstruction and Development – with whom they went through at least two years of compliance checks. They managed to attract one of the largest cooperatives of US famers, CHS, as their investors. 

In 2019, CHS sought to sell its shareholding. Sergiy Groza and Volodymyr Naumenko accommodated them by procuring a loan from Argentem (a Cayman Islands off-shore company). EBRD refused to be a co-investor with Argentem. Argentem then agreed to buy out both CHS and EBRD. Argentem thus became the main creditor of GNT, lending it US$75 million. The loan proceeds were paid directly to CHS and EBRD.

Argentem’s loan was fully secured. Argentem had mortgages over the real estate constituting the terminal and its equipment. It had pledges over the shares of terminal holding companies. It had pledges over group bank accounts. The terminal was valued by PWC at US$366 million, almost five times the value of the loan provided by Argentem. 

With Argentem’s agreement, Innovatus provided a further loan of US$20 million for GNT’s working capital requirements (apart from being a transhipment business, GNT also had a commodity trading arm). Innovatus’s loan was secured by grain inventory stored in the terminal. The presence of grain in the terminal prior to the Russian invasion was confirmed by the Creditors’ surveyors, Cotecna and SGS, who checked it at least once a week. Innovatus also, alongside Argentem, obtained security rights in the terminal assets worth US$366 million.

The financing provided by the Creditors bore interest rate of nearly 20% interest. GNT sought to refinance the loans by issuing Eurobonds – which issue failed due to Russia’s invasion of Ukraine. 

The onset of the war resulted in a complete block to the terminal’s work. At the same time, GNT had to pay salaries, of which there were nearly 2500. Because of all this, GNT temporarily could not continue repaying its Creditors. The Creditors agreed to extend repayment terms until mid-2022.

Given GNT’s lack of access to the terminal, the grain stored there could not be maintained and spoilt as a result. GNT informed the Creditors in writing at the start of the war that the grain would very likely be lost. GNT discovered that it was actually spoilt when it regained access to the terminal around July 2022, by which time the extension granted by the Creditors was expiring. Spoilt grain is dangerous to keep in the terminal – it emits methane which might cause explosions and destruction of terminal equiment, which was the Creditor’s main security. The fact that the grain was spoilt was confirmed by Bureau Veritas, an international surveyor company, who produced an audit report with photographic evidence. A copy of the report was provided to the Creditors.

In order to save the assets and preserve the Creditor’s main security, GNT hired a company to evacuate the spoilt grain and clean the terminal. This permitted the group to relaunch the terminal in the second half of 2022. The relaunch of the terminal in turn permitted GNT to start generating cashflow necessary to start repaying the loans. However by now the extention agreed by the Creditors has long expired.

It is at this point that the Creditors, surprisingly for GNT Group, started suggesting that they were being defrauded by GNT. Firstly, they said that the grain pledged to Innovatus possibly did not exist. This is untrue, because the presence of grain in the terminal was confirmed by the Creditors’ own surveyors, Cotecna and SGS, on multiple occasions. It should be noted that on the basis of this same untrue allegation the Creditors initiated criminal proceedings agianst Mr Naumenko and arranged for his pre-trial detention in a prison in Kyiv.

Secondly, the Creditors claimed that GNT Group stole the grain from the terminal after they gained access to it in July 2022. That is also untrue – it made no sense for GNT to steal the grain confirmed as spoilt (with photographic evidence) by an international firm of surveyors.  

Thirdly, the Creditors suggested that 120,000 tons of grain disappeared from the terminal. This is also untrue. GNT sold the grain and informed the Creditors of the same in emails, providing identities of the buyers and the purchase price paid by them. Later, during Court proceedings, the Creditors said that the payments for the grain were not reflected in GNT’s accounts – GNT addressed this by providing its accounts for the subsequent accounting period which reflected the payments.

Fourthly, the Creditors said they had concerns about timely provision of documents and information concerning GNT’s grain inventories and transactions. GNT Group sought to address these concerns as soon as they could, but recognise that the Creditors were still unhappy with some of the information provided.   

In December 2022, Mr Naumenko called Argentem to make the following proposals. Firstly, Mr Naumenko would personally ensure that the Creditors were provided with all the information / documents they viewed as missing. Secondly, he proposed that the Creditors and GNT Group together find an investor to whom to sell the terminal, repay the Creditors from the proceeds and have the balance returned to GNT. Thirdly, while the terminal was being sold, GNT would commit to repaying US$2 million per month to the Creditors. Insofar as the sale of the terminal and distribution of proceeds was concerned – this is what the Creditors would normally obtain if they went to Court and procured the sale of their security at its real market value. Mr Naumenko offered the Creditors everything that they could get lawfully via Courts, without the need for any Court proceedings.

The Creditors said they would consider the proposal, but two days later started a full scale attack on GNT’s business and various Court proceedings anyway. They seized the holding company of GNT Group in Cyprus. They have put the main asset holding company in Ukraine, Olimpex Coupe International, into winding-up. They have sent "titushki" (young paid-for gansters) to break into the terminal. They seized GNT Group accounts over which they had pledges. They have put their directors into other GNT Group companies. They sued Mr Groza and Mr Naumenko to force them personally to repay the loans – while they were no longer in control of their assets from which repayment was supposed to be made. The Creditors were approached on multiple occasions with repayment / investment proposals – all of which they ignored. 

This modus operandi suggested that the Creditors’ main aim was to seize GNT assets, rather than have their loans repaid. GNT Group, seeking to protect at least some of its assets (in total worth over US$400 million) from the Creditors’ hostile actions, sought to reorganise the corporate structure of companies not pledged to the Creditors. While assisting GNT, this restructuring was also something discussed with, and approved by the Creditors, before the war. The Creditors used this as a pretext to obtain a worldwide freezing order against Mr Groza and Mr Naumenko, alleging that they are dissipating their assets to avoid repaying the Creditors. Mr Groza and Mr Naumenko believe that it is in fact the Creditors who were dissipating the group assets, as discussed below.

Having seized the assets, the Creditors started selling them to their own shell companies. One of the asset holding companies, Omega Terminal S.A., was sold to a shell company controlled by the Creditors called Asotra Holding Ltd, for CHF1. Internaiontal auditors, Crowe, value the company at over CHF30 million. The Creditors then sold property of Olimpex, one of the largest grain terminals in Ukraine, to their other shell entity called Lavanda for US$5 million. International auditors, Price Waterhouse Coopers, value this company at US$366 million. The Creditors sought to sell another asset holding company, MetalsUkraine LLC, to a company they created specifically for the purpose, GNT Holdco 1 Ltd. When asked at one of the court hearings why they wanted to do so – they said it was to avoid the effect of a potentially negative outcome of court proceedings in Dubai – which proceedings the Creditors ultimately lost several months later in the Dubai Court of Appeal.

Having sold to themselves assets worth nearly US$400 million for US$5 million, the Creditors claim that they have not recovered anything at all – a claim which Mr Groza and Mr Naumenko consider to be both untrue and dishonest. They also continue calculating their 20% interest on the loans. 

To silence Mr Groza and Mr Naumenko concerning what they view as the Creditors’ fraud against them, the Creditors now take the following measures. Firstly, they have arrange for Mr Naumenko to be imprisoned in Ukraine. As discussed above, that was as part of criminal proceedings commenced by Innovatus where it is alleged that GNT’s pledged grain to Innovatus did not exist – something inconsistent with the reports of Innvatus’s own surveyors, Cotecna and SGS. Secondly, after seizing assets of the group worth some US$366 million, the Creditors say that Mr Groza and Mr Naumenko still owe them repayment of the entire loans. Allegedly to ensure that they do not dissipate their personal assets, the Creditors obtain orders to make it impossible for Mr Groza and Mr Naumenko to pay their legal fees. Further, their personal and their companies accounts are blocked by the Creditors, making payment of legal fees virtually impossible. Thirdly, the Creditors mount personal attacks on Mr Groza’s and Mr Naumenko’s lawyers. Internaitonal law firms such as HFW, and at least one King’s Counsel, resigned from representing them following the Creditors’ attacks. The Creditors’ even went so far as to write to Mr Groza’s hospital to inform it that it should not be performing an urgent surgery on Mr Groza because payment for the surgery would likely come from Mr Groza’s frozen funds.

In summary, Mr Groza and Mr Naumenko accept that the Creditors should be paid. They  accept that there were delays in repayment because of the war. They accept that GNT Group could have communicated better with the Creditors. What they do not accept is that they are guilty of fraud or looting their own terminal which they spent 20 years to build. They also do not accept that the Creditors should be entitled to seize assets worth US$366 million to satisfy loans worth US$95 million, sell those assets for a combined total of US$5 million to their own shell companies, and then use illegitimate means to silence Mr Groza and Mr Naumenko when they legitimately ask what happens to the rest of the money.

Specific Issues Raised by the Financial Times Article

Mr Groza and Mr Naumenko provide the following comments on the specific allegations made against them in the Financial Times article below:

The title says that "US investors revive Ukrainian grain terminal in test of wartime financing". As to this: 

1. The investors are not in fact US investors. The Creditors are off-shore vulture funds with obscure ownership structures. Argentem, for example, is based in the Cayman Islands, where it is impossible to ascertain who owns it. The Creditors’ securities and court proceedings are managed by Madison Pacific Trust, a Chinese company. Argentem is financing a Russian fintech start-up in the Philippines, founded by ex-Rosneft officials. 
2. The Creditors do not "revive" the terminal. They launched insolvency proceedings against the terminal holding company which they controlled, lost hundreds of employees (some of which were simply locked out of their offices and service stations) and failed to pay rent for the state-owned land upon which the terminal is located, with the result that the state terminated some of the lease agreements. Far from reviving, these actions only serve to block a strategic Ukrainian grain export terminal. 

The article repeats the Creditors’ allegations of "loan fraud" and calls Mr Groza and Mr Naumenko "alleged looters". There could not have been a loan fraud when the Creditors were secured several times over the value of their loans, and have successfully realised their security – which is what the Financial Times article appears to acknowledge.

The article says that "Zelensky’s administration recently helped the two US funds enforce a US$95 million debt" and the head of the President’s office is quoted as saying that he "coordinated" the matter. If true, that would go against the principle of separation of powers, making it improper for the executive (of which Zelensky is head) to interfere with the judiciary to assist one of the parties to the dispute.

The article quotes Mr Patton, Argentem’s representative, as saying that some grain disappeared and was allegedly incinerated in Sumy. GNT Group does not know what happened to the spoilt grain after it ordered a company to evacuated it from the terminal. GNT was not responsible for its incineration of whatever else the company might have done with it. Mr Patton omits to mention that Innovatus was offered to be compensated for the spoilt grain several times, refused to accept this compensation and preferred to continue its criminal proceedings against Mr Naumenko instead.

The article says that the terminal has been handed over to the Creditors as a result of Ukrainian Court decisions. There were no such decisions. Argentem had a dispute with certain Ukrainian banks concerning part of the loan collateral. It won one of those disputes. The Court never ruled that this meant that Argentem could now control the terminal. On the contrary, in view of the Creditors’ illegal attempts to recover four times the value of their debts, GNT opposed their attempts to take control of all the assets. For example, GNT obtained a judgment in Cyprus confirming that the appointment of liquidators into GNT’s holding company by the Creditors was illegal, as well as all of the liquidators’ actions. GNT obtained a Swiss judgment blocking the creditors’ attempts to control Omega Terminal S.A.. Last week, the Court of Appeal of Dubai declared the Creditors’ appointment of liquidators into one of the group’s trading and holding companies, GNT Trade DMCC, and all their actions were illegal. 

The article quotes Mr Patton, representative of Argentem, as saying that Olimpex "was the centre of black grain in Odesa". There is not a shred of evidence to support this assertion. It is said that Ukrainian authorities are investigating this – however Mr Groza and Mr Naumenko have never been questioned or even informally asked to comment on these allegations. If Olimpex were "the centre of black grain", why would Mr Patton’s vulture fund be financing Olimpex? Why would EBRD, with its army of compliance officers who reviewed GNT’s business for two years prior to investing into it, not raise the issue?

Conclusion

The Financial Times appears to praise the Creditors’ seizure of one of the biggest Ukrainian grain terminals as a sign that Ukraine is safe and attractive for international investors. Mr Groza and Mr Naumenko say that this is not a conclusion that could be reached on the facts described above. 

The Creditors are entitled to have their loan (of US$95 million) repaid to them. But they are not entitled to seize security of US$366 million in reliance on that loan, sell all that security to their own shell companies for US$5 million and assert that they have not been paid. It is even more concerning that after all this the Creditors are, according to the Financial Times, being supported by the Ukrainian government in coordinating the various Court proceedings against Mr Groza and Mr Naumenko, such as the proceedings which resulted in Mr Naumenko being imprisoned for months on charges which are contradicted by the Creditors’ own surveyor reports.

Mr Groza and Mr Naumenko remain open to clarify their position and provide evidence for the matters described above.