Ukraine law enforcement agencies raid Kolomoisky-related businesses

By bne IntelliNews June 15, 2016

In a possible new phase of conflict between Ukraine's President Petro Poroshenko and oligarch Ihor Kolomoisky, law enforcement agencies searched the headquarters of Ukraine International Airlines (UIA), controlled by the billionaire, and offices of Poltava Petroleum Company (PPC), the Ukrainian subsidiary of JKX Oil & Gas, a shareholder of which also has ties to him.

Raids were carried out on both businesses on June 14, with financial documents seized under tax-related investigations cited by authorities, news reports said.

Poroshenko's team and Kolomoisky are locked in a bitter dispute over compensation of $4.67bn in losses that Kolomoisky-controlled companies say they incurred as a result of the Ukrainian government actions towards oil producer Ukrnafta.

Kolomoisky was appointed by Poroshenko as governor of Dnipropetrovsk region in 2014 in order to prevent pro-Russian separatists from advancing from the eastern Donbas region to other parts of Ukraine. The oligarch played a crucial role in this process, but was sacked by the president in March 2015 amid a conflict with the authorities in Kyiv over business and political interests.

On June 14, the country's main law enforcement body, the National Anti-Corruption Bureau (NABU), blocked the headquarters of UIA in Kyiv with the aim to seize the company's accounting documents for 2014-2016, the carrier said in a statement. UIA describes the raid as "unlawful interference in the operation of the airline", adding that these actions allegedly constitute deliberate pressure on business.

UIA is the largest Ukrainian carrier with a hub in Boryspil airpost. The company's fleet consists of 36 aircraft, including 32 medium-haul and four long-haul airplanes.

On the same day, the Ukrainian police Ukrainian subsidiary of JKX Oil & Gas, PPC, and the homes of two of its senior employees, "searching for documents in relation to the investigation of claims of alleged underpaid taxes which have been made by a local prosecutor", the company said in a statement published on June 15.

"PPC is cooperating fully with the authorities, but nevertheless believes that it is in full legal compliance with the matters outlined in the police warrant and that the prosecutor's action is completely unjustified," the statement reads. "Furthermore, the company believes the police action to be in violation of the Emergency Awards that have been granted in favour of JKX and PPC and against the Ukrainian authorities by the Hague Tribunal and is currently considering its next steps."

In 2015, JKX commenced arbitration proceedings against Ukraine, seeking repayment of more than $180mn in rental fees that its Ukrainian subsidiary has paid on production of oil and gas in Ukraine since 2011.

Analyst Alexander Paraschiy at the Concorde Capital brokerage in Kyiv says the search is most likely related to JKX's refusal to pay the natural gas production tax between July 2015 and end-2015, which led to an accumulation of tax debt of $24mn (including $9mn in penalties).

"The pressure on JKX can be also related to the company's court filing to international arbitration, where it is seeking up to $180mn in compensation from the Ukrainian government," Paraschiy wrote in a research note on June 15. "The hearing on this case may happen in July 2016, as JKX earlier indicated. The outcome of such a court hearing is uncertain, and there's even less clarity on how JKX will be able to enforce the international ruling if it wins this case."

The expert believes that pressure on the company in Ukraine is likely to continue unless JKX management is able to find common ground with the Ukrainian authorities.

On June 3, Poroshenko said the last issue he discussed with Kolomoisky personally was the financial situation of Privatbank, the country's largest lender by assets, which is controlled by the oligarch and his business partner Hennady Boholyubov. At the same time, the president underlined that there are no threats to the functioning of Privatbank and that the bank "has adequate liquidity".

In May,  the National Bank of Ukraine (NBU) said that the regulator has agreed a  three-year recapitalisation plan with Privatbank, which is currently engaged in "vigorous efforts" to implement it. The document includes the restructuring of loans granted by the regulator, measures to improve the quality of the bank's loan portfolio, including through  the acceptance of additional collateral against loans. Privatbank will also increase its capital through additional contributions by shareholders and the conversion of subordinated debt into Tier 1 capital.

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