Yanukovych family muscles in on Quinn's Ukraine shopping mall

By bne IntelliNews November 23, 2012

Graham Stack in Kyiv -

While Sean Quinn Sr, once Ireland's richest man, goes to jail in Dublin for diverting assets placed under court injunction, bne enquiries indicate that one of the assets in question, Kyiv's Ukraina shopping mall, has been pulled into the orbit of the family of Ukrainian President Viktor Yanukovych - and out of the reach of Ireland's authorities who claim it.

Ireland has been following on tenterhooks the slow motion fall of tycoon Sean Quinn Sr, formerly Ireland's richest man but now a bankrupt jailbird. Part of the action has been set in Ukraine, including the drama's top-rating "episode": a hidden camera showing secret talks in Kyiv in January between Quinn family members and shadowy off-camera Ukrainians, which was leaked to press in July. The talks centred on the fate of the Ukraina shopping mall in the heart of Kyiv, which Sean Quinn owned, and which Ireland's state-owned bank that was set up to try to clean up the mess of bad loans caused by the financial crisis is trying to recover, in lieu of Quinn's $3.5bn debt.

This so-called "bad bank", Irish Bank Resolution Corporation (IBRC), even used the video recording in court to prove that the Quinns still controlled Ukraina mall, and had thus diverted assets in defiance of court orders. The Quinns argued the video showed that on the contrary they had lost control of the mall, and were begging for payments.

Shopping for assets

The saga started in 2011, with the Quinns facing bankruptcy and attempting to shift ownership of real estate assets across Central and Eastern Europe away from their creditors, as they have admitted. Quinn Holdings Sweden AB held 92.75% of the Ukraina mall. But as acknowledged by the Quinns, they assigned a $45m debt claim against Ukraina to shell companies as a means of asset stripping. The Ukraina shopping mall brings in around $10m in rent per year, and is valued at around $78m.

But the Quinns, while admitting initial intent to divert assets, say that in the course of the tangled machinations, they were double-crossed and lost control over the mall to local partners due to questionable court decisions in Ukraine.

The IBRC argues, however, that the Quinns are still calling the shots - and thus in contempt of court injunctions, a criminal offence. A Dublin high court sentenced Sean Quinn Sr to a nine-week prison sentence on November 2, following three-month sentences handed down to Sean Quinn Jr and his cousin Peter Quinn in the summer.

In December 2011, a Kyiv court recognised the debt claim against the Ukraina mall of Cyprus offshore Lyndhurst. In the following months after the decision, a complex chain of securities transactions saw the Ukraina debt transferred first to an obscure Kyiv brokerage Zenit, and then onto an equally obscure Kyiv brokerage Elegant Invest. In July, a Kyiv court ordered that Elegant Invest be recognised as the successor to Lyndhurst, in the court decision of December 2011 legitimising the $45m debt claim against Ukraina.

President of mall Ukraina?

According to bne enquiries, the Elegant Invest transaction shows that the Ukraina shopping mall has indeed been swept away from Ireland's reach and into the arms of the extended "family'" of Ukrainian President Viktor Yanukovych.

Elegant Invest is an affiliate of an equally mysterious, but far more famous company, TOV Tantalit, which owns the 130-hectare estate and palatial villa in Mezhyhirya near Kyiv that is the extravagant private residence of Yanukovych. Formally, Tantalit only leases the formerly state-owned property to Yanukovych, but media have widely speculated that the arrangement is simply a smokescreen to hide the president's ownership of the enormous property.

The link between Tantalit and Elegant is the man who bought Elegant in 2009, and then obtained for Elegant its brokerage licence: Dmitro Nikiforov. Nikiforov and Tantalit are linked by their joint ownership of investment fund Dominanta. According to Interfax Spark, Nikiforov owned Elegant until March, when ownership passed to a certain Oleksandr Mashtepa, who has no public profile and may be a straw man.

But while the Mezhyhirya connection points to the Ukraina shopping mall being now controlled by the extended family of Yanukovych, the trail does not lead to the president's younger son Oleksandr, who manages most of the core family business. Instead, the trail points to 40-year-old Yanukovych confidante Eduard Stavitsky, minister of natural resources and environment as of April, and previously since 2007 (with short interruptions) the head of Ukraine's state agency for natural resources, Ukrnadra. It was Ukrnadra under Stavitsky's direction in September 2007 - the last days of Viktor Yanukovych's second spell as prime minister - that divested the Mezhyhirya estate to Tantalit, according to documents leaked by the successor Yulia Tymoshenko government in 2009.

Stavitsky's press secretary did not respond to attempts to contact the minister.

Further clues point to the Stavitsky connection: The investment fund Dominanta features as co-owners - along with Tantalit and Elegant's Dmitro Nikiforov - a company registered in Makeevka, Donetsk region, called Kross Kapital. Kross Kapital is located at the same address as a local company, Makeevskii Kombinat Kommunalnykh Predpriyatii (MKKP), which Kross Kapital owns jointly with Maksim Shishlov, formerly chief accountant and member of the board of Stavitsky's Nadra Ukrainy. According to a Forbes Ukraine investigation published in September, Shislov features as head of Nadra Olesska, a newly-created gas exploration company that was mysteriously cut in on a monster production sharing agreement for Black Sea gasfields signed between Ukraine and Chevron earlier this year - with Ukraine's chief negotiator being Eduard Stavitsky.

Another pointer to Stavitsky may be that the brokerage Zenit - the company that passed the debt claim from Lyndhurst to Elegant Invest - is, on paper, owned and run by a Stavitsky connection called Artem Basmadzhan. Basmadzhan in 2009 was made acting head of Ukraine's only gold producer, state-owned Zakarpatopolymetally, as the company went into bankruptcy. In an eerie parallel to the story with Ukraina shopping mall, the gold producer was bankrupted in 2009 by a monster debt claimed out of the blue by an offshore company, Cengard Financial, of unknown ownership. Cengard Financial then appointed Dmitro Zaitsev head of the creditors' committee for the gold producer, and Volodymyr Gurtovoi as the administrator. Both Gurtovoi and Zaitsev are now lawyers for Lyndhurst - and present at the Kyiv January "candid camera" meeting with the Quinns. A clue as to the real owners of Cengard may be that, since becoming natural resource minister, Stavitsky has proposed rebooting Ukraine's gold production - via purchases by the National Bank of Ukraine (NBU) to boost the country vanishing gold reserves.

Banking arrangements also point to the Ukraina mall moving into the Yanukovych orbit. According to court records, Elegant Invest banks with Bank Globus, a bank that was set up in 2009 and run, and is believed owned, by 37-year-old Valery Prokhorenko, deputy head of the NBU as of 2011, a Yanukovych appointee. Ukraina shopping mall itself changed its bank in December 2011 to Zlatobank, believed owned by Leonid Yurushev, a shadowy banker who grew up with Yanukovych.

Finally, Elegant Invest and Tanatalit are affiliates of one more company that has recently been the subject of journalist investigations: according to investigations by Ukrainskaya Pravda and tender watchdog Nashi Groshi, obscure company TOV Premier Leasing, set up by the same Dmitro Nikoforov as set up Elegant, in August won tenders held by state railway operators to lease 3,000 freight cars for a total contract volume of UAH5bn (around $700m).

Sky Mall up in the air

Ukraina is not the only major Kyiv shopping mall whose ownership is in dispute. The Sky Mall - which on completion of its third phase will be Ukraine's largest, and boast rental income of around $50m per year, compared with Ukraina's estimated $10m - is also the object of bitter court room disputes, ranging from Ukraine to New York and London, Cyprus and British Virgin Islands.

The original developer of Sky Mall was Estonia's richest man Hilar Teder, co-founder of one of Russia's largest supermarket chains Okei. In 2010, to raise funds needed to push on with the third phase, Teder sold a 50% + 1 share in Assofit, the Cyrus company that owned the development, to Stockman, an investment group linked to Donetsk businessmen running the oil trader Oledo Petroleum. Teder, however, retained a call option to repurchase the stake by February 2011. As a step towards raising the needed funds, in September 2010 investment bank Dragon Capital took a 30% stake in Teder's Cyprus ownership vehicle Arricano Trading.

But when the time for the call option came round, Teder and Dragon got an unpleasant surprise: Stockman successfully challenged the call option both at the London Court of International Arbitration and at the UN International Trade Tribunal, apparently arguing that Arricano had breached confidentiality agreements, leaving Teder's Arricano Trading with only a minority stake in the development. In August, Stockman changed management at the mall in a surprise move.

Teder may now find it difficult to even hold on to his blocking stake in Sky Mall: according to court records, Dniprovsk Pristan, the Ukrainian ownership vehicle for the Sky Mall, in turn owned by Assofit, was declared insolvent in late August, with a Kyiv court appointing a temporary administrator and freezing assets, which may be a move to squeeze out minorities by transferring assets. The parties involved refused to comment on the story.

At the same time, litigation is going on in British Virgin Islands between the Donetsk businesmen behind Stockman. Igor Fillipenko, a name closely linked to the Yanukovych family, is suing Andrei Adamovsky, the name closest linked to Stockman, according to court documents seen by bne.

Fillipenko and his business partner Andriy Malitsky are suing for $71.6m, due to the "wrongful appropriation" of Oledo Petroleum and breach of fiduciary trust, perhaps indicating that Adamovksy was originally fronting for Fillipenko in Oledo, but then took things into his own hands. Fillipenko and Malitskiy are claiming for $71.5m, or the Assofit shareholding that holds Sky Mall.

Fillipenko shot to prominence in Ukraine when he appeared in 2012 as majority shareholder of Khlib Investbud, now the country's largest grain trader, which was only set up in 2010 as a state company. Khlib Investbud rose meteorically thanks to wide-reaching formal and informal preferences to displace established global traders such as Bunge and Töpfer on Ukraine's lucrative grain export market. Journalist investigations have established that Fillipenko is close to Yury Ivanyuschenko, Party of Regions MP and reputedly a close associate of Yanukovych on the make.

So Sky Mall would seem to have been pulled into at least the outer reaches of the Yanukovych orbit as well.

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