Battle over Ukrainian grain terminal demonstrates challenges post-war foreign investors will face

Battle over Ukrainian grain terminal demonstrates challenges post-war foreign investors will face
GNT's Odesa port terminal is participating in the critical Grain Corridor Initiative. / bne IntelliNews
By Dominic Culverwell in London February 17, 2023

A vicious corporate dispute has erupted in Ukraine between Argentem Creek Partners (ACP), a US hedge fund, and the Ukrainian GNT Group, which operates a grain port terminal in Odesa participating in Ukraine’s critical Grain Corridor Initiative.

At the heart of the dispute are thousands of tonnes of missing grain that Argentem believes was liquidated without any notice to investors by Serhii Hroza and Volodymyr Naumenko, the co-owners of GNT and terminal operator Olimpex Coupe.

In addition, Argentem claims that GNT owes it more than $117mn with interest after more than 12 months of not servicing a loan, as well as $20mn to US-based creditor Innovatus Structured Trade Finance.

In an exclusive interview with bne IntelliNews, John Patton, Managing Director and Portfolio Manager at Argentem, said that Ukraine’s reputation could be damaged if ACP fails to win the case. With investors eyeing up Ukraine as the embattled country attempts to secure funding for post-war reconstruction, the government’s reaction to the lawsuit could affect future financial support, he argues.

GNT has not responded to bne IntelliNews’ request for comment.

Back in December 2019, GNT took out a $75mn loan from Argentem and a $20mn loan from Innovatus. Patton said he admired the hard-working entrepreneurs who established the business during Ukraine’s turbulent mid-90s and he was happy to invest.

But by December 2021, GNT said they were unable to pay back the loan due to the fallout from the COVID-19 pandemic, leading to discussions with Argentem about restructuring.

Following Russia’s full-scale invasion of Ukraine in February 2022, GNT was once again unable to pay its debts, with Argentem agreeing to extend payments.

In August 2022, GNT revealed to Argentem that the pre-war inventory previously worth $130m was now down to a negative $7mn. ACP was suspicious, claiming that no credible reason was given for the gargantuan losses.

Following concerns over lack of transparency and misgovernance, Argentum sued Hroza and Naumenko in the UK’s High Court, which ordered the seizure of assets worth $118mn held by the co-owners.

The UK court granted a worldwide freezing order in favour of Madison Pacific as security trustee, which took control of the shares of the top holding company, GN Terminals Ltd, based in Cyprus, under the direction of Argentem and Innovatus.

Madison Pacific installed directors in GNT as well as its subsidiaries in the UAE (GNT Trade DMCC and Black Sea Commodities) and in Switzerland (Omega Terminals SA). However, despite taking control of the shares and the board, Argentum and Innovatus have yet to take over operational control of the terminal itself.

GNT have denounced the accusations and claim it is willing to repay the loan to both ACP and Innovatus in “any civilised manner”. They fired back at Argentem, accusing Patton of initiating a “hostile takeover”, even going so far as to say that the company is damaging Ukraine’s international reputation and disrupting grain shipments under the grain corridor, as the terminal is responsible for transporting 8.5% of Ukraine’s total agricultural exports.

“An attempt to block the grain terminal’s operations in the port threatens the grain corridor’s operation and, accordingly, Ukraine’s performance of its international food security commitments,” Volodymyr Naumenko said in an interview with Ukrainian news outlet

Patton batted away GNT’s allegations as a “disinformation campaign” and noted that the company had not blocked the directorship changes, despite undertaking several “aggressive steps”. He argues that GNT is “illegally occupying the terminal and inland silos”, saying that “the dispute will last until they hand over operational control”, or “repay the loan facilities”.

His main grievance with the company is what he perceives as lack of transparency coupled with serious failings in governance. Despite requests for information regarding finances in 2021 and 2022, he says GNT hasn’t provided anything verifiable. 

“The problem here is that GNT ultimately decided to dispose of a huge amount of inventory in a period of time without reference to the board and without discussing it with the people that some of that inventory was pledged to. They didn't ask and they didn't approach. They didn't even allow them to inspect their inventory,” Patton stated.

“After 14 months of this kind of treatment, we reached a point where we had no information and no transparency. There's no governance; that's just not a situation we can continue with,” he added.

In his defence, Hroza claims that Olimpex, which manages the terminal, notified Innovatus on February 25 that it would be impossible to store grain securely and ensure quality due to the lack of capacity for long-term grain storage and the inability to rotate cargo due to missile strikes.

At the same time, access to the storage facilities was prohibited due to war. Once restrictions were lifted, Naumenko said there were no inspection requests from Innovatus.

“All the rest are unsubstantiated claims that the creditors’ inspectors cannot gain access to storage facilities,” Naumenko told Censor.Net.

“We invite creditors and all stakeholders to come in person to make sure that the grain is available at the terminal’s storage facilities at all times,” he added.

Concerns over clarity and transparency

Patton said he noticed problems with the group early on. Difficulties arose when the group allegedly refused to enact on agreements, including transferring the CEO to chairman and appointing a new professional CEO instead.

Moreover, he claims the board of directors wasn’t given enough information and was often asked simply to validate decisions rather than making them, leading Argentem to hire third-party consultants on several occasions to provide information to enable better decision making.

Although operations seemed to run smoothly during the first half of the second year, there were soon concerns over clarity and transparency.

“As we approached maturity, it became less and less clear, and after the war started there was no transparency,” Patton said. 

Argentem and GNT discussed an extension, but the Ukrainian company allegedly refused to follow the credit fund's guidelines and disregarded the implementation of a business plan and an audit. According to Patton, GNT felt they didn’t need to follow any of the typical checks due to the war.

GNT argues on its website that it has been transparent all along and was “audited by international firms regularly”, with Ziff-Ivin Associates Ltd conducting quarterly reports since 2020 on the demand of Argentem. Over the summer, the board of directors, made up of Argentem’s appointees, invited Ziff-Ivin Associates to conduct an annual audit, which GNT claims was not necessary on top of the quarterly audits. 

All [ACP’s] statements for the media are vague phrases about our lack of transparency. The creditors do not offer sound arguments. Their aggressive modus operandi took us by surprise because it was absolutely unnecessary,” Hroza told

However, Ziff-Ivin emailed bne IntelliNews after this article was first published to say that they only provided financial analyses to the creditors. It added that: "GNT’s management have not provided audited statements for 2021 or later periods, it refused timely access to creditors-appointed grain inspectors and never provided documentary evidence showing what happened to the $130 million of lost inventory.”

GNT has said that the creditors' steps to enforce their rights took them by surprise.  “GNT Group did not expect ACP to take hostile steps to enforce the debt collection, for instance, by suing and blocking operations of the Ukrainian companies, such as Olimpex Coupe International LCC, Metalsukraine Corp Ltd LCC, Inzernoexpert Grain Transhipment Facility LCC,” the group wrote on their website, referring to companies owned by the GNT Group.

Hroza has claimed that ACP only enforced the debt after the terminal became a valuable asset. In the first six months of the grain corridor, the terminal oversaw the transhipment of 1.5mn tonnes of grain, which Hroza claims may have attracted Argentem’s interest.

“Is there another explanation for this haste and the creditor’s refusal to accept our proposal of deferral and reserved lending to give us an opportunity to recover from the war? Most probably, this is because they found a buyer for our assets,” he said to However, he did not provide any evidence to back up this speculation.

For his part, Patton believes that Argentem’s flexibility and multiple extensions during the pandemic led to a perception by the owners that ACP was weak. “They perceived us as people they can do whatever they want with,” he said. “So when the war came, their view was, let's do what we want with the inventory.”

Patton claims that none of GNT’s explanations add up and that the company has provided three or four different stories. In one case, right after a board meeting, GNT told Argentem that grain had to be cleared out of the facilities due to supposed shrapnel damage; however, it provided no crucial evidence aside from “a picture with several small holes”.

“They apparently cleaned out thousands of tonnes of grain when there was a military lockdown of the port. There's a lot of pieces that don't quite fit together,” he said.

Patton described how alarm bells started ringing in August and got louder when no information or official documentation confirming the stories reached Argentem.

He is also not certain that grain levels were at the pre-war quantity when GNT started clearing the silos, or if some of the grain wasn’t already missing by then.

But GNT argues that French inspection and certification company Bureau Veritas inspected the grain and documented its spoilage once the group was allowed to access the terminal in early May 2022.

“It was dangerous to keep such products at the terminal. Once the grain corridor started operating, that grain was replaced with new batches. Since then, the amount of grain has been sufficient to settle the debt,” Naumenko told Censor.Net.

Patton said that GNT also tried to push through a report in the October board meeting, which was created by a third party Argentem had paid for, but there was no information to back it up. At that point, Patton said Argentem knew it was not going to get any information.

“We know they were trading in 2022 when they were telling creditors they weren’t,” Patton said. “They sold sunflower seeds at a $41mn loss to a company called Sunolta, and soon after we can see that Sunolta begins trading with GNT in sunflower oil.”

“In terms of asset dissipation, after enforcement proceedings began in December, we detected they were dissipating assets. For example, the ownership of silos inside Ukraine were transferred to an entity in Switzerland, controlled by GNT Group’s CFO, Dusan Denic,” he added.

Reputational risks

Argentem will continue with the enforcement process and Patton says the firm will take over and operate the terminal in a “transparent and high- governance way”. He stressed that Argentem is “absolutely not impacting” the grain deal, and insisted that ACP has been given little choice but to take action.

“We’re a professional investment firm investing third party funds. We weren't in a position to allow these guys to pilfer the inventory if that is what was happening,” he said.

When it comes to Ukraine’s international reputation, Argentem says it has received support from the government, despite GNT Group’s employees sending a letter to Ukrainian President Volodymyr Zelenskiy warning of “reputational risks”. 

“What damages Ukraine is when owners act with impunity and without regard for all stakeholders. What doesn’t damage Ukraine is enforcing in those situations,” he stated. “I think it will be damaging to Ukraine if those things prevail and we don’t prevail,” he added.

According to GNT, state authorities want to mediate the conflict. The company says they are willing to participate, although have fired out claims that ACP and Innovatus have not shown the same level of willingness.

Patton believes Argentem will succeed in the case and stated that the company will continue to invest in Ukraine. If the government is in their favour, he foresees other investors also continuing to invest in the war-torn country, which is desperately seeking funds to help its $700bn reconstruction process.

Certainly, investors have been eagerly eyeballing Ukraine’s post-war potential, with BlackRock CEO Larry Fink telling the World Economic Forum in Davos that Ukraine “can be a beacon to the rest of the world about the power of capitalism”.

The European Union is conscious that lack of transparency will hinder the reconstruction process and has made sure that transparency and judicial reforms are part of the requirements Ukraine must meet in order to achieve EU accession. Kyiv seems to be trying to follow this path, eager to prove to the bloc that it's taking these issues seriously, with Zelenskiy cracking down on dubious government figures over the past few weeks.