Key ULF creditor sues against Bakhmatyuk in racketeering claim

Gramercy Funds Management LLC, one of the biggest
creditors of the large agricultural holding Ukrlandfarming (ULF), filed a complaint
in a U.S. court under the Racketeer Influenced and Corrupt Organizations (RICO)
Act against Oleg Bakhmatyuk, Ukrlandfarming owner, Bloomberg reported on Dec.
8. The 102-page lawsuit was filed in the U.S. District Court for the District
of Wyoming, targeting Bakhmatyuk and “his main ally,” Wyoming banker Nick
Piazza, Bloomberg specified.

Gramercy alleges there was a “complex, multi-faceted
scheme designed to maintain control over ULF and its subsidiary Avangardco” and
to interfere with Gramercy’s ability to recover its investment, Bloomberg
reported.

Commenting on the issue, Ukrlandfarming reported on
Dec. 8 it is “surprised and disappointed by this move” by Gramercy, with which
the company “have been conducting a constructive dialogue over the past 2.5
years”.

Ukrlandfarming (UKRLAN) and its related company
Avngardco (AVGR LI, AVINPU), one of the world’s biggest producers of eggs,
issued their Eurobonds for a total face value of USD 700 mln in 2010-2013, had
the bonds restructured in 2015-2016, but stopped servicing them in early 2017.
The companies related their financial troubles to the loss of assets and target
markets following Russia’s occupation of Crimea and the eastern districts of
Ukraine, as well as from attacks by the government and law enforcement bodies
on their assets. The companies’ reported total financial debt was USD 1.97 bln
as of end-2017, while actual debt of Bakhmatyuk-related assets was about USD
2.3 bln, based on our estimates. The holding and Bakhmatyuk owes international
creditors (Eurobond holders, banks), local banks (mostly state-owned), the
National Bank of Ukraine and the Deposit Guarantee Fund. None of Bakhmatyuk’s
attempts to offer restructuring terms to international creditors found support
from them.

Alexander Paraschiy: This year,
Ukrainian farmers are enjoying tailwind conditions as they gathered a
historically high harvest and have high prices for their crops. Ukrlandfarming
should not be an exception, meaning the holding should have generated extremely
good cash flow in 2021 (there have been no official financials since 2017).
Clearly, creditors would have expected an offer from the company that is much
more generous than the previous ones. Apparently, Gramercy’s expectations have
not been met and the fund has lost its patience.

The ownership structure of Ukrlandfarming’s key
assets had become increasingly complicated in 2016-2018 (refer to our reports
of August 2016 and July 2018) meaning creditors had little chance to take
control of any of the holding’s assets in order to recover their investments.
Perhaps the attempt to sue in Wyoming, where some Bakhmatyuk-related assets
were re-registered recently, could be more successful than trying to foreclose
assets via legal battles in Cyprus or Ukraine. At this stage, however, the
recovery rate for creditors is hard to estimate. Anyway, Gramercy’s move marks
a new stage of the Eurobond holders’ fight for their money lent to Bakhmatyuk.