Igor Mazepa
Founder and CEO

Ihor Mazepa: Government-Owned Banks Will Become Dominant in Ukraine after Crisis

"One or two fellow investment bankers are still here. These are all that still left on the market”

The logo of Concorde Capital Investment Company was once showed off in the roof of then the most reputable Business Center Parus in the downtown Kyiv; however, this was not the case in 2010. Crisis wreaked havoc back then; however, hardly anybody would imagine that the situation will so sad as it is now. Nevertheless, one of the most influential investment bankers in this country, owner of Concorde Capital Igor Mazepa, shows an optimism that has been hitherto unseen. He believes that financial situation in this country gradually stabilizes and that in several months, the economy will show the first signs of recovery—banks will gradually resume lending and first investments will start coming to this country.

In Autumn 2014, Mazepa left the Supervisory Board of Alfa-bank, so that to continue serving on the Supervisory Council of government-owned Ukreximbank. “I could not say no to The President”, he commented on his decision. Special relations between Mazepa and Poroshenko are much talked about and Mazepa himself does no conceal that his company cooperated with businessman Poroshenko, when he was not the Chief of State. At the moment, many natives of Concorde started serving in government positions that is frequently explained as special trust the President has in the investment banker. However, Mazepa asserts that he would not like to serve in the Government and calls himself, if not the most important, “one of a few” survived investment bankers in this country.

What in your opinion is happening in Ukrainian banking system? What will be its configuration after cleaning? How many banks will face the same sad destiny as Forum, Delta, and Finance&Credit?

The situation is already close to the bottom. I think, several dozen banks more that were engaged in sham transactions or just were just registered as banks will go out of business. The banking system at the moment is not carrying out the function of saving or deepening of capital or investment, does not facilitate economic growth, its only function is payments, where banks earn some kind of commission income. This is related to the fact that some time ago there was a run on bank—I am talking about a rush of depositors who wished to take their deposits back. However, in the recent three or four months I have seen stabilization—the exchange rate of the Hryvnia is stable, there is no devaluation, even some appreciation of exchange rate is observed. The best indicators are kiosk quotations: even there the Hryvnia gains value. The government budget is complied with, and on the first half-year the country saw good budget surplus. The situation in the ATO Zone has also stabilized, in a sense. And this results in a rally in business environment.

The rally can be seen in many industries. I am talking with restaurant owners: their situation is better than it was in spring. Some car sales started. Taxi drivers have more customers. A similar situation exists in many other industries. All those signs tell that if the situation persists for six-eight or, better, twelve months, then banks will surely push off the bottom. At the moment, good pre-conditions exist. The National Bank of Ukraine buys back US dollars in the interbank market every week; this being the case, the exchange rate of the Hryvnia even goes up. This says that offerings of USD and the Hryvnia are balanced. The National Bank of Ukraine recently reduced the discount rate this will result it lower interest rates on deposits in the National Bank of Ukraine and will provide pre-conditions for banks to start lending for the economy and provide incentives for consumer demand via retail loans.

How fast can lending for the real sector be resumed and what is missing?

The country should resume stable growth in everything—GDP, industrial production, consumer sentiment and, most importantly, corporate earnings. At the moment, the actual percentage of “bad” loans amounts to 70%. Some configuration will be outlined at the beginning of this year. Technically, not all problematic banks will have time to leave the market; however, most will do so. We will remain in the banking system, where government-owned banks will become dominant as they have virtually unlimited access to capital, their share market will grow. PrivatBank will remain systemic; however, this is a single-man’s bank that is backed by his charisma. A number of Western banks will remain. And, most likely, some consolidation will be started. Alfa will buy Unicredit, other buyers will emerge, so that to acquire banks with fewer assets and 15-20 live banks will find the way out of crisis.

How can that huge lending portfolio of government-owned companies that is now held by Oschadbank, Ukreximbank, and Ukrgasbank be rehabilitated?

Not only government-owned banks have problems with government authorities. And not only with government authorities. Banks have more problems private borrowers. One recommendation is for all—we need to recognize that debt honestly and preferably write it off. It is clear that borrowers have no ability to repay, even those of them that continue to service their debts. This situation continues and is frequently a blind eye is turned to it; however, sooner or later this additional cleaning will be completed.

You say that lending will resume after the final stabilization. And when we can anticipate that inflow of investment, for which the Government counts so much?

Lending is not here, because lender banks strongly distrust borrowers. In addition, they have an alternative: take Hryvnias from the general public at 18-22% and place them in the National Bank of Ukraine certificates at a profit margin of 3-5%. Ad there is no need to maintain large loan departments, undertake corporate risks, incur expenses to maintain all that infrastructure to make loans available. Just transfer money from deposits, earn profit margins and give it to the National Bank of Ukraine that is guaranteed to pay the money back to you. As soon as deposit interest rates reduction will take place that will require some stabilization in the foreign currency market, then it can be said that banks will start lending. At the moment, some banks are resuming active retail lending, consumer loans become popular. Then, with a half-year lag, this country will start seeing investors.

What needs to be done immediately in order to resume investment in Ukrainian economy? And where will those investors come best of all?

The recipe is simple—honestly implement the set of reforms and changes. I can see a range of industries that continue to be interesting, such as pharmaceuticals industry, medicine… Western suppliers continue to dominant in pharmaceutical market with approximately 65% share. Therefore, during devaluation everybody is compelled to increase prices in the Hryvnia, because USD is becoming more expensive and some period even local producers bring their prices to the level of import. This being the case, most overhead costs remain in the Hryvnia; therefore, during a crisis, pharmaceutical companies lose significantly relative to USD; however, they will have higher profit margin. Pharmaceutical industry will be the first to feel some improvement.

Medicine has always been deemed to be protected sector. We invest in Dobrobut Clinic and record growth not only in Hryvnia indicators, but also growth in physical indicators such as more patients, manipulations, inoculations.

Dobrobut is a network of medical clinics that has been operating on the private medical service market since 2001. It brings together seven clinics in Kyiv. The previous owner Ruslan Demchak is a Member of Parliament, Poroshenko Bloc.

As before, agricultural sector remains fairly liquid. It is alive and has money. Agricultural infrastructure—grain elevators, transshipment, ports— also shows promises.

Provided that inflation will remain under control and the Government will provide the general public with pensions and salaries, consumer demand will most likely start recovering.

To what extent can the launch of new privatization program provide incentives for inflow of investment? Are there properties of several classes—large, medium, very small? What can be a response of foreign investors on such sale?

Privatization is very important, it can be one of the main triggers that something begins happening, changing and some considerable changes for investors emerged in this country. At the moment, approximately one third of the GDP is produced in the government sector and this is always associated with inefficiency and embezzlement, especially during political volatility, when our political leaders are inclined to various fixes as influence on some government-owned companies has always been a subject for arrangement among political parties. Privatization will become a good sign that something is changing.

In September, the Government unexpectedly delayed the process of privatization. What is this related to and what consequences can emerge?

There is, most likely, a technical explanation—inefficiency of the laws; however, its can and had to be amended in one and half year by the new Government. However, most important this is that most government-owned companies changed too small since Yanukovych. There are various political and business groups as before, occupy and siphon off. This would be my explanation for the delayed process of privatization.

Head of the State Property Fund Mr. Bilous already warned that instead of planned 17 billion from privatization we will have 1 billion this year.

I am even not talking about fiscal bonuses. All sorts of corrupted public servants for every month of delayed privatization will steal several more dozen million USD. If privatization in this country is delayed by a half-year, those losses will count in hundreds of millions.

The Government announced to the world: we are selling Odessa Port Plant. Then everything was delayed. How do we look in the eyes of prospective buyers?

Odessa Port Plant produced some interest in us as Concorde Capital that raised money from foreign investors for that purchase, but three days before the competition it was canceled. This is a bad sign, the most recent in a series of occasions in which the Government just confirmed its inefficiency in correct organization of the privatization.

Did you talk to members of the Government? How did they explain such lack of consistency?

Procedural inefficiency, of course.

Apart from Odesa Port Plant, what are the properties you are seeing higher interest to?

An obvious interest, on the part of Ukrainian and foreign investors is demonstrated in energy industry, infrastructure (railway), and ports.

As the inheritance of the old regimes—not even Yanukovych, but Yushchenko—this country prohibited privatization of a huge number of appealing, attractive properties.

Is there a chance to have Ukrainian capital that flew from Ukraine in 2013-2014 reinvested?

Most likely, somebody of those people would surely think about what to reinvest in, and some number of our rather well-to-do people already said in public about their interest in energy industry, and oblgas companies. This will surely become for them a good reason to come back.

But will those Ukrainian investors allow foreign investors to enter their turf?

As soon as the Government can convince them that their bidding procedures are transparent, investors will come. If they provide a normal and market-based process, then I cannot imagine how can anybody not be allowed, especially when the general public is so sensitive about every unclear situation.

To what extent can the cancellation of moratorium on sale of agricultural land provide incentives for inflow of investment? How relevant can such open market be effective from 1 January as some representatives of the Government planned?

I think that honestly, none of the representatives of the Government planned something like that. This needs to be done; however, this ideas has not been popular among the general public so far. Both the business and political elites failed to accept a realization that sale of land is a necessary thing. Most probably, the moratorium will be extended. The agrarian lobby most likely stands for extension. As a matter of fact, one way or another a hectare of land will cost USD 1000, 2000 or even 3000 thousand. Just count how much money will be needed for large agriholding companies that control hundreds of thousands of hectares in to buy the land. At the moment, they use it for a cheap price, while purchase will set them off by hundreds of millions USD. At the moment, nobody will have such money, that’s for sure.

I guess that sovereign funds may come to this market from oil-producing countries and Asia. However, only after that market is more or less formed and mature. I have no false sensation that this will take place soon. However, the earlier will developments to that effect start, the faster we will achieve civilized relations in the rural areas.

At the moment, there are various initiatives to draft the law on cancellation of the moratorium on a stage-by-stage basis. Do interested investors engage you in that process?

No, there is the National Reform Council, the Prime Minister, the coalition... However, I think that apart from the hype it does not make much sense. If we actually would like to change something, we need to come and convince the IMF and ambassadors of that.

In a situation when this idea is not popular in the public, I reckon that the likelihood of cancellation of the moratorium is very low.

So it is going to remain unpopular for ten more years…

Sales of land were discussed out loud as late as twenty years ago; however, as soon as decision-making is concerned, nobody would like to take the responsibility.

We have a coalition of reformers and the President passes the required resolutions through it when needed...

I don’t think that this is actually interesting for the President, the Prime Minister and the coalition in this uneasy, extremely politically volatile time. Talks will go further.

You mentioned that Ukrzaliznytsya needs to be privatized, the process of putting it into shares is at its start. What is the best way to sell this government-owned holding company?

Somebody would like to buy service companies that repair locomotive engines and rolling stock, somebody would like to operate the rolling stock, somebody would wish to build their own private track. Therefore, it would be correct to split Ukrzaliznytsya into business units and offer them to investors. However, as a practical man, I don’t think that this will take place in the coming time as we will catch the wind in a net for 5-10 more years.

“I have colleagues, one or two. They are the only ones who are still on the market”

Can you be called the main investment banker in this country today?

To say it right, the only survivor. However, I have colleagues, one or two, who are still here.

The rest came to the Government. Just kidding.

The rest went out of business and somebody of them joined the Government.

Are you going to follow suit?


You are called a purse of President Poroshenko. Where do such rumors come from?

Other than Poroshenko’s purse, I am called “DNR terrorist” and “Yanukovych family friend.” In the recent time, I have started seeing fairly conflicting messages about myself.

And still, what are your relations with the incumbent Chief of State?

I am related with the incumbent President by purely professional activities. He, as one of the richest, advanced and progressive businessmen, of course, was our customer.

What were the projects with Poroshenko’s businesses you worked on with?

We worked on the secondary market on debt instruments. However, as businessman Poroshenko became President and went out of business, our relations, accordingly, stopped at that.

Recently you joined the Supervisory Board of government-owned Ukreximbank. Is this a result of special trust of The President in you?

Apart from me, a number of people joined the Supervisory Board based on the quotas of both the Cabinet of Ministers and The President. However, apart from me, the same Presidential quota was used to engage scientists, educators, advisers and, by way of example, auditors. If close relations with The President are a criterion, then all the other members can be told to be as close to The President as me. However, this is not a criterion. Professionalism and impartiality are more important.

Your position in the Bank is that of an Independent Director…

I am a member of the Supervisory Board. However, I do not serve on the Government and have no conflict of interest. I am seeing myself more as an independent Director from the standpoint of building the best Western practices of operating management, risk management and strategies. Those corporate governance practices, when banks (government-owned bank even more so) served as pocket purses of some political elites, need to be abolished. This is my task. This is why, most likely, I am called a purse of Poroshenko or some such.

Did the current Chairman of Ukreximbank’s Management Board Aleksandr Grytsenko cooperate with you before appointment to the bank?

The current Chairman of the Management Board is commonly known on the market, he, to all practical purposes, covered Ukrainian debt market from London. We did not work with him previously, we got acquainted in Ukreximbank.

In your opinion, should chief executive officers of government-owned banks earn on the level of managers at commercial banks?

Definitely. Otherwise they must be corrupt. If we are saying that banks with government capital should compete on the market for their customers, then they definitely should not have less competent top managers, than their competitors and, accordingly, they should be paid adequately. This concerns not only government-owned companies, but also all the rest of the public servants.

And how much should a top manager at a government bank earn?

The Chairman of the Management Board should earn USD 500–700 thousand a year, a member of the Management Board should be paid a couple hundred thousand USD a year. At least, the price of those decisions that they make routinely every day is hundreds of times highest than those amounts.

Appointment of investment banker Grytsenko at Ukreximbank can be considered as an original quota exchange: the said bank went to the Presidential team, while Oschadbank, where the chief executive officer if Pyshny who is a friend of the Prime Minister Yatsenyuk, to the team of the Prime Minister, can it not?

I think, it cannot, I have not noticed that anyway during my tenure at the Supervisory Council. The Supervisory Council of Ukreximbank has members from the quotas of both the President and the Cabinet of Ministers and all decisions, including, without limitation, appointment of top managers, are made by consensus. Pyshny, by the way, is also not an accidental man on the market, he has long been in the financial sector, just like Grytsenko.

During the stagnation on the investment market, one of your main projects was Forex trend you have recently acquired. You are accused that it will serve as base, on which you are building a financial pyramid scheme like MMM. Thos concerns look justified, especially after the scandal with a similar project by the name of MMCIS.

Firstly, we have never acquired anything in the said sector. We, together with our partners are building a new company from the ground up, having no obligations whatsoever to anyone, including, depositors of Forex operators that went out of business.

Secondly, Russian-speaking public actually has that suspicious attitude towards Forex, because there was MMCIS and before them MMM that were built based on a pyramid scheme. This being the case, there are several dozens of other companies that carry on their business honestly and serve their customers. However, the man in the street always see the most negative side of that industry that amounts to merely 5–10%. For us, this is not one of out core projects, this is a routine investment; however, this being the case, this is also a part of our strategy as we would like to be an operator not only on Ukrainian stock market, but also on all worldwide markets and in various segments. In a situation, when a banking system ceased to provide a reliable method of funds placement and the public started to show basic financial literacy, those services definitely have future.

You already commented the situation with claims of the US Government to Ukrainian investment companies on use of insider information. Is it true that several criminal proceedings have been taken against you in the USA that are allegedly related to theft of some press-releases?

No, this is not true. We, as the largest broker on the financial service market, are the first stop for customers to come for investment in Ukraine and abroad. I have no right to assert, but it looks like somebody having unfair access to the said information came to us for a service. We just executed the instructions of our customers. And there are claims whatsoever made to us.

You are associated with several investment bankers in the Government. One of them – your former subordinate Roman Ivanyuk who is in charge of Ukrspirt today. Wicked tongues assure that you are trying to gain control of that holding company via him.

By this logic, I most likely would like to gain control of the tariff regulation committee via Andriy Gerus [employee of Concorde Capital — Glavcom] who, however, is not there any more. By this logic, as I guess, I would like to gain control of the Ministry of Transport and Infrastructure via now former Deputy Minister Aleksandr Kava [former investment analyst — Glavcom]. My former colleague Victoriya Voytsytska [who worked for Concorde Capital until 2007 — Glavcom] is at the moment a member of Samopomich Parliamentary Group, so this would mean that I wish to obtain control of Samopomich?

As far as I understand, Ivanyuk was appointed to that position personally by the Minister [of Agrarian Policy and Food — Glavcom] Pavlenko who was appointed to that office based on the quota of Samopomich and definitely nobody can condemn me of connections with them.

Do you personally support Ivanyuk in personnel competition for Chief Executive Officer of Ukrspirt”?

In actual fact, they have a decent list of people and now this is the business of the Commission that will select among them.

Are you happy with yet another investment banker in the Government—Chief Executive Officer of Fiscal Service Mr. Nasirov who in 2008 was in charge of securities trading at your company?

I hold a neutral stance to his actions. However, communicating with businessmen every day, I can see that the so-called “bettering” in terms of relations between businesses and tax authorities that has long been hoped for did not materialized. I cannot tell that things became worse; however, they definitely did not become better.

However, the State Fiscal Service employs 60 thousand people and, I, for one, am having a hard time sometimes to pass some decision even in such open and liberal organization as Concorde Capital. Therefore, I admit that changes are hard to achieve in the Service in a short time—still, this is an established corrupt organization. However, this is not an explanation—if you have been the Chief Executive Officer of an organization for the recent four months, something positive should already have happened there. On the other hand, I can see progress in many things seemed to be impossible that two or three years ago, by way of example, electronic administration of VAT. I cannot tell that nobody gives bribes for VAT refund any more; however, the system definitely became more transparent. The same thing concerns the initiative to provide electronic administration for excise taxes. I keep hearing gripes that tax evasion is still possible via various abusive tax shelters; however, this is not centralized now and is not part of the State Fiscal Service’s policy. These are more of sporadic cases who face strong countermeasures from the entire at all levels of the State Fiscal Service.

Schemes under which Brioni suits were imported as green peas and, accordingly, low customs duties were paid were prolific at the Customs formerly. At the moment there is definitely no such practice.

According to Baloga, this is just picking up steam in Zakarpattya again …

Of course, illegal traffic remains, when corrupt customs officer of some kind allows two or three semi-trailer trucks to enter at night. Such sporadic cases has always been there and, I guess, will continue. This being the case, there such cases on Polish and Hungarian sides too. However, there is no massive abuse. One of persisting abuses is when, figuratively speaking, a Brioni suit is imported as a cheaper suit rather than as green peas. Under Klimenko [Minister of Revenues and Duties under Yanukovych — Glavcom) that was systemic and massive as illegal traffic programs were just delegated from the top levels. At the moment, there is a range of customs tariff, say, USD 3–5 and the public blames Nasirov that the Customs take the lower tariff. However, on the other hand, one tariff cannot apply to products that are of absolutely different quality. Under Klimenko, given the range of USD 3–5 some frequently managed to have custom clearance at 50 cents per kg. All these ambivalence will continue until more civilized practices are implemented at Ukrainian Customs Service. However, I am not a big optimist on this and have no false sensation that everything will change fast. Some people have worked for the State Fiscal Service for thirty or forty years so far—what can they change?

Did you note that nobody of many businessmen who joined the Government have never said honestly that they earn additional salaries from some special funds. Do you know anything about such funds? It is hardly believable that such people would be content with negligible salaries of public servants.

I don’t know do sure. However, I know that most Ukrainian public servants who maintain a fairly immodest lifestyle clearly cannot afford this for UAH 7000 in salaries. And if we continue to pretend that nothing is happening, we will continue to blame the proverbial mirror. The Minister should definitely earn on the level of USD 500–700 thousand a year.

Do your today’s customers still include representatives of the so-called ‘Family,’ of connections with whom you have also been accused by some mass media?

I have never had such connections. “Some mass media” can publish anything for a hundred bucks.

“It so happened that Kurchenko proved to be the most aggressive buyer”

However, it is strange that with all your connections in business community you have never met those “young and ambitious”, while 2–3 years ago they steamrolled over virtually everything?

Concorde always served for and works with businessmen only and those people have never been in business. They just arranged is so that to take their share of transactions. What kind of investment banking can be made with them?!

And what about Aleksandr Yanukovych’s MAKO Group?

Nobody cannot tell that Yanukovych came to politics from business, like, say, Poroshenko. Yanukovych has always been a normal public servant who took the full career path from the Director of the motor transport base to the President. And I meet people only on market situations.

In this context, how should your participation in the sale transaction of UMH to Sergey the Family’s Purse Kurchenko be evaluated?

I participated in that transaction on the side of the seller and the seller was Borys Lozhkin and a number of other well-respected shareholders. It so happened that Kurchenko proved to be the most aggressive buyer.

By the way, how much was actually paid for that holding company? Rumors had it differently. By way of example, Ukreximbank made USD 160 million loan for that transaction and interested parties used to say that the total amount of sale was 300 million…

I am under a non-disclosure obligation, therefore, I cannot comment. I heard that the loan was a couple of times lower and even was, if memory serves, fully repaid.

However, in March 2014 you valued UMH at a modest USD 50 million …

Advertising market shrunk very strongly, especially in USD equivalent. In addition, the entire sector of printed periodicals shrunk strongly. At the moment, UMH earns, I think, a couple million dollars, but previously they made more than thirty. Hence the valuation.

As a man who knows how transactions are made, can you explain why income from that transaction have never made it to Lozhkin’s filing?

I cannot tell, but, by the way, Lozhkin was not the dominant shareholder of UMH and, as a matter of fact, shares in the holding company were already under IPO.

Is former Minister of Revenues and Duties Aleksandr Klimenko related to that transaction? Glavcom wrote about cunning scheme of finance for the acquisition of UMH by entities close to Klimenko.

This is the buyer’s gory details and we have had no clue about them at all. Therefore, I cannot comment.

You mentioned that you are called a financier of DNR and rumors were circulated that you even were arrested due to this. Where is this coming from?

The rumors about my arrested came to my knowledge when I was sitting in this office. At the moment I am investing in a payment system that has nothing to do with QIWI that is a similar Russia-based service. It is just that former QIWI shareholders who left in the process of IPO in America organized TYME, a similar company, in Ukraine. They are minority shareholders in that company. However, TYME does not operate in the Crimea or DNR/LNR.

What other relations, apart from maintenance of the transaction with UMH, do you have with the incumbent Head of the Presidential Administration Borys Lozhkin?

No other relations. While I also was a minority shareholder of UMH, my share did not allow me to even serve on the Supervisory Council.

But you also participated in acquisition of Dobrobut medical company. Mass media reported that you acquired it for Lozhkin.

We worked on the side of the seller, Ruslan Demchak, with whom Concorde Capital has been cooperating for a long time. In September-October 2013, we were ready to close that transaction Pinchuk’s entities. For some internal reasons that did not pass through on their side as at the last moment East One refused the transaction and we faced a situation that we could let down our customer and reduce all products of our two-year engagement to nothing. Then we became shareholders of that company: Concorde Capital holds 40 percent stake of Dobrobut with the other 60 per cent being held by Oleg Kalashnikov. Lozhkin is not in Dobrobut and has never been. Such suspicions existed, most likely, because Kalashnikov was once a shareholder of UMH. However, by this logic that is based on the deformed imagination of some of your colleagues, Lozhkin should also be a beneficiary of other businesses owned by a dozen of other former shareholders of UMH all over the world. Which is pure nonsense.