Ultimately, We Are The Ones Running Olympex Coupe — It's Only A Matter Of Time. John Patton
"It's one thing — to manage business from London, and another — to actually do business in Ukraine," says John Patton, regional head of the international investment fund Argentem Creek Partners (ACP), which has been suing the GNT Group companies of Serhiy Groza and Volodymyr Naumenko for almost two years. During his trip to Kyiv, he found a slot in his tight schedule to meet with us and talk about the new stage in this case. After all, two weeks ago, the English High Court of Justice upheld the worldwide freezing order against the assets of Serhii Groza and Volodymyr Naumenko. "I regard the present case as one where the evidence is as strong as any that I have ever seen," said Judge Richard Jacobs. Even earlier, the court in Lviv established the bankruptcy of "Olimpex Coupe International".
In general, the trials in this case have continued on from the beginning of 2023. Then ACP, which together with the investment company Innovatus Capital Partners (Innovatus) provided $100 million of secured loans to GNT Group, revealed large-scale fraud and numerous corporate violations. Groza and Naumenko rejected all the charges and also sued the creditors. So, what is happening now around GNT Group and does this situation discourage foreign investors from doing business in Ukraine?
Latifundist.com: John, why are you in Kyiv today?
John Patton: It's one thing to manage business from London, and another — to do it in Ukraine, and have the opportunity to talk face-to-face with the stakeholders here.
Latifundist.com: There are dozens of cases pending in Ukrainian courts regarding your conflict with GNT. Please specify how many there are?
John Patton: More than forty cases. Just think about that number!
Latifundist.com: What have creditors managed to achieve during this time?
John Patton: The court in Lviv established the bankruptcy of "Olimpex Coupe International" and "Metalzukraine Corp Ltd", which are part of the companies in GNT Group. Bankruptcy administrators were appointed. In fact, Ukraine now has a very good Bankruptcy Code. Of course, I would like to go through this process a little faster, but we have what we have. The main thing is that a new stage in this matter has begun for us.
Latifundist.com: Who currently has the rights to manage the terminal?
John Patton: The bankruptcy administrator. Only he can appoint new management and generally manage the asset. And the fact that in the end we will manage it is a matter of time. And thanks to the latest victory in the Lviv court, the situation has become clearer and now there will be no misunderstanding with the port authorities. We have been disappointed that the Odesa port has allowed Groza and Naumenko to continue to operate the terminal, but frankly they have been misled by fake documents form Dubai. Now there is a Ukrainian court decision that is absolutely clear: their directors is damaging the company and has no authority to represent it.
Latifundist.com: But the court is one thing, the execution of the decision is another.
John Patton: The Ukrainian authorities know about our case and are interested in helping. The Office of the President has been very active and we have had numerous meetings during which they have expressed their clear support in ensuring foreign investors can protect their interests in Ukraine. We have seen clear intent on the part of the General Prosecutor’s Office to make sure the criminal investigation into the actions of Groza and Naumenko is thoroughly and efficiently conducted. In fact, we are in court all year round and this process was very long, maybe because of the war or some other factors had an effect. The important thing is that we finish this process with the support of the state, that is why we came to Ukraine.
Latifundist.com: ACP is not afraid to work in developing countries. We speak directly — in markets with increased risk. In Ukraine, the trials have been going on for more than a year. Is this the longest process you’ve ever experienced?
John Patton: I'm paraphrasing a bit. I've never had to encounter a full-scale war before. This is a new situation for me and for us all. Ukrainians have shown themselves to be incredibly resilient and able to work under extreme conditions. What is saddening is that a minority will use the war for their own personal benefit. But this is most definitely a minority and I underline in my conversations in Washington that the US need to provide more support to Ukraine. The accusations by certain politicians and commentators that Ukraine is hopelessly corrupt and support should be withheld are wrong. Yes, there is corruption and fraud, but it is through more engagement by western, governments, businesses and investor and not less that it must be tackled. And the opportunity set is in fact huge. To answer your question, Ukraine is a country that is at war and so I don’t think this process with GNT has been unreasonably long. In general, the process in Ukraine is similar to the one we conducted in other developing markets, only a little longer.
Latifundist.com: What dialogue did you try to have with Groza and Naumenko before the case went to court?
John Patton: We wanted to work with them and be partners from the very beginning. Our only condition was to provide transparent information about the company's work, and it is natural that investors wanted to have it, especially investors who gave $100 million. It is not difficult for a company that has nothing to hide to show this information.
Of course, Groza and Naumenko invested a lot of effort and money into the construction and development of this company, I understand this very well. But they were able to do it, also at the expense of funds from our investors — pension funds in the USA. Therefore, when for six months we did not receive information about the state of affairs in the company, about its financial condition, we decided to take action. Protecting the interests of our investors comes first. Of course, we know that Groza and Naumenko have many connections in Ukraine, in Odesa, because they live there and know many people. But I don’t agree with those that say foreigners should stay away from places like Odesa because only insiders can do business there. That is a defeatist attitude and overlooks all of the fantastic entrepreneurs working to improve Ukraine’s business climate.
Latifundist.com: What was your last offer before going to court?
John Patton: Firstly, lit is important to understand that GNT was in default well before the full-scale invasion and we showed a lot of flexibility, granting waivers and giving them space to fund raise. By August 2022 after they told us they had lost USD 130 million of inventory but with nothing credible to confirm how, we offered to discuss everything, but with a condition: we receive proper information about their alleged losses and on-going business and we hire a financial consultant to develop a restructuring model for us. Of course, there would have been a lot of uncertainty during the war, and we were ready to be reasonable. But the plan was to agree together on how we see the future of the asset so we could make decisions as partners. We asked, "Are you ready to do this?" They replied, “No. Not ready.”. This process is not particularly expensive either. It just takes a little more time and transparent reporting. That’s it. After all, if there is no transparency, how is one supposed to agree to a restructure?
Latifundist.com: ACP is a restructuring specialist. In the agricultural market, you are known as the company that restructured and turned around Mriya. Were you ready to restructure GNT's debts?
John Patton: Absolutely, but on the condition that they report and explain what happened to the grain stocks in the first half of 2022. When they were given the opportunity to tell us what was really going on in the company, they did not want to do it. They asked to wait. Then, when we were ready to start enforcement, we were offered $2 million a month. But we want to know what is happening within the company, we want the documentation. That is not difficult to do if you conduct your affairs transparently. Especially since in those months the "grain corridor" was already fully operational and they were making huge money. It was many months later after we commenced legal action that they submitted the first documents about what happened to the grain. They tried and failed to persuade the English court that a company call Safe Utilization destroyed 57 thousand tons of grain in Sumy. Safe Utilization itself denies it destroyed any grain for GNT and its involvement went no further than the payment of USD 5,000.
Latifundist.com: By the way, have you tried to calculate their profits? Because transshipment cost $8-10/ton before the war, but now it costs $20-25/ton. And this really is a lot of money.
John Patton: No. But we are oriented in the situation and know that both then and now this business is quite profitable.
Latifundist.com: The line of defense of Groza and Naumenko is based on the fact that the war prevented normal business development and now American creditors are trying to take away the asset. And since the terminal brings good money, taking into account the operation of temporary corridors, they want to get it at a discount.
John Patton: We would much rather have been paid the debt we are owed than fight in courts take over an asset. However, a responsible asset manager has to take enforcement action when it becomes apparent that assets are being dissipated by a borrower. Groza and Naumenko do not seem to be concerned about the fact that Pivdennyi and Vostok banks enforced over half of the terminal and the group’s dry port for a fraction of their purported value. I wonder why that is? Perhaps because their affiliate now “owns” those assets.
Latifundist.com: In response to our inquiry, they wrote that they value the terminal at approximately $350 million.
John Patton: Which part — the part taken by Pivdenniy and Vostok, the part transferred to their CFO or the rest of it? The terminal has some value, but without any information it is impossible to make an estimate. If we use the values that were paid in the assets that were stripped, the value would be quite low.
Latifundist.com: At how much do you value it then?
John Patton: I don't have any information about the financial performance of the company for the past two years, so how can I establish its value? The last report was provided to me for the year 2021.Currently, there is also war, so the price of a stevedore should be three times higher and the capacity can be twice as much. Therefore, where did $350 million come from — I cannot answer you. Maybe they took the old numbers and showed what happened three years ago, but now it's a different world. Will anyone in the world pay $350 million for this asset right now? No, no one will.
Latifundist.com: There was information in the press that you were offered to buy by Kadorr and Brooklyn-Kyiv the debt of GNT, is this true?
John Patton: Not offered. More precisely, they sent some letters, offered some kind of discount, but this is all without details and I thought: "Well, why do we need a discount?". We gave them funds with a contract and clear security to make sure we would receive these funds back. At a time when there was a pandemic in the world and most banks left the market, we gave them flexibility and waivers 8 out of 12 times they were due to pay coupons and allowed them pledge some assets and borrow money from another bank. What did they do? They, without asking permission from the investors, repaid that initial loan and then pledged the assets for another loan to a company not controlled by the company that was our borrower (which of course, we would have refused). They did this in order to later take the entire asset for themselves in the future. So after all of that bad faith, why should we accept a material discount on our claim?
Latifundist.com: So, you believe that they had plans to take the terminal under their own control even before the war?
John Patton: I think they thought they would never have to pay us back. Just keep refinancing and nobody would notice the giant hole in the balance sheet that they created. We were considered weak because they saw that we wanted to be partners and gave them some flexibility when they asked thinking they were asking in good faith. They built a scheme to take the unsecured assets when a good opportunity presented itself and it came in 2022, with the beginning of the full-scale war.
Latifundist.com: Over the past year and a half, have you been able to have a gentlemanly conversation, or have they cut off all contact?
John Patton: How can you negotiate in a reasonable manner, if you are offered $2 million a month and they say that in the future they will agree to all the terms, but for now you have to wait? At the same time, they do not provide any reporting on the current state of affairs in the company. Why should I agree? The last agreements — all of them whether under English and Ukrainian law — were signed by them, but they ignored them anyway. So why would a new arrangement be any better?
Latifundist.com: Doesn't this situation demotivate you to continue working with Ukraine?
John Patton: Not demotivate, but motivate. Of course, we have learned some lessons from this story, but ultimately, if we do it right, it will be a good role model for other international investors that you can invest in Ukraine and protect your interests here. That is very important, especially now. Ukraine has great investment potential, but we need to get these kinds of situations right to make sure less Ukraine experienced investors face a better environment.
Latifundist.com: So, you’re planning new investments?
John Patton: We are considering new projects because we want to support Ukraine and because we have found this a good market to invest profitably in.
Latifundist.com: Are these projects related to agribusiness?
John Patton: Agribusiness, logistics, industry, and energy.
Kostiantyn Tkachenko, Natalia Rodak, Latifundist.com
