July, 13

Novynskyi: defense of the oligarch

02/10/2023 09:31:00 am
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Billionaire Vadym Novynskyi, the owner of the Ukrainian Smart Holding Group, used the same trick as former oligarch-president Petro Poroshenko, who promised, but, in fact, did not give up his business when taking office as head of state.

In January, Smart Holding officially announced the transfer of its assets to Step Trust, headquartered in London. Thus, V.Novynskyi formally ceased to be the owner of Smart Holding, although in fact nothing had changed.

The trust agreement is concluded for a fixed period. After its completion, the assets are formally returned to the previous owner. P.Poroshenko concluded a similar deal in January 2016, having transferred his business to the management of the Rothschild Trust.

Praemonitus, praemunitus?

For the then president, this was a necessary measure against the backdrop of huge reputation losses due to the failure to fulfill a public campaign promise to sell his Roshen confectionery company if elected head of state.

Nevertheless, P.Poroshenko remained the actual owner of Roshen – ceasing to be one only temporarily and "on paper". Of course, this trick could not mislead anyone, but his consultants persistently advised the president to react to the damage to reputation at least in some way.

Novynskyi, as the former Party of Regions member and a well-known sponsor of the Ukrainian Orthodox Church of the Moscow Patriarchate (UOC-MP), does not need to worry about stains on his reputation.

V.Novynskyi together with the UOC-MP hierarchs is walking to the presidential administration of V.Yanukovych

He made a deal with Step Trust to protect his business from possible confiscation. According to an official Smart Holding announcement, the document was signed in Cyprus in November 2022.

On December 2, the National Security and Defense Council of Ukraine (NSDC) included V.Novynskyi in the sanctions list alongside other supporters of the "russian world" from among high-ranking figures of the UOC-MP.

From this, it follows that the "Orthodox oligarch" became aware of the impending decision in advance. And he had time to prepare for it.

It must be understood that such agreements are not concluded within a day or even a week. There is a huge amount of thorough and meticulous legal work to be done before the responsible parties sign the contract.

For example, according to the company, the trust agreement between P.Poroshenko and the Rothschild Trust was being prepared for exactly 12 months.

The procedure itself also takes a lot of time. However, V.Novynskyi even had managed to register his agreement with Step Trust with the Cyprus Securities and Exchange Commission before the imposition of sanctions. Which, thus, became useless.

It should also be noted that the Rothschild Trust is a structure from the Rothschild & Co Group, which has offices in 45 countries and received an annual income of €1.4 billion in the 2014-2015 financial year. And the Rothschilds themselves are one of the most influential businessmen in the world despite keeping low profiles.

Whereas Step Trust positions itself as "a global professional association for practitioners who specialize in family inheritance, trusts and succession planning". That is, it’s not even a company. It is a public association. Just like, for example, the Ukrainian Bar Association.

It is clear that the decision of the NSDC on sanctions against V.Novynskyi and members of the UOC-MP hadn’t been being prepared for a year. But still, it took some time and the oligarch did not have much of it.

It is also clear that the same Rothschilds would not have agreed to a hasty deal (such as the deal between the owner of Smart Holding and Step Trust). As noted above, these are quite serious businessmen with a very thorough approach to doing business.

It follows that V.Novynskyi’s trust is nothing more than a cover. Even though Step Trust has "highly qualified fiduciary administrators appointed in accordance with the licensing terms of Cypriot law", according to Smart Holding.

What’s next?

The duration of the trust agreement and its other essential conditions were not announced. Obviously, it will be valid as long as the oligarch himself is under sanctions, despite which he retained the possibility of further financial support for the UOC-MP, the stronghold of the "russian world" in Ukraine.

The main assets of V.Novynskyi are integrated into a joint business with a former fellow party member, Donetsk oligarch R.Akhmetov, whose role in the Donbas events of 2014 is very ambiguous.

The former russian (V.Novynskyi received Ukrainian citizenship only in 2012, when he was obtaining a Party of Regions deputy mandate in the Verkhovna Rada) has a 23.78% stake in the Metinvest Holding.

This company includes a number of large mining and processing plants in the Dnipropetrovsk oblast (the largest producer of iron ore in Ukraine), Zaporizhstal and Kametstal metallurgical plants, as well as Avdiivka and Zaporizhzhia coke plants.

Four days after the introduction of sanctions against V.Novynskyi, Metinvest hastened to officially announce that this would not affect the company’s work in any way. Also, the "Orthodox oligarch" has 25% stake in the HarvEast agricultural holding. The remaining 75% belongs to Akhmetov’s SCM Group.

Additionally, V.Novynskyi has his own agribusiness, united under the Veres Group (management company VG Trade LLC). It includes the Kaniv and Cherkasy canning factories, as well as relatively small areas under crops (since it specializes in vegetables, and not cereals and oilseeds, like the largest agricultural holdings) – about 10 thousand hectares.

Also, apart from R.Akhmetov, Novynskyi has projects in oil and natural gas production: the development of several local deposits in the Kharkiv and Poltava oblasts. As of January 1, 2020, the volume of proven reserves there was 22.633 billion m3 of gas and 3.722 million tons of natural gas liquids.

This is not much, given that the largest market player, the Ukrgasvydobuvannya state-owned company, receives about 15 billion m3 per year. Novynskyi’s company managed to produce a total of 4.152 billion m3 of natural gas and 530 thousand tons of natural gas liquids over several years. Nevertheless, it is a working and highly profitable business.

Shipbuilding is the most problematic area for the billionaire. He owns the Mykolaiv and Kherson shipyards (formerly the Chornomorsk shipbuilding plant, the largest in Ukraine, and the Kherson shipbuilding plant named after the 60th anniversary of the Leninist Komsomol).

Once a developed industry, shipbuilding in Ukraine fell into decline after the collapse of the USSR and, for a number of reasons, it was not possible to revive it, by and large.

In 2009, V.Novynskyi managed to get a "juicy" (as for Ukraine) order from the Ministry of Defense for the construction of 10 corvettes for the national Navy.

The contract for a total amount of more than $2.5 billion (as of 2009 rate) was to be carried out until 2026. Obviously, it has now been terminated. Turkish shipyards are building corvettes for the Ukrainian Navy.

Russian V.Novynskyi began to create his business empire in Ukraine during the presidency of Leonid Kuchma. At that time, during the period of "big privatization", he got the Pivdennyi and Inhulets mining and processing plants (Kryvyi Rih).

During Yanukovych’s presidency, the expansion continued within the framework of joint projects with R.Akhmetov. This was understandable: during the presidency of Yanukovych, the business of his fellow party members received maximum assistance and generous benefits from the state.

Novynskyi’s business was doing great during Yanukovych’s presidency

During the rule of P.Poroshenko, a personal conflict with whom was mentioned above, things were not going so well for V.Novynskyi. From time to time, security forces came to the offices of his companies with searches as part of tax evasion proceedings.

During the presidency of V.Zelensky, at first, everything got better again. In March 2020, Regal Petroleum (Novynskyi’s UK-registered company) bought oil and gas blocks in the Poltava oblast from the Arkona company, which is associated with I.Kononenko, a friend and business partner of P.Poroshenko.

And in February 2021, the companies of the now sanctioned oligarch bought a stake in Kharkivoblenergo (29.8%). This allowed him to gain actual control over the work and financial flows of one of the largest energy distribution companies in Ukraine.

So, now all these assets do not formally belong to V.Novynskyi. But as long as he remains their real owner, the UOC-MP has nothing to worry about.

Obviously, this is understood by the presidential office, which, in the face of russian military aggression, is trying to reduce the influence of the "russian world" supporter in Ukraine. Thus, it is logical to expect new decisions from the authorities regarding the actual owner of Smart Holding.

Already on January 25, V.Zelensky introduced additional sanctions against V.Novynskyi and figures of the UOC-MP (based on the following decision of the National Security and Defense Council).

They consist in a complete ban on securities transactions and the annulment of official visits, meetings and negotiations on the conclusion of contracts or agreements.

Obviously, if these measures had been included in the December sanctions package, nothing would have changed. The "Orthodox oligarch" managed to sign all the necessary agreements in November. However, after additional sanctions, his room for maneuver has significantly narrowed.

As you know, in legal practice, not a single move can be considered final: each step of either party opens up opportunities for retaliatory actions by opponents. With a high probability of success.

Therefore, it cannot be argued that the case is fully closed with the transfer of Smart Holding’s assets to the management of Step Trust. The only problem is that in the context of the continuation of a full-scale war between russia and Ukraine, legal battles cannot be dragged on for many years.

Finally, we must recall the well-known axiom: in any dispute with any "effective private owner", the advantage is a priori on the side of the state.

Vitaliy Krymov, OstroV