What happened to the man whose company took out an $800 million loan with no ability to pay it back, leading to one of the largest bankruptcies in Ukrainian history, and setting off years of legal battles? He’s writing creditor defense legislation in the Rada.It’s not a joke.
The story involves Westa, a battery producer, which was owned by Denys Dzenzerskiy, a Dnipro lawmaker with the People’s Front led by ex-Prime Minister Arseniy Yatsenyuk.
After years of alleged mismanagement, it racked up debts of $800 million to more than 54 separate creditors, ranging from Russian-owned bank VTB Ukraine, to the country’s tax service, to a small military battalion based along the Dnipro River.
Dzenzerskiy declined to comment for this story. He said through a representative that since he left Westa in 2012, he was no longer connected to the case, even though the company is still owned by his father and former partner, Viktor Dzenzerskiy.
The Kyiv Post was unable to reach any of Westa’s representatives, including Viktor Dzenzerskiy.
Westa’s bankruptcy was sparked by the wider economic crisis in Ukraine, which has affected manufacturers in particular. Access to one of their biggest markets, Russia, was curtailed, and falling oil prices brought down demand. Their ability to repay was further hurt by Ukraine’s currency devaluation.
The loan is one of many multimillion-dollar non-performing loans in Ukraine. Westa’s main creditor, VTB Ukraine, which is owed $213 million, reported a $180 million loss in 2015 after several loans failed to come to fruition and, according to the bank’s press service, it is looking for a buyer.
Denys Kytsenko, a partner at Integrities law firm who is representing VTB in the matter, said that Westa’s assets were enough to pay only 8 percent of its debts.
“There are many questions for all the banks that participate in the project,” Kytsenko said. “How did it end up like this?”
Big ambitions
Founded in 2001, Westa expanded into manufacturing various types of car batteries, steadily increasing its market share until it occupied roughly one percent of the global car battery market.
By 2011, it successfully completed an initial public offering on the Warsaw stock exchange for $43 million.
According to Nick Piazza, an investment banker who acted as financial adviser for the deal, the company used the money to build a new factory, after selling an older factory to President Petro Poroshenko.
Piazza said that Westa had big ambitions:
“With a lot of people in Ukraine there was a window to take a lot of cheap debt from Ukrainian banks, so when we were on the road, the debt number was in there, everyone pointed it out as a risk.”
But in 2007, the situation was different and VTB approached Westa with an offer to expand the company. Between then and 2010, the bank lent the company $213 million.
“VTB was with us at the closing of the deal, they went with us to the ringing of the bell,” Piazza added.
Kytsenko, who toured Westa soon before the company stopped paying the loan, was impressed.
“If you brought a person to the site or showed him a picture, the person would say, ‘wow, business development in Ukraine!’” Kytsenko said.
At the same time, Westa began to pay for equipment from its many suppliers on credit as well. One of those, a box supplier called Kilchen, has been in debt for three years now after Westa bought supplies on credit and failed to pay up.
“It turns out that for this business development, the guy took out a loan much bigger than the business was worth,” the VTB lawyer said.
In 2013, Westa stopped paying up, and since then has tried to prevent its assets from being appropriated.
Bank goes to war
Initially, partly due to a peculiarity of Ukrainian law, VTB was reluctant to sue Dzenzerskiy over the debt. If a Ukrainian bank wants to go to court over a non-performing loan, Kytsenko said, it must log a “reserve” sum of money with the National Bank of Ukraine equivalent to the amount of the loan. In VTB’s case, Kytsenko said, that would mean a $300 million reserve.
Having to guarantee the extra amount of money makes banks less likely to “go to war” in cases of large non-performing loans, Kytsenko said – particularly when the debtor wields political influence.
But in this case, VTB decided to go to war. In 2014, the bank filed cases in Dnipro over the unpaid loan.
Out of the five companies that are in debt, four of them have been declared bankrupt by the Dnipro Commercial Court, though the process has been lengthy and the state liquidator was only granted permission to begin work on June 2. But for one of their biggest factories, RekS (Rekuperatsiya Svintsa), the bankruptcy proceedings are taking place in Kharkiv.
Westa re-registered RekS to Kharkiv and then voluntarily declared bankruptcy in Kharkiv, which meant a moratorium was declared over the seizure of its assets. Ukrainian law stipulates that such a moratorium is to last for six months, but there have been cases in Ukraine in which it lasted for several years.
Before the bankruptcy proceedings started for RekS in Kharkiv, and those in Dnipro had ended, there was a legal window to freeze some of the company’s assets. So in November 2015, as part of the legal process, a group of officers from the State Executor Service went to seize RekS’ assets in Dnipro.
According to both a video reviewed by the Kyiv Post and court documents filed by attorneys for VTB, Denys Dzenzerskiy greeted the officers outside the state-owned Dnepr Carbuilding Plant (DMZ). REKs is located within the territory of DMZ. Dzenzerskiy was accompanied by armed security.
In the video, Dzenzerskiy is clearly visible, yelling at a group of officials and lawyers attempting to enter the premises. Kytsenko says that while security guards at the facility did not openly brandish weapons, they arranged their clothing in such a way that the outlines of the weapons were visible. The state executors failed to seize the plant’s assets.
In a criminal complaint sent to the Dnipropetrovsk regional prosecutor’s office after the incident, VTB further accuses the company’s owners of using the fact that Dzenzerskiy is a member of parliament as a defense.
Creditors across Ukraine
Through Westa, the Dzenzerskiys owe money to a bizarre collection of creditors scattered around Ukraine, totaling more than 50 separate entities and individuals.
Ukraine’s state tax service, which did not reply to a request for comment, is owed nearly Hr 24 million (around $1 million) by Westa.
A number of banks besides VTB and Ukreksimbank are on the list, including Privatbank, as well as VAB bank and the Kazakh BTA bank.
One institution – Bank Forum – collapsed in 2015 and was declared bankrupt by the National Bank of Ukraine. That bank extended a loan of around Hr 80 million to Westa – a sum that, though not enough to kill the bank, “certainly helped” its destruction, according to Kytsenko.
Other, smaller creditors complained about the issue. The director of Kilchen, the box-making firm, said that the company had sold Hr 200,000 worth of boxes to Westa on credit, before the company stopped paying, calling it a “miserly sum that we would like to have returned.” A military base along the Dnipro claims it is owed Hr 150,000 by Westa.
New creditors appear
In April 2016, two years after the banks initiated their case against Westa, a new creditor appeared, the Hong Kong-registered company Selamar Trading Limited. They claimed they were owed Hr 2.4 billion by RekS. The Kharkiv appeals court has yet to make a decision about its claim.
Their demands are based on a contract between Selamar and Ekolight Energies, a Westa affiliate company, of which RekS was the guarantor.
Oleksandr Maiorsky, the former director of Ekolight, a non-descript Moldova-registered company that is one of the largest creditors for the groups, is now the current director of RekS.
If the court chooses to accept Selamar’s claims, they and not VTB would be the largest creditor and gain control over the creditors’ committee and therefore direct the insolvency of ReKs, which currently owes money to VTB.
Kytsenko alleges that it is impossible for RekS to have acted as a guarantor. Between 2012 and 2013 when the alleged contracts took place, RekS was worth a total of Hr 900 million, Hr 800 million of which was used to secure credits from VTB. On top of that, they were in debt a further Hr 1 billion to other creditors. Court documents from the initial insolvency of RekS in Dnipropetrovsk support this.
Selamar could not be reached for comment.
“In this strange way, (if accepted) it gives Selamar complete control of the creditors’ committee,” Kytsenko said.
Deadbeat defending creditors
Dzenzerskiy is the deputy chairman of the parliamentary committee for banking and finance but he rarely attends meetings, according to fellow committee member and Samopomich lawmaker, Oleh Lavryk. The parliament’s website shows that Dzenzerskiy has been present 31 times and absent 169 times since the beginning of the convocation.
Ukrainian deputies are among some of the richest businessmen in the country and regularly lobby for their own interests in parliament.
“They work to develop their own enterprises, and their enterprises get a lot of advantages compared to those who try to work honestly,” said Lavryk. “If people had the opportunity to meet their own needs then they might start thinking differently.”
But Lavryk says that it would difficult for Dzenzerskiy to directly influence legislation for the benefit of Westa, as he is just one lawmaker, and draft legislation is discussed within all the factions.
His legislative proposals have been mixed: focusing on restructuring consumer loans and protecting creditors, but also lobbying to introduce moratoriums of property used as collateral for foreign loans. Either way, given Westa’s enormous $800 million debt, this is still a clear conflict of interest.
According to NBU Financial Stability Department Chief Vitaliy Vavryschuk, the NBU keeps a list of the largest debtors and originators of NPLs.
Sharing that information with the general public, Vavryschuk said, would violate bank secrecy.
“There are very many, some influential people that have a huge stock of debts, whose companies have a huge stock of debts, and that are not repaying the debts,” Vavryschuk said. “We do see, unfortunately, that some of these people are not behaving in a proper manner.”
