Ukraine’s once-mighty oligarchs look to be entering their twilight years. Ukraine’s authorities have cut off captive banks and brought criminal charges against egregious abuses, while the double whammy of Ukraine’s war-torn economy and a global collapse in commodity prices is bringing the once-mighty tycoons to their knees financially.

“I always laugh when reading the ratings of our richest businessmen, because I know what these fortunes were really made of, and that the so-called oligarchy is just an enormous bubble,” scoffed the chief of the National Bank of Ukraine, Valeriya Gontareva, in an October interview, explaining how easy it has been to cut Ukraine’s once-feared oligarchs down to size.

As an example, Gontareva offered up Konstanin Zhevago, owner of one of the world’s largest iron ore deposits, whose company is traded on London’s stock market as Ferrexpo. Gontareva closed Zhevago’s bank Finances and Credit, Ukraine’s seventh largest by assets, on September 17. “If you have built you business on UAH16bn retail deposits, UAH6bn NBU refinancing loans and only UAH3bn corporate deposits, sooner or later you will have to pay back the money,” Gontareva said she told the surprised long-serving member of parliament, demanding that he sell off parts of his industrial empire to recapitalise the bank.

According to Gontareva, 76% of lending at Finance and Credit was related-party lending that had gone to Zhevago’s sprawling business empire. When Zhevago failed to recapitalise the bank, the NBU pulled the plug before he could remove a $174mn Ferrexpo deposit.

Zhevago is just one of Ukraine’s oligarchs now cut off from the captive banks that had fuelled their business expansion. Agriculture baron Oleh Bakhmatyuk, Ukraine’s largest landowner, saw both his banks closed down by a resolute central bank, backed by the International Monetary Fund (IMF). “Of Bakhmatyuk’s two banks, one lent 64% of its credit portfolio to his business, another 96%,” Gontareva lamented in the interview. Bakhmatyuk has disputed these figures.

A former chief of a top-five Ukrainian bank says such oligarch banks are nicknamed ‘vacuum cleaners’, because they hoover up the populations’ savings, but lend only to their owners and their cronies. “In fact, lending to the proprietary business is just a route to move the funds offshore,” he tells bne IntelliNews.

Gontareva had previously closed down the bank of perhaps the country’s most controversial oligarch, Dmitry Firtash, in early 2015. “The first person I met when I took the helm at the NBU [in June 2014] was Nadra Bank’s [chairman] Dmitro Zinkov. At that time they had received UAH12bn in refinancing, and stress tests show a balance book hole remaining of UAH12bn. And it was immediately obvious that the bank was not capable of independent life,” Gontareva said in the interview.

But the greatest move may be yet come. In October, the NBU forced PrivatBank to disclose that its insider lending stood at a level of 44.2% of its share equity, compared with only 3.9% declared in 2014. The figure rocked the market and immediately put the future of the bank into question, since oligarch owners Ihor Kolomoisky and Hennady Boholyubov displayed reluctance to recapitalise the bank accordingly.

But with PrivatBank effectively being the country’s national savings bank, there is no question of liquidation, since it would be impossible for the government to pay out the 34% of the nation’s retail deposits that are held at the bank. But nationalisation of the bank is under consideration, top officials have said openly. “PrivatBank has to be preserved as a bank,” head of the presidential administration Borys Lozhkin said in an interview on November 14. “There can be no talk of liquidation – PrivatBank is too big to fail, we have to deal with it very carefully and cautiously.”

“If the shareholders stick to this plan [drawn up by the NBU for extensive recapitalisation], the bank can remain private,” Lozhkin added.

PrivatBank spokesman Oleh Serga responded to the government talk of nationalisation by writing bitterly on Facebook: “The current authorities resemble a quite competent and cohesive team of marauders.” 

Criminal charges

At the same time as the NBU with government backing is closing down the ‘vacuum cleaner’ banks fuelling oligarch operations, law enforcement is lining up criminal charges and ratcheting up the rhetoric against the oligarchs, deterring any counter-strike.

In August, PrivatBank said that it was cooperating with a criminal investigation into allegations that around $1bn in refinancing loans made to the bank in 2014 by the NBU – which in turn came out of IMF funds – had been illegally moved abroad. The arrest of Kolomoisky ally Gennady Korban, head of the Ukrop opposition political party, on October 31 appears to be another shot across the bows for Kolomoisky and Boholyubov.

Kolomoisky has himself been practically declared ‘Public Enemy No. 1’ by none other than former Georgian president Mikheil Saakashvili, now governor of the Odesa region. Saakashvili is one of the strongest pro-reform voices in Ukraine and backed to the hilt by the US embassy. ”These people [Kolomoisky and Korban and other oligarchs] have been robbing Ukraine – where else do they have their money from?” Saakashvili told TV journalists on October 26 in response to Korban’s arrest. “All such thieves should go to prison.”

Kolomoisky’s great rival in the energy sector, Dmitry Firtash, is hamstrung by bribery charges that were brought by the US, which resulted in his arrest in Vienna in March 2014. An Austrian court has since decided against the US extradition request, but there is still an appeal pending, meaning Firtash still cannot leave Austria to attend to his ailing business empire in Ukraine, which is entangled in numerous corruption investigations.

Centre to Firtash’s energy empire was the notoriously corrupt state energy company Natftogaz, where a resolute new management broom is busy eliminating schemes that opponents say helped the oligarch to his fabled riches. Firtash’s business allies, Serhiy and Aleksandr Katsuba, former top managers at Naftogaz, were forced to free Ukraine in September due to criminal investigations over their time at the company.

At the same time, police have launched criminal investigations into Firtash’s business interests in Ukraine over UAH5.7bn in debt owed by chemicals plants to Naftogaz. “We have reached an out-of-court settlement between Naftogaz and [Firtash-owned chemicals conglomerate] Ostchem that they will pay the entire sum, UAH3bn by winter,” Interior Minister Arsen Avakov said in an interview on November 12. “They are paying regularly, we hold their gas [in storage] and much of their plant as security.” Ostchem has accused the government of targeting it for political reasons.

Even more serious charges of financing terrorism are being lined up against the business of Ukraine’s richest man, Rinat Akhmetov, owner of the giant System Capital Management mining, metals and power concern – one of the pillars of support for ousted former president Viktor Yanukovych. Akhmetov’s power generators under his DTEK group of companies buy coal from territories controlled by Russia-backed insurgents in East Ukraine. Ukraine “should provide for transparency in coal purchases in the anti-terrorist zone [rebel-held territories in East Ukraine],” said US Ambassador to Kyiv Geoffrey Pyatt at a conference on September 22.

On October 13, a regional court then granted a petition by Ukraine’s security service SBU to allow a financial review of coal purchases made by Akhmetov-owned power generator Dniproenergo, claiming that Akhmetov’s coal purchases from rebel-held areas funded “terrorist activity”.

DTEK issued a statement on November 4 saying the court’s finding of its involvement in financing terrorism is baseless. “DTEK conducted and conducts activity exclusively within Ukraine’s legal sphere,” the statement said. “The company doesn’t have agreements with enterprises registered on territory not controlled by the Ukrainian government.”

Russia-China double whammy

Perhaps the mortal blow against oligarchic power in Ukraine has been struck not by the national authorities, say analysts, but by a double whammy from Russia and China.

The Kremlin-backed insurgency in East Ukraine caused Ukraine’s crucial oligarch-owned export industries to collapse as plants were mothballed and transport infrastructure destroyed. The collapse in exports triggered a collapse in the value of the hryvnia currency, with knock-on effects for the finances of oligarch business, some of which have huge foreign-exchange debts.

In parallel, a slowdown in Chinese economic growth and dollar strengthening has seen world commodity prices plummet by over half since early 2014, with the price of iron ore, crucial to the export operations of Akhmetov and Zhevago, down by nearly two-thirds.

Other oligarchs such as Viktor Pinchuk’s once-mighty steel pipes and railway wheels producer Interpipe, have been devastated by the loss of the Russian market that once accounted for 40% of its sales. “Until the plunging [Russian] oil market, and demand for steel pipes along with it, find firm ground, there will be no certainty on when the company can return to servicing its debt,” says Concorde Capital analyst Roman Topolyuk.

As a result, almost all oligarchs are now tied down in humiliating and protracted debt restructuring talks with international creditors – success or failure of which will determine whether they can hold on to their business empires. “Oligarchs are weaker and poorer,” says Sergei Fursa, analyst at Dragon Capital. “The end [to oligarch power] is not close, but this is the trend today.” 

Oligarchs may be still fighting their corner thanks to their TV networks and party sponsorship, but Fursa detects the first signs of crumbling power in a different arena: on the soccer pitch. “Soccer teams used to be oligarchs’ favourite toys, but today they have no money. The quality of Ukrainian football has thus dropped, and this is very significant,” says Fursa.