The authorities have seized the assets of leading Ukrainian conglomerate Smart Holding, changed the name of the beneficial owner of shares in the registrar and taken control of its gas fields that supply gas directly to the embattled city of Kharkiv amongst other customers in what management told bne IntelliNews is probably a corporate raid.

The company was raided by law enforcement officers on April 10, two hours after it refused a buyout offer for “next to nothing”, Smart Holdings CEO Yulia Kiryanova told bne IntelliNews in an exclusive interview.

Ukraine’s security services have said they seized UAH3.5bn ($96mn) of assets, including deeds to 40 companies and three gas wells. “The property of pro-Russian oligarch Vadym Novynskyi, who is involved in aiding the aggressor country, was seized,” the Security Service of Ukraine (SBU) said in a statement.

Smart Holding is the holding of top-ten Ukrainian billionaire businessman Vadym Novynskyi, who is worth $1.4bn, has been accused of “aiding” Russia and was sanctioned by the government last year. The SBU did not specify how Novynskyi has been aiding Russia, nor elaborate on the claim to the company’s management.

“We  received a call from an  interested party who told me 'we need to do a deal on sale of gas business quickly,' and said our offices were about to be raided. Two hours later the police officers arrived and searched out offices,” Kiryanova said.

Novynskyi transferred control in all his companies to trustees last year to allow him to devote himself full time to the Ukrainian Orthodox Church (UOC), where he was made a deacon in 2020, and is reported to have left the country. Kiryanova believes the raid and criminal charges levelled against Novynskyi are due to his association with the church.

Amongst Novynskyi’s holding is a minority stake in Metinvest, owner of  the Azovstal metallurgical works in Mariupol that was worth billions of dollars but was completely destroyed during a months-long Russian siege of the city last year.

Smart Holding has seen almost all of its Ukrainian businesses either damaged, destroyed or brought to a standstill by the war. Management told bne IntelliNews that many of the domestic businesses are now loss-making, yet it continues to keep its staff on the payroll so they have some income to survive while the war rages.

Earlier Novynskyi claimed that he was being “persecuted on religious grounds.”

Kiryanova said the raid on the company on April 10 was “baseless” and claimed it is a corporate raid by an unnamed business rival supported by senior officials.

Criminal investigation

A criminal investigation has been opened into the Smart Holdings that gives the authorities wide powers to seize assets, confiscate documents and computers and makes it impossible to operate.

In addition to metal, Smart Holdings is a major player in Ukraine’s domestic gas production business but has been forced to shut down one field near Kharkiv that directly pipes gas to the city.

“We shut down operations on Thursday, as the general director could have been arrested. We don't sell gas directly to the city – we sell it on the market – but our field is closest and directly piped gas to the city, which has been under constant Russian bombardment,” says Kiryanova. “Throughout the war despite the danger our staff has continued to work, supplying gas to the city.”

In December last year the government formally sanctioned the reclusive Novynskyi on the grounds of “aiding an aggressor state” based on his religious affiliation with Ukrainian Orthodox Church.

Under the Ukrainian law there is only one ground for sanctioning a citizen and that is for financing of terrorism, which has to be proved in a court of law.

“Sanctions mean you have to have committed some terrible crime: terrorism,” says Kiryanova. “However, ten months of investigation there has been no trial, no verdict. But now our assets have been arrested on the basis of this charge. Now the assets are being stripped. What needs to happen is to go to court if they think something wrong has been done.”

Register changed

The company’s assets can be seized thanks to the sanctions on Novynskyi, whose name has been returned to the Ministry of Justice’s register of legal entities.

The ownership to of Novynskyi’s shares in the group were transferred to trusts last year and legally registered, but Kiryanova says the trustees have been deleted from the register and Novynskyi returned as the ultimate beneficiary owner of the gas company Ukrgazvydobutok, or UGV, that is a rude violation of Ukrainian laws.

“The Ministry of Justice just opened their own ledgers and added his name,” says Kiryanova. The change of ownership is important, as under Ukrainian law (#2805) the subsoil licenses can be suspended if a company belongsto a sanctioned individual.

However, one of the two gas companies currently under state control is Enwell Energy, which is listed on London’s Alternative Investment Market (AIM), and circa 18% of its shares are owned by international hedge funds and other investors. The trustees are still listed as the owners in London. The authorities have given Enwell Energy one month to “fix the problem,” says Kiryanova.

“If you have a problem with the trusts then you need to challenge the trust itself in court, but trustees are all EU licensed lawyers and the trusts were accepted by the Ministry of Justice when they were registered last year,” says Kiryanova. “If that is the case, then that is a matter for the civil courts, but we are facing a criminal investigation claiming Cypriot trustees being Russia`s agents acting in its favour. That`s mind-blowing.”

The criminal charges have brought the business to a halt. If the dispute was a civil case, then the company could continue to operate, but in a criminal investigation, the company’s banks would refuse to work with it, effectively freezing operations.

Gas business in the crosshairs

The criminal case against Novynskyi has been brought on the vague charges of “aiding the aggressor”, but the raid of Smart Holding’s offices on April 10 were very specific.

“They took all the detailed information about our gas fields; propriety geological information detailing all quirks and idiosyncrasies of the gas fields – big volumes of technical information,” says Kiryanova. “If they are investigating how Novynskyi was aiding Russia then why do their need information about gas fields? They have seized the deeds to the three gas fields we operate as well.”

Kiryanova says the company has been under pressure from SBU investigations since sanctions were imposed on Novynskyi last year and during questioning, the SBU officers were asking about the gas business as well.

Kiryanova suggests that there is a commercial rival behind the attack and seizure of Smart Holding’s assets and says her suspicions were raised after a number of international investors approached her and offered to buy the company at a knock-down price.

“These were  international investors, they said, who wanted to buy the gas business. We checked them out, but these are not strategic investors in the oil and gas business and did not represent any company,” Kiryanova told bne IntelliNews. “Only one of them came up as a former manager at an international oil and gas company, yet they knew the Ukraine gas business very well.”

Negotiations have been ongoing, with the last call on the day of the raid.

“They told us that “we need to do a deal quickly,” and warned that there would be a raid as part of the criminal investigation. I refused and two hours later the raid happened,” says Kiryanova. “It looks like it was a carefully planned operation.”

No property rights

“There are no property rights in Ukraine,” says Kiryanova. “In the matter of a few days all our assets were seized and the company unable to operate. There were no court cases and no way to defend ourselves from the allegations.”

Smart Holding already has one publicly listed company – AIM listed Enwell Energy – and Kiryanova says it has been meticulous about filing its accounts and paying its taxes. Moreover, she points out that Smart Holding has continued to meet its payroll during the war out of a sense of patriotic duty.

“We are one of the most transparent companies in Ukraine and I have gone out of my way to promote the country, to bring foreign investors here, whenever I could,” Kiryanova told bne IntelliNews.

As he has got more involved in the church, Novynskyi has been winding down his involvement with the business over the last few years. The trusts were set up so that he could remove himself completely, but leave in place a structure, based on the Cypriot lawyers, that would take care of the business and ensure a smooth transition to his heirs in the future. The trusts were registered with Ukraine’s Ministry of Justice and all their paperwork accepted.

“The trusts are governed by Cypriot law but now the authorities say Novynskyi is the actual owner again,” says Kiryanova. “The government is disregarding its own law and that of international law. We have been investing into Ukraine’s gas business, but now there is no rule of law. You cannot protect yourself at all. A criminal case was initiated without any substance and now all the assets are frozen.”

What will happen next is the Smart Holding assets will probably be placed under the supervision of ARMA, the asset recovery and management agency of Ukraine, which has the power to arbitrarily assign the management of seized assets to anyone it likes, says Kiryanova.

In the past, amongst other things, ARMA was charged with corruption in divesting large land plots in Odessa for no price to a no-name buyer following expropriation of land plots from AUCHAN based on criminal investigation unrelated to the company. of.

“We can go to court to prove we were not wrong, but everything we had is gone already,” says Kiryanova.

The company’s recourse is to sue the Ukrainian government, as the holding companies for its assets are in countries like UK and the Netherlands. Ukraine has signed investment agreements with these countries that guarantee property rights

“We have to protect our rights and, unfortunately, we have no other choice than address the claims to the Ukrainian government,” says Kiryanova. “Now it is some corporate raider that will benefit from this, but it will be the government that is liable.”

Smart Holding’s problems come in the same week that famous US investigative journalist Seymour Hersh released another bombshell investigation that claims that Ukraine’s president Volodymyr Zelenskiy's administration has siphoned off $400mn of US aid into its own pockets to buy diesel fuel and accuses the Ukrainian government of being deeply corrupt.

Kiryanova says she is certain that Smart Holding’s problems have nothing to do with the president, but goes on to say: “there is corruption in Ukraine.”

“When you have problems, when you are vulnerable, there are people that will take advantage of that to take what they want,” says Kiryanova. “The system is very corrupt, and the corruption is unpunished. Under the cover of war you can do anything.”

Corruption remains a worry for Ukraine’s allies too. Last September Ukraine nearly ran out of money after Western donors were reluctant to transfer large amounts of cash to cover the government’s ballooning deficit, afraid it would be stolen. As a budget crisis loomed the donors relented and have committed to billions in macro support.

Aware of the problem, Zelenskiy has continued his anti-corruption campaign and especially focused on the oligarchs – another factor going into Smart Holdings’ problems. In February, Ihor Kolomoisky, another oligarch and a personal friend of Zelenskiy, saw his offices raided by law enforcement, and he has also been sanctioned.

“There is a law on oligarchs in Ukraine and Smart Holding`s founder legally is not “an oligarch”, though some media as well as SBU in its statement continue using this definition for PR purposes to underline their personal dislikes or damage his reputation” – says Kiryanova.   

Transparent patriot

Kiryanova says she is working to resolve the problem and keep the company going for the sake of its 3,000 employees.

The company owns a shipyard in Kherson in the midst of the war zone, and another larger one in Chernomorsky. Neither has done any work since the start of the war, but the staff are still being paid so families “can put food on the table.” Likewise, the holding has kept its shopping centers with supermarket chain running, despite the fact that several stores have been destroyed in rocket attacks and the business is running at break-even at best. “If we closed them then where would people be able to buy food?” one manager told bne IntelliNews.

The SBU has offered no evidence to support its claim that Novynskyi is aiding Russia. Indeed, Smart Holding has donated $40mn to Ukraine’s military and civilian as humanitarian aid and is actively suing Russia for the damages to its assets.

The group submitted six lawsuits to European Court of Human Rights in October on behalf of Smart Holding’s companies, where it hopes the court will rule that Russia is responsible for the loss of assets.

They include  shopping centres in Berdyansk, Kremenchuk, Mariupol, Melitopol, Severodonetsk and Kramatorsk which were captured or destroyed by the aggressors. From the 24 stores the group owned by 2014, only 50,000 square metres out of a total of 350,000 are left. The rest has been destroyed.

In the biggest claim, Smart Holding is hoping the court will rule that Russia bears responsibility for the destruction of Azovstal and will order compensation.

Even if Smart Holding wins in court, Russia withdrew from the ECHR in May and will no longer recognise its rulings. Most of Novynskyi’s assets are in the east and south of Ukraine in the middle of the battlefields. Rather than aiding Russia, the war with Russia has cost Novynskyi billions of dollars that can probably never be recovered.

Novynskyi sanctioned

Novynskyi withdrew from business life and resigned from all his executive roles in 2013. Last year he gave up his ultimate ownership rights as well after transferring the control of all his shares to irrevocable trusts, controlled by a law firm in Cyprus, and has ceased to play any role in the business of the companies in the group.

“The shares were transferred to a trust before the sanctions,” says Kiryanova. “Now they are controlled by EU licensed lawyers based in Cyrus. However, the authorities say Novynskyi is acting in the interests of Russia.”

Novynskyi is a deeply religious man and member of the UOC, which has come under attack by the Ukrainian government because it was nominally under the Moscow Patriarchy, although the UOC formally cut ties with Moscow in February 2022.

This story is complicated, as under former president Petro Poroshenko a rival Orthodox Church of Ukraine (OCU) broke away from Moscow and crucially was granted a “Tomas” by the Patriarch of Constantinople in January 2019 – official recognition of its independence as an autocephalic Orthodox church, in what many saw as a political move.

Novynskyi remains true to the much larger UOC, which has been worshiping in Kyiv for more than 1,000 years, when Vladimir first brought Christianity to Kyiv. Novynskyi was ordained a deacon of the UOC on April 7, 2020. Since the war began, the UOC has been subjected to regular smear campaigns in the media and frequent searches and investigations by the authorities.

This article has been updated to fix various inaccuracies and the misnaming of the company in the headline.