In translation: How to loan 264 billion rubles to 133 companies and get nothing back

By Svetlana Petrova. Translated by Claire Haffner. This piece originally appeared in Vedomosti

The collapse of Yugra Bank was one of the greatest in Russian banking history. On 10 July, 2017, the Central Bank of the Russian Federation (CBR) ordered an interim administration to take over at Yugra, and on 28 July it revoked Yugra’s license. Payments owed to investors at that time exceeded 170 billion rubles. Despite this, former chairman of the board Dmitry Shilyaev insists that the bank could have been saved, and Yugra’s owner, Aleksei Khotin, devised yet another plan to increase the bank’s financial stability, even after its license was voided. Judging by court documents and the report by CBR’s interim administration, the former board’s support for Yugra led to the bank losing valuable deposits and receiving insolvent loans from borrowers, but not the assets it had been promised.

Episode III: Revenge of the Sith

Most of Yugra’s assets were comprised of loans to 133 companies for the sum of 264 billion rubles. According to the interim administration’s report, none of these loans had been serviced recently: 132 companies had delayed payment for more than 90 days – a “sign of bankruptcy” – and one, with a debt of 50 million rubles, made no payments for over 30 days.

Fifteen borrowers, who together owed Yugra 66.4 billion rubles, went bankrupt or liquidated their assets. 630 million rubles were received from legal entities after Yugra’s license was revoked.

A few companies took out loans from Yugra not long before the bank lost its license. To understand how this was able to happen, we can turn to materials from the Moscow Arbitration Court, where CBR sued Yugra for bankruptcy in August 2017. The court cannot yet consider the claim, since Shilyaev disputes the license revocation and imposition of the interim administration (he lost on both counts, but has filed for appeal). Because Yugra had already filed for bankruptcy, CBR’s interim administration was legally able to dispute Yugra’s financial activities in court – namely 23 claims of what it viewed as suspicious transactions worth 12.6 billion rubles. CBR declined to comment when asked about the case.

Episode I: The Phantom Menace 

Yugra received CBR’s last order to form reserves late in the evening on 6 July, 2017. For the bank to fulfill the order and stay afloat, it intended to repay loans worth 3 billion rubles by registering an indemnity on real estate worth 16.9 billion rubles, consisting of 115,450 m2 of business centers in Moscow. The interim administration arrived a few days later and assessed the value of the real estate at a third of the price – 5.3 billion rubles. In January, S.A. Ricci valued the property between 17 and 21 billion rubles.

Because the property was worth much less than the initial estimate, the bank was denied registration of property rights for the real estate holdings and agreements concerning compensation were considered invalid, meaning that Yugra could no longer rely on these holdings as a financial asset. Instead, CBR restored the bank’s loans and created 100 per cent reserves for them, according to the interim administration’s report. The Moscow Federal Service for State Registration, Rosreestr, refused to register the transfer of property rights, citing the fact that upon the entrance of the interim administration, the bank’s management powers had been suspended (Vedomosti has copies of this).

But this wasn’t the only issue. Documentation for almost half of the real estate holdings did not pass legal vetting due to a number of mistakes: discrepancies on a loan agreement, other unspecified issues, and so on. Shilyaev explains that this mistake occurred because Yugra was rushing to meet the deadline imposed by CBR: Yugra received the order to provide reserves late on 6 July and the documents needed to be prepared and given to Rosreestr with time to report to CBR on 7 July, the next day.

Episode II: Attack of the Clones

According to court materials challenging the introduction of the interim administration, Yugra’s biggest borrower was Stroybiznesgrupp, LLC with a debt of 7.1 billion rubles. Vedomosti and other entities investigating Stroybiznesgrupp were unable to find a functioning phone number for the company. Due to the inability to locate the company’s whereabouts, two court enforcement proceedings were brought against Stroybiznesgrupp in October 2017 for 60,126 rubles (data from SPARK-Interfax).

This is how Stroybiznesgrupp went into debt with Yugra. On 11 July, 2016, Stroybiznesgrupp received a loan of US$56.6m from Yugra and later paid off its debts to Yugra via the Cyprus-based company Jarmbent Holdings, worth $59.6m.

Jarmbent Holdings issued loans in 2014-2015 that were backed by shares in oil company Exillon Energy PLC. On 20 April 2018, Exillon Energy’s market cap on the London stock market was recorded at £114.3 million (US$161 million). Its primary beneficiary is Aleksei Khotin, who holds 30 per cent of equity in Exillon Energy. However, in March 2016 the pledge agreements between the two entities were terminated, meaning Jarmbent Holdings was no longer backed by the previously agreed upon 12.3 million in shares of Exillon Energy (7.6%).

The interim administration filed a lawsuit to recognize Jarmbent Holdings’ attempted refinancing deal as invalid, asking for the 11 per cent share of Exillon Energy that Jarmbent Holdings still held at the time to be seized instead of allowing them to use the remaining shares to refinance. The court refused to do so.

Jarmbent Holdings, according to Cyprian records, belongs to Anatoly Neklyudov from Voskresensk (in Moscow Oblast). He did not return our call.

The CEO and co-owner (50%) of Stroybiznesgrupp is Oksana Cheresheva, according to EGRUL data, who we were able to contact through the former Yugra administration. She declined to comment on interactions with Jarmbent Holdings, but she did say that “it wasn’t refinancing – we had an open line of credit. We fulfilled all our obligations to the bank, but the revocation of Yugra’s license paralyzed our activity, since Stroybiznesgrupp has frozen funds in its bank account”. In reference to our unsuccessful attempts to locate or contact the company, she mentioned that the company’s address is listed on their business card, and their phone numbers had been changed (they “switched over to cell phones”).

Episode V: The Empire Strikes Back

Other banks connected to Yugra have likewise gone under. In May 2017, the debts (their sum was not indicated in the claims) owed to Yugra by two oil companies – Polar Lights Company and Negusneft – were transferred to the Moscow-based DFS Group, LLC and AvtoTransSib respectively. These credit lines had been opened a month earlier. In July 2017 the interim administration indicated that DFS Group had a debt of 2.1 billion rubles, and AvtoTransSib had a debt of 600 million. Their bailiffs were also unable to be found, so court enforcement proceedings were initiated in April 2017 and January 2018. AvtoTransSib is currently being liquidated: it filed for bankruptcy in January 2017.

Vostok, LLC has also been in the process of liquidation since September 2017. In March 2017, Kayum Oil’s debts were transferred to Vostok through 13 credit lines for US$27.5m and 4.7 billion rubles.

Kayum Oil is the “daughter” of Exillon Energy, as stated in Exillon’s annual report for 2016. The main owner of Negusneft is businessman Anatoly Neklyudov, and Sergei Koshelenko finances Polar Lights Company. They both run the company Rus-Oil, whose representative announced that all transactions with Yugra “were done honestly, in accordance with the law”.

Shilyaev also claims that everything was done honestly and lawfully, and that there are “links of intricately structured transactions that can be pointed to as bad decisions leading to the deterioration of assets,” but that the reality of the situation is different. “Since the second quarter of 2016, CBR has commented on the financial situation of a number of borrowers, including Kayum Oil, Polar Lights Company, Negusneft, and Jarmbent Holdings,” Shilyaev says. As a result of working with debtors, “instead of unsecured loans held by borrowers in a bad financial state (according to the bank’s assessment), the bank received a solvent borrower and collateral,” he says.

The interim administration of Yugra asked the court to invalidate transactions for the transfer of debt to DFS Group, AvtoTransSib, and Vostok, since the bank was given the right to claim money owed by these “admittedly insolvent” borrowers.

From a legal perspective, it is not easy to litigate these cases. “This is the first time I’m hearing about debt transfer transactions. It’s exotic,” says Svetlana Tarnopolskaya, partner at the Yukov and Partners Bar Association. “From the standpoint of an evidence basis and repeals process, it doesn’t matter – you can use the established practice on other cases involving the withdrawal of assets”. The court will compare what was exchanged for what, but it will be necessary to present proof of a malicious transfer of debt to the company that refuses to return it, which Tarnopolskaya warns is no simple task.

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