GNT Group’s Owners Talk about Their Dispute with Argentem Creek Partners: It Is an Ongoing Hostile Business Takeover Attempt Aimed at Its Non-transparent Resale
With the onset of russia’s all-out invasion, Ukraine managed to prevent the economy from collapsing thanks to partner countries that provided the financial lifeline. On its part, Ukraine did its utmost for food security by entering into the agreement, also known as the Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian Ports. Ukrainian agrarians started exporting their crop. Some seaports came back to life.
Thus, the non-transparency accusation by Argentem Creek Partners (ACP) and Innovatus Capital Partners brought against the Ukrainian GNT Group (the company owns a grain terminal in the Odesa Seaport) in late December 2022 accompanied by enforcing the collection of debt under loans amidst the operation of the grain corridor came as a painful surprise. On its part, GNT Group accused the creditors of an attempted takeover of an appealing asset to resell it to a third party.
Our editorial team interviewed Volodymyr Naumenko and Sergiy Groza, GNT Group’s owners, about the dispute and how it will affect grain exports from Ukraine.
– You have traded accusations with Argentem Creek Partners (ACP). John Patton, their regional manager, stated you were not in control over the GNT Group. Who controls the Group and the grain terminal?
Sergiy Groza: The GNT Group is owned by its lawful owners, Volodymyr Naumenko and Sergiy Groza. ACP initiated legal proceedings to collect the Group’s assets by force in an attempt to suddenly change registered addresses and replace general directors of our companies to take them over.
We took a proactively defensive stance, so we wouldn’t know what this blitzkrieg campaign would end with. John Patton’s statements are premature, and the case is still ongoing in the courts. It can take years to bring it to an end, but with all these ACP’s actions and statements, one cannot but conclude that it is an attempt at a hostile takeover of the Ukrainian stevedoring business.
Sergiy Groza
Volodymyr Naumenko: I would like to emphasize that the grain is being shipped from our grain terminal in Odesa Commercial Seaport under the control by our professionals, ensuring the uninterrupted operation of the grain corridor. Neither Mr. Patton nor the Ukrainian lawyers with nil experience in the logistics market that he appointed to the companies unlawfully can do this job.
– Can this conflict cause problems for the grain corridor?
V. N.: An attempt to block the grain terminal’s operations in the port threatens the grain corridor’s operation and, accordingly, Ukraine’s performance of its international food security commitments.
For this reason, I would like to reiterate that the GNT Group and both of us, as its owners, are willing to repay the loan to both ACP and Innovatus Capital Partners (Innovatus), the other creditor, in any civilized manner.
S. H.: All their statements for the media are vague phrases about our lack of transparency. The creditors do not offer sound arguments. Their aggressive modus operandi took us by surprise because it was absolutely unnecessary.
– When and for what purpose did GNT Group obtain loans from ACP and Innovatus?
V. N.: At that time, we needed to repay a loan to the EBRD while CHS Europe, our previous partner, rolled down their investment activities in Ukraine. We had to find refinancing expeditiously.
S. H.: A loan agreement with Argentem Creek Partners LP was signed on November 12, 2019. The creditors were Cayman Island funds owned by the ACP – ASP I Trading LLC and Pathfinder Strategic Credit II LP. A Hong Kong company Madison Madison Pacific Trust Ltd was appointed as a loan agent.
The creditors gave us two lines of credit to the tune of US$ 75 million against the pledge of the company’s corporate rights, whose value exceeded the loan amount severalfold. The money was used to repay the EBRD loan and buy out the interest from CHS Inc.
– Where does the Innovatus loan come from?
V. N.: In 2020, GNT closed trade finance facilities with European banks with a total capital of about US$ 150 million. The banks’ stringent policy resulted from the COVID-19 pandemic. For this reason, GNT signed several loan agreements with private financial companies in the summer of 2021. They included a loan agreement with Innovatus Capital Partners to the tune of US$ 20 million, secured with the double amount of grain and corporate rights on pari passu terms with ACP.
– Have you expected to develop long-term relations with these creditors?
S. H.: We planned for short-term technical loans till the end of the year 2021. We needed time to find a proper partner or raise long-term financing for developing the GNT Group’s business.
ACP was aware of our plans to find refinancing to obtain long-term investments on acceptable terms back in 2020. We have always been transparent and coordinated our plans with partners.
Moreover, a corporate agreement was signed with them in late 2020, on whose basis they appointed two directors (Oleksii Pavlenko and Bohdan Khomyak) to the Board of Directors of G. N. Terminal Enterprises Limited, the management holding company. John Patton attended the meetings of the Board of Directors as a representative of the creditor.
– Why has your search for refinancing partners been unsuccessful?
V. N.: However, businesses worldwide faced financial difficulties due to the COVID-19 pandemic in 2020–2021. And we were on the homestretch with raising funds. In February 2022, we organized a Road Show for investors in London. Because of this, the ACP agreed to extend the loan repayment date to March 31. With the proper refinancing process in place, they were prepared to defer payments till May 30. The creditors were aware of Ukraine’s political situation. Clearly, we were unable to meet all these conditions because of russia’s all-out invasion of Ukraine on February 24.
S. H.: The Odesa Seaport was closed due to the war; this situation ruled out any business and any income to settle loans with the creditors. Creditors were informed about these circumstances a number of times.
At a meeting of the Board of Directors in April, Dusan Denic, the GNT Group’s Director of Finance, asked the ACP to accept a deferral of all Group’s payments. No mention was made of debt enforcement. Instead, the parties discussed opportunities for raising capital.
Volodymyr Naumenko
– Why did the creditors decide to engage Ziff-Ivin Associates to audit the operations of the GNT Group?
S. H.: The decision to engage Ziff-Ivin Associates Ltd to audit the condition of the grain terminal was made by the Board of Directors on July 6, 2022. Mr. Patton stated that Argentem needed additional information about the finances of the GNT Group.
On July 22, with Ukraine’s entering into the grain corridor deal, Mr. Patton came up with a draft payment deferral agreement till September 30. The document also provided for an audit of the GNT’s operations by Ziff-Ivin Associates in late 2022.
– What issues did creditors have with your statements, bearing in mind that they were in control of the Board of Directors since late 2020?
V. N.: Financial statements were prepared, and annual audits were performed. Ziff-Ivin Associates have been preparing the Group’s quarterly reports on the demand of Argentem since 2020. Thus, it is unclear why it was necessary to engage them for the annual audit on top of that. However, we accepted this decision of the creditor.
So, where is that lack of transparency ACP is accusing us of?
– Can it be stated that you kept developing a mutually beneficial scenario for repaying the loan by refinancing it?
S. H.: This impression was supported, at least by all the internal negotiations. The GNT Group has had stable prospects for debt repayment, with the grain corridor in operation, because Odesa Seaport was one of the few Ukrainian ports open. Obviously, the ACP realized it.
This understanding is supported by Mr. Patton’s cover letter we received together with the draft payment deferral agreement mentioned above. He wrote that the creditors agreed that the GNT terminal had the potential to become a strategic asset. Thus, they sought ways to work together with the owners of the Group.
– In what manner was the GNT Group willing to settle its debt in the fall of 2022?
V. N.: Firstly, based on the Group’s ongoing commercial operations. In December 2022, we offered creditors monthly payments of a part of our profit. Secondly, we suggested looking for an investor or a buyer for our entire business or its part jointly and transparently.
We resumed an active search for strategic investors. Our latest contacts included Abu Dhabi Ports (ADQ) and Yas Holdings (Elite Agro). It was in December 2022. However, the sudden legal and information-based attacks by the ACP complicated the subsequent negotiations.
– When and how did the ACP inform you about their intent to enforce the debt?
V. N.: In December 2022, I asked John Patton if the creditors intended to enforce the debt. He assured me they didn’t. However, the ACP initiated the debt enforcement procedures on December 20, in just four days. A letter with the demand was sent about two hours before we had to repay the debt. So my question is, did the creditor really want to get money from us?
S. H.: On the same day, the ACP representatives attempted via registrars to replace the management of the Group’s companies. They acted on the basis of a decision ostensibly made by the general meeting of participants of the Ukrainian companies on December 19. I have to clarify that the ACP entered into a contract for the trust management of the companies to secure the loan; accordingly, they did have the levers needed to take such action. Effectively, the creditors attempted to replace the management one day before claiming the debt.
The first comments from sham experts targeting the GNT Group in this conflict appeared in the media a couple of days before the creditors published their official press releases about debt enforcement. So how could these experts know about it in advance?
In other words, we kept negotiating the debt restructuring in the first half of December not to lose the GNT Group’s working capital, as its loss would worsen its performance indicators (there is correspondence with Mr. Patton about this). However, by all appearances, the creditors started with the company’s hostile takeover in late December.
– Innovatus accuses you of selling grain unlawfully and preventing them from inspecting the grain terminal. Are their claims sound?
S. H.: All accusations by the ACP and Innovatus are groundless. Let me reiterate that Patton, in his statements, keeps talking about the grain that ostensibly disappeared from the terminal, and that has nothing to do with Argentem Creek Partners.
On February 25, 2022, Olimpex Coupe International, which manages the GNT Group’s grain terminal, officially notified Innovatus that it was impossible to store grain securely and control its quality. The reasons were obvious, including the lack of capacity for the long-term storage of grain and the impossibility of rotating cargo due to missile attacks.
V. N.: We were only permitted to access the terminal in early May 2022. At about that time, Bureau Veritas, an international inspection and certification company, inspected the grain and documented its spoilage. It was dangerous to keep such products at the terminal. Once the grain corridor started operating, that grain was replaced with new batches. Since then, the amount of grain has been sufficient to settle the debt.
All the rest are unsubstantiated claims that the creditors’ inspectors cannot gain access to storage facilities. There were issues with access due to wartime reasons. Interestingly, there were no requests from Innovatus for inspection visits after the access restrictions were lifted, although we have been expressing our openness toward any inspections.
We invite creditors and all stakeholders to come in person to make sure that the grain is available at the terminal’s storage facilities at all times.
Olimpex Coupe International Terminal
– How did debt repayment negotiations with Innovatus go?
S. H.: We have been negotiating since October 2022. Innovatus was willing to wind up its operations in Ukraine as soon as possible and accept the debt payment. We were willing to settle accounts with them. However, the negotiations reached an impasse due to the ACP’s stance. The Fund blocked such an agreement in December 2022, demanding that the debt be repaid on a pari passu basis.
After December 20, Innovatus started legal procedures against the GNT Group simultaneously with the ACP, disseminating unfounded accusations of the theft of grain via the media. We consider it obvious that the ACP, having been planning a hostile takeover of our business at least since November, has not left any other option for Innovatus and promised them extra profit from selling the GNT Group.
– Are there any further arguments to support the theory about the attempted hostile takeover of your business for the subsequent non-transparent sale?
V. N.: Firstly, the creditor’s representatives acting based on a power of attorney changed the legal domiciles of managing companies from Odesa to Lviv. In his statements, John Patton claims that it was done in keeping with the overall trend of relocating businesses to Ukraine’s west. However, our business is bound to the sea and the port, so what relocation are we talking about in this case?
Secondly, they appointed people with no work experience in the logistical services market as directors of our companies. They are lawyers from Hillmont Partners.
Thirdly, the lawyers were appointed directors of the companies. It goes against the Corporate Agreement, under which a creditor’s representative is only permitted to appoint Commercial Directors with signing powers without replacing companies’ Directors. This security mechanism was needed to give the creditor the ability to influence operating companies’ commercial decisions. And that step would have been both logical and transparent.
S. H.: The ACP started enforcing debt only after the terminal had become a valuable asset. About 1.5 million tonnes of grain were transshipped via our terminal over the six months of the operation of the grain corridor. This situation may have become interesting for the hedge fund or a potential third-party buyer. Is there another explanation for this haste and the creditor’s refusal to accept our proposal of deferral and reserved lending to give us an opportunity to recover from the war? Most probably, this is because they found a buyer for our assets.
– Is there any understanding of the value of the GNP Group’s companies during the war? Where is the benefit for the creditors?
V. N.: The value of the terminal alone was three times as high as the loan amount in 2020. At that time, the supply of transshipment facilities was excessive. By now, many terminals have been damaged. The rates for transshipment went up. Multinationals are not entering our market.
Thus, the price for a company that also trades in grain is still larger than the aggregate debt. The Cayman Islands creditors can still earn more (even considering legal costs) by selling the GNT Group in a non-transparent transaction.
– Do you know to whom the creditors have offered your company for sale?
S. H.: In private conversations, some market players mentioned offers for the GNT Group received via intermediaries. The possibility of the sale to foreign companies was mentioned as well. Unfortunately, I can’t discuss it in more detail yet. We are checking all the information now.
– The GNT Group employees requested the leaders of Ukraine to help solve this conflict in a civilized manner. How effective was this request?
V. N.: State authorities have heard us and suggested that they mediate this conflict. We are willing to interact openly. So far, we have not seen this willingness in the ACP and Innovatus.
By the way, many Ukrainian companies faced the issue of the inability to repay loans during the war. Investors granted them respite or restructured their loans. In January this year, Kernel negotiated a deferral of loan repayments. Nibulon is undergoing an audit and debt restructuring. Ukrzaliznytsia postponed payments under Eurobonds.
But to do that, one needs to be willing to recover investments rather than take over a company.