They read the Forbes list like a restaurant menu. How Andriy Volkov and Mykhailo Bakunenko collect debts from the richest Ukrainians

“Only cowards pay their debts.” To test this claim, financiers Andriy Volkov and Mykhailo Bakunenko built a business to collect debts from the richest Ukrainians.

Snimok ekrana 2021 06 16 v 19.24.07 1“Raider”, “vulture”, “threat to national security”. Co-owner of Investohills Partners Andriy Volkov, 44, has heard of himself and not so much. “It happens that a person has borrowed money, squandered it or built a business and now thinks that he does not owe anything,” says Volkov. “And everyone who makes him pay is called a raider.”

Volkov has been dealing with debt “all his adult life.” He reads the Forbes list like a restaurant menu. “With Vadim Novinsky, we are in lawsuits on several cases, Konstantin Zhevago is our major debtor, Firtash is also in our portfolio,” he lists. “We don’t care – an oligarch, not an oligarch: if we have the right documents, legal positions, then we are engaged in it.”

“Engaged” means “collecting debts”.

The Investohills Partners group dates back to 2010, when Volkov created the “Vector” company, specializing in the recovery of bad debts. Today, according to Volkov, the group owns assets worth UAH 100 billion. If it were a bank, it would be the sixth in Ukraine in terms of assets – right after “Raiffeisenbank Aval”. But these assets are bad. Basically, these are the rights on loans of failed banks – “Finance and Credit”, “Forum”, “Delta Bank” and dozens of others.

Volkov employs 200 people, mostly lawyers, who conduct more than 1,000 court cases against companies of various calibres. Most of the profits are brought by lawsuits against large debtors.

Here is a typical example. In November 2019, “Investohills Partners” bought out the debts of Taras Barshchovsky, the juice producer “T. B. Fruit”, to the bankrupt “Delta Bank”. Almost a year and a half of legal proceedings ended on March 22, 2021. The Southern Court of Appeal of Kyiv issued an order to forcibly recover $84 million from Barshchovsky in favor of Volkov’s structures.

Barshchovsky, who had previously initiated the bankruptcy of some of his companies and filed counterclaims, agreed to settle. “Either we will become the owners of this business, or they will pay us off,” Volkov is sure. The conflict with “Investohills Partners” costs Barshchovsky a place in the list of the richest Ukrainians. In 2020, Forbes estimated the value of his assets at $105 million. Given the result of the lawsuit with “Investohills Partners”, Barshchovsky was not included in the list of 2021.

Volkov is a financier by profession. In the 2000s, he built a career at “Alfa-Bank Ukraine”, where he rose to Chairman of the Management Board. One of his biggest projects in this position is the restructuring of the Eurobond debt of the Ukrainian “Alfa” for €1.5 billion after the financial crisis of 2008. “We agreed [with creditors] to reduce the interest rate, increased the repayment period, part of the debt was written off,” recalls Volkov. “It was a profitable restructuring.”

In 2009, Volkov went into free swimming. “The original idea was to do distressed assets, process this pie in three or four years, and then think about what to do next,” he recalls. The “pie” looked appetizing: the share of problem loans in the banking system at the end of 2009 was 15.4%, the total volume – 120.6 billion UAH, or $15 billion.

The expectation that banks would start selling overdue loans en masse was not justified. “We sold small portfolios, mostly unsecured loans,” says Volkov. “There was no market as such, there was no mass bankruptcy of banks, and the government saved them by pouring money into them.”

The first large fish took a bite in 2011. “Ukrsibbank”, owned by “BNP Paribas”, has put up for sale a portfolio of loans worth $650 million. Volkov paid $75 million for this asset, partly at the expense of the company, partly due to a loan from the same “Ukrsibbank”.

The portfolio consisted of 12,000 mortgages and auto loans, with about 6,000 court cases pending. Negotiations and lawsuits with debtors stretched for several years. Volkov managed to restructure 90% of the loans and receive payments on them. “It’s an illusion that we bought very cheap,” says Volkov. “For this portfolio, we returned our investment only in 2014, and we did not have time to earn any more.”

The main thing is that the case has started from a dead end. In 2011-2012, Volkov bought bad loans from “Swedbank Ukraine”, “Credit Agricole” and the “Bank of Georgia”. “Discounts were 80%, 90%, even 95%,” the businessman recalls.

He put the work with debtors on stream and standardized it. First, the collectors select a group of debtors who, according to Volkov, “are generally able to negotiate.” Some cases are obviously unpromising. “Imagine the owner of a one-room apartment in Zhytomyr, who has reached the Supreme Court in a dispute,” suggests Volkov a thought experiment. “The support services for this case may end up being more expensive than the cost of the collateral.”

Contractual debtors are offered a discount – about a third of the value of the pledge. On those who rest, collectors file a lawsuit in order to agree on a partial repayment of the debt. The maximum level of the “discount” is 50%, says Volkov. According to him, it is possible to reach an agreement with 90% of prospective debtors.

After the annexation of Crimea and the Russian invasion of the Donbas, the National Bank withdrew 90 banks from the market. Their assets went to the Deposit Guarantee Fund (DGF) of individuals. The total volume of such assets is UAH 400 billion ($14.5 billion), of which problem loans to Ukrainian clients amounted to UAH 300 billion ($11 billion).

For Volkov, as for the rest of the economy, these were difficult years. “There were no investors, everyone was trying to survive,” he says. “We collected payments on old portfolios, but nothing more.” The light at the end of the tunnel began to shine when the Guarantee Fund began selling large pools of distressed assets at “ProZorro” auctions.

At the same time, Volkov attracted an investor to his business. Mykhailo Bakunenko has experience working at “Goldman Sachs” and “Renaissance Capital”. “I myself suggested that Andriy invest in distressed assets,” says Bakunenko. In Investohills Partners, he has a majority stake, and Volkov is the managing partner. At the initial stage, Bakunenko invested about $10 million in the business. He does not participate in operational management, for him “Investohills” is one of the investment projects. His main place of work is the Chairman of the Management Board of the company “Ukrnaftoburinnya”. In 2020, Bakunenko took the 15th place in the ranking of the best CEOs according to Forbes.

One of the first major investments of the partners is a pool of 35 problem loans of “Delta Bank”, “Eurogazbank” and “Aktiv Bank” for UAH 6.8 billion. Volkov bought them at an auction of the Deposit Guarantee Fund in December 2018 at a discount of 98%. The most valuable acquisition looked like the obligations of the energy company “Voskhod Solar”, which the Klyuev brothers sold in 2015 to the Chinese “CNBM International Corporation”. The collateral for the $10 million loan was the solar panels of several stations. Lawsuits and a massive PR campaign ended in a settlement agreement. How much of the debt was recovered? Volkov refers to the commercial secret, but assures that the profitability of the company’s investment projects is 30-40% per annum.

The main method of collectors is to gradually increase the pressure on the persistent debtor. “People understand that if they do not meet us halfway and pay us off, they will be left without anything,” says Volkov about the methods of persuading the owners of credit apartments. According to him, “Investohills Partners” controls 20% of the Ukrainian market of bad debts of individuals.

In the case of corporate debtors, the style of work is the same, but the conflicts are louder. The interests of Volkov’s companies are served by Prosecutor General Yuriy Lutsenko and Deputy head of the SBU Pavlo Demchyna, said Anatoliy Staritsin, General Director of “Voskhod Solar”, in an open letter to President Zelensky in May 2019. Volkov denies knowing Demchyna and Lutsenko. But he confirms that in order to make debtors more compliant, his lawyers helped the investigation and wrote lawyer requests. The investigation into the Klyuev’s “Aktiv Bank” of the Ministry of Internal Affairs began long before “Investohills Partners” bought the rights to its loans. “The investigation was conducted very slowly, the requests helped to speed it up,” explains Volkov.

Debtors are not the only target of “Investohills Partners”. The judges also get it. “If we see lawlessness, we complain about the judge,” says Volkov. “We write to the disciplinary commission, complain to the police, and open criminal cases.”

“Raiders and vultures,” says lawyer Tetyana Kozachenko of Volkov’s lawyers. “Their activities pose a threat to national security.” It was at war with “Investohills Partners” over a 5,760 square meters office building on Podil. In her opinion, Volkov obtained the rights to the office center by collusion with representatives of the Federal State Property Fund. Previously, the building belonged to businessman Anatoly Yurkevich, was pledged to his “Ukrprofbank”, which went bankrupt in 2015. In March 2020, “Investohills Partners” bought his debts from DGF. As usual – with a good discount. The fund put up a pool of loans for UAH 42 million, which it sold during the auction for a reduction of UAH 2.5 million. One of the pledges was the building on Podil.

“All the loans for which this building was pledged were already repaid by that time,” says Kozachenko. Nothing like that, says Volkov, the building was illegally removed from the register of collateral in 2015, the day before the introduction of the interim administration in “Ukrprofbank”. In this case, the SBU launched an investigation in 2015.

Now “Investohills Partners” is fighting with the new owners of the building – Slovak businessmen Richard and Juraj Dushka. To defend the rights to the office center, they hired a lawyer Masi-Mustafa Nayem and connected the Slovak Ambassador Marek Shafin, who defended his citizens at a press conference in January 2021. Volkov’s position is unchanged: the building was illegally removed from the bank pledge, Yurkevich managed to hide this information from the buyers.

“They are the most active in the market, and few people like to pay their debts,” says Sergey Chuikin, Director of the Investment Banking Department at Concorde Capital, about “Investohills Partners”. “When we bought such assets, we also had to face charges of raiding.”

The cycle from buying an asset to receiving money usually takes a year and a half, Volkov describes his business. It all starts with negotiations, in which the debtor usually declares that he does not owe anything, and sometimes threatens to destroy the reputation of creditors. With the increase in the number of lawsuits and applications to law enforcement agencies, the debtor becomes more compliant.

“It was a very stressful time, they pressed on all fronts,” says Svetlana Demina, in 2019-2020 – arbitration manager of the “Rosava” plant in Bila Tserkva. “Investohills Partners” bought the rights to claim UAH 2.65 billion from the DGF, which the plant owed to the busted bank of Konstantin Zhevago “Finance and Credit”. The goal is to get some of the debt or control of the plant. Volkov estimates its value at $40 million. The courts between the structures of Volkov and Zhevago continue, the parties are far from an agreement.

“Investohills Partners” attracts investors to buy assets. “We know a lot of people in the financial market,” Bakunenko says. For example, to purchase a pool of loans from Delta Bank, Volkov raised capital from Kharkiv businessman Pavlo Fuchs and former “East One” financial director Andrey Dudnik, whose company “Helios” is also engaged in reclaiming bad debts. “Investohills” also cooperates with the structures of Sergey Tigipko. “We attract a pool of investors, there are a lot of people in it,” says Volkov. “These are millionaires, but not from your list, we have no right to disclose their names.”

A war with large debtors is a risky undertaking. Why are Volkov and Bakunenko not afraid to go ahead? It depends on how you look at it. They do not work with the debts of Rinat Akhmetov’s companies. Igor Kolomoisky is also immune. “He is an experienced guy, fights with everyone, fights all his life,” says Volkov. “It’s hard to beat him.”

“Investohills” tries to assess risks soberly. And he only gets into a fight if he thinks highly of the chances of success. “The most difficult thing in this business is to analyze how much you can actually collect from a problematic portfolio,” says Volkov. “There are companies that have three or five cases, and we have 1000 of them, so we definitely understand better.”

Still, dealing with bad debts is like playing roulette. The dispute over “Rosava” may result in losses for “Investohills”. “They managed to get the rights to very small liens,” says Demina, a former arbitration manager. The plant owed UAH 5.7 billion to the National Bank – almost twice as much as to the structures of Volkov. “Unfortunately, we don’t always win even when we are right,” the financier admits.

The dispute with Vadim Novinsky is far from a victorious conclusion. In February 2019, “Investohills” bought at a 99% discount UAH 12.7 billion of distressed assets of the bank “Forum”, previously owned by Novinsky. Volkov claims that in this pool there was a loan for $16 million of the Balaklava Mining Administration – an enterprise near Sevastopol that extracts limestone and crushed stone. “They have an annual EBITDA of about $10 million,” says Volkov.

The meeting with Novinsky ended in nothing. “The shareholder listened to him, and then pointed to the door,” says an employee of Smart Holding, who asked not to be named because he is not authorized to disclose this information.

Volkov did not give up. In April 2021, “Investohills” won a lawsuit in the Nicosia District Court, which banned the Balaklava Plant from conducting any operations with assets or property. “We explained to the Cyprus court that because of the annexation, we cannot directly make our demands,” Volkov says. Novinsky was not very impressed. “There is not even close to $16 million, these are very dubious debts,” says Smart Holding PR Director Yevgeny Zagorulko. “Even if they win all the courts, they will get a penny.”

It doesn’t matter. “According to the Forum, we have already reached a plus,” says Volkov. The pool, purchased for $ 4.5 million, has about a hundred other loans. The most interesting of them is the debt of €6 million of the bankrupt agricultural holding “Mriya”. “Investohills” won several courts from the legal successor of “Mriya”. In February 2020, the parties entered into a settlement agreement, under which the lender received part of the debt.

The purge in the banking market is beginning to bear fruit. From the beginning of 2018 to April 2021, the amount of problem loans on banks’ balance sheets decreased from UAH 595 billion to UAH 423 billion. “Everything interesting has already been sold, only very toxic assets remain,” says Chuikin of “Concorde Capital”. His company, which in 2016-2018 competed with Volkov for problem loans, left this market.

Interesting lots at the DGF auctions come across less and less often, Volkov admits. By the beginning of 2021, the fund had about 100 billion UAH of bad assets left – four times less than at the height of the snowfall. But it’s not just banks that have bad debts. Volkov looks towards the gas market.

“We have a very good liquidity cushion,” Bakunenko notes. In September 2020, the partners raised $100 million in a new investment fund, “Investohills Helianthus”. Investors are traditionally not disclosed. “We can invest this money in the Ukrainian market,” says Volkov. “There would be something to buy.”