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inian a r k U l Al ies Securit (AUSD) ory Deposit
UAH 80 mln d:
involveakh e l p o e P Stelm odymyr
Rogovoy y i l i s a V k y Balyu i l o t a n A g Ginzbur r e d n a ... Alex
Vol
Case papers: Real estate development at government cost AUSD real estate and land transactions cost banks depositors and taxpayers 51 mln UAH page 5
Public debt goes in shadow National bank blackmails banks for government bonds market control page 8
Leak of shareholders registers AUSD buys information about Ukrainian shareholders for 9 mln UAH page 12
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Deposits have gone to depository Who pays for NBU officials’ mansions?
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orruption and depository system of Ukraine. It is no mere chance that we chose such complicated sphere for pilot version of our anticorruption publication. Almost every week new ambiguous details of controversial “superdepository” creation (in fact, monopolist in future) of AUSD (All-Ukrainian Securities Depository) appear in media. Many don’t know what depository is, and incorrectly consider it as something connected with deposits. However, despite the fact that depository conserves securities but not money (as bank deposits), Ukrainian reality in recent time blurs out distinctions between these two absolutely different concepts. Unfortunately, public declarations of National Bank (NBU) and Securities and Stock Market State Commission (SSMSC) officials to create new depository are in fact just a shiny wrapping of corrupt practices of multimillion money absorption from the State budget. Facts speak for themselves. Only on real estate frauds via AUSD, bank depositors and the State lost 50 mln UAH since the beginning of this year. This is bigger part (to be precise 64%) of the total amount put up by top Ukrainian banks and NBU in the new institutional market player. But what is more important is the fact that this is our money that we entrusted to banks and paid as taxes to the Budget. Whether our savings will be returned and participants of large-scale fraud will be punished is a big question. Even Parliament special committee’s 3 month investigation of NBU activities doesn’t prevent Central Bank top managers to drain Ukraine of its wealth filling up AUSD statutory fund while the aim of its creation and resources used for that remain unclear. We decided not to wait for the results of parliament investigation and on our own initiative to clear up who are the people behind the curtains of “foam-concrete” reorganization of National depository system of Ukraine. And who is profiting from the idea of creating new central depository on the basis of AUSD? Remarkable fact – original incorporation article named it as “Central depository institution of Ukraine” or “Central depository of Ukraine” that contravened existing legislation. During last few months, some pieces of information already got into print and majority of facts of our investigation were already discussed in Ukrainian mass media. We received proved records of corrupt practices in the process of AUSD creation and this information formed the basis of our investigation.
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Characters, executors of unknown yet will
FILE
Last name: Ginzburg First name: Alexander Patronymic name: Leonidovich Date of birth: May 1966 Place of birth: Kiev, Ukraine Place of work: Cabinet of Ministers of Ukraine, Advisor to the Prime-minister Interests: planned and almost implemented project focused on the control of several stock market infrastructure institutions; provided lobbying resources of the Secretariat of Cabinet of Ministers Last name: Balyuk First name: Anatoliy Patronymic name: Ivanovich Date of birth: 27 January 1963 Place of birth: Radivonovka, Poltava region, Ukraine Place of work: Securities and Stock Market State Commission, Chairman Interests: lobby of AUSD concerns in legislative and regulatory spheres; used lobbying resources for forcing acquisition of MFS Depository
Last name: Stelmakh First name: Volodymyr Patronymic name: Semenovich Date of birth: 18 January 1939 Place of birth: Alexandrovka, Sumy region, Ukraine Place of work: National Bank of Ukraine, Chairman Interests: laid out 20 mln UAH; supported creation of AUSD and gives preferential treatment to the group of banks in achieving control over depositary system
Last name: Rogovoy First name: Vasiliy Patronymic name: Vasilievich Date of birth: 2 March 1953 Place of birth: Kiev region, Ukraine Place of work: All-Ukrainian Securities Depository, Chairman of Supervisory Board Interests: provided mutually profitable links between top managers of NBU and a group of businessmen and administrative officials in realization of “AUSD� project
Last name: Shvetsov First name: Nikolay Patronymic name: Pavlovich Date of birth: 6 May 1949 Place of birth: Petropavlovsk, Kamchatskaya region, Russian Federation Place of work: OJSC All-Ukrainian Securities Depository, Chairman OJSC MFS Depository, Chairman Interests: ignored interests of MFS Depository minor shareholders during acquisition by AUSD; provided and maintained transaction for the benefit of group of banks and businessmen close to the top management of NBU
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№1 e m volu Real estate development at government cost All-Ukrainian Securities Depository real estate and land transactions cost banks depositors and taxpayers 51 mln UAH
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aving spent the lion’s share of its authorized capital, the All-Ukrainian Securities Depository (AUSD) – established only a year ago – purchased two apartment houses in the Kyiv private sector (Tatarka district) at once. Market participants would hardly have noticed acquisition of three thousand square meters of allegedly office space, had it not been for stubborn truth seekers. The latter took interest in the way the government money that had been appropriated for the project on establishment of the central depository on the AUSD basis was managed. The issue that seemed to be easy at first sight turned to be not that easy at all – it raised a number of additional questions. For example, what was the need to buy ‘twin buildings’ after declaring the intention to buy the whole property complex of another depository – MFS Depository? What is the destiny of the Project on the National Financial Center of Ukraine on the capital’s Kontraktova Square – the downtown, where a
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central depository office was initially planned to be located, and which the object of government investments was. Trying to find answers for anything but simple – as it turned out to be - questions, one comes to unexpected conclusions. The first. Upon the closer look, the scheme of the so-called ‘merging’, devised by bankers - the process providers - appeared to be an unfriendly acquisition, if to put it mildly. This was the thing securities traders talked about so many times. Purchase of MFS Depository whole property complex by the aggressive new entrant practically means market’s incumbent firm liquidation, which is about to collapse from the pressure of the National Bank administrative leverage as well as lobbying plots weaved by commercials close to Ukrainian Central Bank Management. The second. Intentions to establish a new central depository that have been stated by officials of the National Bank and the State Securities and Stock Market Commission
(SSMSC) appear in fact to be a mere excuse to make use of a corrupt scheme of ‘mastering’ multimillion State Treasury funds. What facts make us come to such conclusions? According to agreements, last year the All-Ukrainian Securities Depository spent over UAH 50 million (64% of the authorized capital) for buying two unfinished buildings and 200 square meters of land in Kyiv. Two almost alike buildings (total area of each equals to 1500 square meters) are located nearby on the Tropinina Street (Tatarka District), surrounded by private houses and neglected constructions of apartment skyscrapers. The office of the future central depository will be located in the far from prestigious place, if to be mild. Though, it is entirely possible that apartment buildings have been purchased for a quite different purpose, while the depository’s registered office is still located on another Kyiv street - 4v, Staronavodnitskaya Str. (Pechersk district). However, the most astonishing fact is that price for two identical buildings made of foam concrete differs more than twice! Thus, the building situated on the 7g, Tropinina Str. cost UAH 13,8 million, while the nearby building (5v, Tropinina Str.) cost UAH 32,2 million. AUSD paid another UAH 5 million for two land plots under the apartment buildings. Moreover, given the fact that their construction is unfinished, these acquisitions will need additional investments. Also, one shall not forget about interior finishing, facilities, and access roads. According to experts’ estimations, the All-Ukrainian Securities Depository will have to invest at least additional UAH 25-30 million. According to information available on the site of the Ukrainian Stock Market Infrastructure Development Agency (www.smida.gov. ua), the only AUSD income item last year was interest yield from the authorized capital deposited with the banks (UAH 3,599 million). Notably, this amount turned out to be bigger than the one earned by MFS Depository, the biggest Ukrainian depository, from its profes-
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sional activity (in 2008 its net income grew 41%, up to UAH 2,78 million). Obviously, this money would not be enough for the AUSD management to complete construction and repair works, which means they will once again have to pick shareholders’ pockets. AUSD appearance was in fact the milestone event of 2008. It mastered an unpredictable development of the government policy concerning centralization of the system of investors’ rights accounting in Ukraine. Establishment of the new depository was actively supported by SSMSC management represented by Mr. Anatoliy Balyuk. It was he, who assured that this idea had been approved on the highest political level and was ‘a step on the way towards establishment of a central depository in Ukraine’. Market participants welcomed this idea rather skeptically, though. ‘The market will get another corrupt institution. All understand that a single depository – when all shares shall be switched within the coming two years to the book-entry form (according to the new Law ‘On Joint Stock Companies’) - may face two prospects: first, significant increase of financial flows; second, disposal of an enormous data-
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OJSC All-Ukrainian Securities Depository key highlights 2008, thousands UAH Total assets
83601
Capital assets
13800
Long-term ments
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invest-
-
Provisions
-
Total receivables
38152
Cash and cash equivalents
31649
Retained profit
3599
Owned capital
83599
Equity capital
80000
Long-term liabilities
-
Current liabilities
2
Net profit
3599
Number of employees
-
Source: www.smida.gov.ua
base, - thinks Vadim Grib, Chairman of the Supervisory Board, ‘TEKT’ companies group. – We will experience insider information, while it is evident that people employed in it struggle for information flows, for data, with the help of which one can make good money’. Still, access to insider information is not the only thing at all that attracts ideologists of the new depository. I suppose taste of certain people that in reality stand behind the project (Mr. Aleksandr Ginsburg, Mr. Dmitriy Tabachnik) for ambiguous developer projects is well-known. Notably, their interest surprisingly regular bursts with scandals as well – as it was with the idea of reconstruction the Kontraktova Square according to the project designed in 1815 by the Scotch architect William Heste. Until recently it has been the biggest and at the same time the juiciest ‘housing project’ scandal on the Ukrainian stock market. Back in 2007, the administration of Mr. Victor Ivchenko – The State Agency of Ukraine for Investments and Innovations – presented the idea to build a Ukrainian analogue of the Wall Street on the Kontraktova Square – the Ukrainian National Financial Center. Two national stock exchanges – a currency stock exchange and a commodity futures exchange - as well as a central depository established on the NDU base were planned to be housed in the new construction complex on the Podol’s central square. At the time the State Agency lobbied funds appropriations for design works and got control over the Gostinyi Dvor building situated in the middle of the Kontraktova Square next to the Ukrainian Interbank Currency Exchange (UICE). Nonetheless, in September, 2007, after the Oakcroft Investments offshore company, controlled by Mr. Ginsburg, had concentrated the UICE controlling stake, the situation changed immediately. Instead of the state National Depository the project’s building contractor was chosen to be the private Ukrainian Interbank Currency Exchange. Herewith, according to the government decree (No.1113 as of 11.09.07), after the project on square reconstruction would been completed the land plot and the building should ever since belong to the UICE, personally owned by Mr. Ginsburg. Cost of land and buildings usage by the exchange was oddly ignored in the document of the Cabinet of Ministers. Mr. Dmitriy Tabachnik, who at that time managed humanitarian issues during Mr. Yanukovich’s term of office, was said to facilitate this matter. Despite different political views, it is their old business relations that unite Mr. Tabach-
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nik, Partiya Rehioniv (Party of Regions) deputy, and Mr. Ginsburg, a new UICE owner, financial advisor to Yuliya Tymoshenko, and one of the AUSD foundation ideologists. Office of ‘Credit-Rating’ rating agency – one of Mr. Ginsburg’s companies – is situated in the business-center owned by Mr. Mikhail Tabachnik, Mr. Dmitriy Tabachnik’s younger brother. Mr. Ginsburg himself does not deny his involvement in the UICE acquisition. At the same time, he prefers to conceal true reasons of the deal: ‘Indeed I was engaged in the acquisition of the UICE controlling stake, but nobody on the market thought over the question, what I needed it for and what exactly I could accumulate, - he gave an interview to ‘Investgazeta’ (No.12, 2009). Apparently, it was the prospect to become the owner of the far from being cheap Podol land (according to real estate brokers the exchange building itself together with neighbor land cost about USD 150 million), that pushed new UICE shareholders towards rather drastic actions aimed at getting overall control over the exchange. The story with the UICE reminds in many senses of the situation with the new depository. Promises to establish highly technological infrastructure indeed do not go further than highly profitable real estate operations. Anyway, the point is that over the period of its short existence AUSD ‘successfully’ spent the lion’s share of the authorized capital that had been raised thanks to the National Bank. The new depository did nothing else during its one-year existence it could be proud of. Despite regular negotiations – if mass media statements are true – aimed at getting into contact with the OMX Swedish Company, producers of the best depository technologies in the world, there is not a single sign of the state-of-the-art technologies the ideologists
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All-Ukrainian Securities Depository expenditure pattern
Source: www.smida.gov.ua, InvestGazeta
had been talking about. One thing, however, is evident: MFS Depository acquisition by AUSD that has already spent major part of its authorized capital for real estate operations is a single opportunity to at least somehow justify declared objectives of the new depository establishment. Will the nearly dead Ukrainian stock market benefit from it, though? One can easily guess the answer. So, how does the developer business concern National bank and what have money of the Ukrainian banks’ depositors to do with it? The links happened to be the most direct. 25% of the authorized capital of the OJSC “AUSD” was raised at the expense of NBU resources, i.e. at the expense of gov-
ernment funds. Banks gave the rest of the money – not dividends of banks’ owners, but those deposit funds, which National Bank had prohibited from giving out to depositors. One, of course, could have ignored the fact that according to the legislation National Bank shall not be a founding shareholder of a commercial entity. Perhaps, this violation could have been not that evident, provided NBU money had eventually been spent for depository activity facilities. AUSD, however, does not have the corresponding license yet! Herewith, money raised for the NBU new depository project had been spent for purchasing real estate – something that does not make any sense at all. n
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2 № me Public debts goes in shadow u l vo National bank blackmails banks for government bonds market control
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he statement serves as a subtitle not for the sake of a witty legislation, because the central depository has already been created remark. This is only an evident result of an evident activity of at the expense of government and on the basis of the National dethe particular officials. But don’t we hyperbolize too much? Let pository of Ukraine. us answer question on question: what does National Bank of Ukraine And this is the fact. But as it turned out, not so obvious for everyneed a new depository for? one. Some people are not convinced even by the direct legal regulaThe interest of National Bank in AUSD capital theoretically cre- tions, which testify that exactly the NDU standards not the regulations ates good prerequisites for the dynamic activity of a new depository of SSMSC, have to regulate the depository register and circulation of on deals with state bonds which are yet independently served by documents in the national depository system, as it is being done at the Ukrainian Central Bank. Most probably, the interest of commer- present by the agents. cial banks to Internal governmental bonds market (National Bank of Surely, we can change the legislation system. We can turn AllUkraine provides refinancing on these securities), has caused the Ukrainian Securities Depository into the central depository, what exstructure of All-Ukrainian Securities shareholders include banking actly SSMSC is trying to do. It is SSMSC that pushes to the parliament institutions, fair share of which are banks with overseas assets (see a new draft law “On Depository register system”. But the legislation “Who owns Ukrainian depositories”). still remains invariable. And taking into account 70 million hryvnas, From the other hand, National Bank itself keeps an active interest which were invested into NDU by the government, the like attempts for multibillion state bonds market (just now approximately 29 billion will seem very strange. While All-Ukrainian Securities Depository hryvnas are in Internal governmendoes not have a depository techtal bonds turnover). The recordings The new depository project may nology – just that is why it wishes of all transactions on state bonds to purchase the property complex are made inside National Bank of become for many officials of of MFS Depository. Ukraine, and the information is con- the Ukrainian Central Bank the Certainly, the interest of some fidential. NBU senior managers and close It is said that the new depository last shelter where together to them businessmen is obvious. project may become for many offi- with many employees a rather Their attempts to move the state cials of the Ukrainian Central Bank securities market to All-Ukrainian the last shelter where together with profitable “business” on state depository and Ukrainian intermany employees a rather profitable securities service will move. bank exchange can be crowned “business” on state securities service with success. will move. Here a question arises. Why The President of the Professional association of registers and commercial banks, many of which are not able to settle accounts with depositories, Aleksey Kiy believes that if National Bank of Ukraine clients, invest into new depository on the day before crisis in average passes state securities service to All-Ukrainian Securities Depository, up to three million hryvnas each. doubts as to legitimacy of the National Bank’s share in its stock capital By obscure reasons, the professional participants of the stock will disappear. However, on the expert’s opinion, the integration of market were not invited to collaborate in the creation of All-Ukrainian MFS Depository and All-Ukrainian Securities Depository can lead to Securities Depository. Perhaps, because for the professional stock exclusion of the state National depositary from this market. market players National Bank of Ukraine and Vladimir Stelmakh “The creation of All-Ukrainian Securities Depository with the fol- himself is not the Regulator and therefore can not apply the adminislowing merging with MFS Depository has the only objective –National trative levers. depository liquidation. If we consider the draft law “On the system And, thirdly, in general, what did one create a new structure for, of depository register” we will see that the demands to the Central if two full-function depositories had already been functioning on the depository completely correspond to All-Ukrainian Securities Deposi- market before - MFS Depository and NDU? At the same time, the tory. In the given case it is referred to noncompetitive way to force government already invested in NDU more than 70 million hryvnas the National depository of Ukraine out. The moment when it was pos- of the budget funds. And exactly on the NDU basis, 86% shares of sible to forcibly leave one depository passed long ago. As a result at which belong to the State, the central depository has to be created present we have two full-function depositories, but it is unreasonably according to the decisions of National Security and Defense Council to create such noncompetitive terms”, - Aleksey Kiy says. of Ukraine. The experts oppose the idea to raise the All-Ukrainian Securities Everything started in autumn 2007. Precisely after the new govDepository status. It is impossible to create any central depository ernment took its power, SSMSC became concerned once again with on the basis of All-Ukrainian Securities Depository within the current the condition of stock market submitted to it. Consequently, SSMSC
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financial appealed concerning this issue to the Head of the State Viktor Yushchenko with a letter. As in the previous letters of SSMSC, this message contained information regarding the inefficient functioning of the stock market infrastructure, excessive amount of stock exchanges and depositories. Truly speaking, this particular letter had two essential differences among dozens of similar previous appeals: firstly, the key challenge of the stock market was lack of central securities depository, secondly, there was made an offer to create this central depository on the basis of NBU depository. One may agree with the first original thesis of SSMSC complaining only about belated insight. But the offer to create the central depository based on NBU depository provokes natural questions. The first question is - How to deal with the legislation which in 1997 assigned NDU to be the central depository of Ukraine? The second question is - How to deal with the decisions of the National Security and Defense Council of Ukraine and corresponding President decree dated 24.11.2005 #1648 “On the decision of the National Security and Defense Council of Ukraine dated June 29, 2005 “On measures to improve the investment climate in Ukraine” and dated October 28, 2005 “On measures to confirm guarantees and increase efficiency of the property rights protection in Ukraine”, which contain the direct information on the necessity “to create on the basis of the National depository the central securities depository controlled by the State and independent from the influences of financial and industrial groups and professional participants of the stock market”? The third question is - How to deal with the National depository of Ukraine itself (NDU) on creation of which the State spent almost 10 years and more than 70 million hryvnas and which at last started functioning as a full-grown institution? The forth question is - How one can create the central depository “based on the depository of National Bank” if such depository as independent, with software and technical complex does not exist neither legally nor practically, and the functions of National Bank itself are defined by the Constitution and do not stipulate securities service, even - government ones? And even more questions. For instance, why the Ukrainian government quarreled in 2006 with the US government having denounced the memorandum dated January 25, 1999 according to which the Americans undertook in the order of technical
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assistance to develop in Ukraine a clearing depository on the basis of private MFS Depository; and how to deal with the depository technologies given by the Americans to MFS Depository during the period of memorandum functioning? Obviously, in order to give answers to these questions Chairman of the National Bank of Ukraine Vladimir Stelmakh was set on foot as a postman to the President of Ukraine with the mentioned above letter of SSMSC. The content of their conversation is reliably unknown but consequences are obvious. And they conspicuously testify that the ability of Mr. Stelmakh to convince is so strong that the Head of the State wrote a resolution: “Agree. Submit an offer.” But the reaction of Vladimir Semenovich to the resolution was ironic! One can explain his further behavior only if to allow that he himself believed in arguments with the help of which he convinced the President that “black” was in fact “white” and if necessary was “dazzling white”. Nobody was developing propositions to the President as was demanded by the resolution! Nobody created the central securities depositary inside National Bank as it was suggested by SSMSC in letter improved by the President! Instead NBU Chairman harshly breaking the corruption laws started to create the private enterprise in which he invested but again breaking the legislation on National Bank 20 million hryvnas of NBU funds! And making an order to the National Bank staff to prepare incorporation documents of JSC “All-Ukrainian Securities Depository”, and pushing the necessity to invest 20 million hryvnas of the state funds during the National Bank Board meeting, and stimulating (put it mildly) the biggest banks to invest up to 3 million hryvnas to new depository collective fund, and being the Head of the statutory meeting of this JSC, Vladimir Stelmakh affirmed that he had acted implementing the important government mission approved by the President of Ukraine. At the beginning of last year National Bank of Ukraine in extremely short term raised 80 mln hryvnas for new central depository equity capital and organized JSC “All-Ukrainian Securities Depository” shareholders meeting. The negotiations with potential foreign counterparties of central depository impetuously started. For that purpose Mr. Vasiliy Rogovoy, advisor to Mr. Vladimir Stelmakh (in depository sphere known as Chairman
of newly created central depository) and a group of NBU senior managers and specialists (naturally for the account of NBU) visited Austrian and Swedish capitals to establish international depository relations and make contacts with OMX Group. It is important to mention, that National Depository of Ukraine successfully carried negotiations with OMX Group before that. OMX Group agreed to buy out up to 25% of NDU shares and they would create joint company that would provide depository and exchange technologies not only to Ukrainian but also to CIS markets. Unfortunately, negotiations were broken at the final stage when NBU officials loudly declared establishment of new central depository according to the President will. OMX Group embarrassedly withdrew. Towards last summer NBU officials’ activity quieted down – forthcoming crisis moved depository troubles from the main stage. But at the beginning of this year, it became evident that collapse of banking system only strengthened NBU desires for central securities depository. Moreover, desires not for central depository in general, but for central depository on private basis and even more – depository created by limited number of banks existence of which depends on NBU refinancing. About a month ago NBU officials announced new plan of national depository system development. This plan contains only two items: firstly, to immediate take the oldest Ukrainian depository MFS assets from majority of MFS shareholders; and secondly, to increase equity capital of new central depository up to 200 mln hryvnas at the cost of the banks and the State, and after that to compensate moral damage of robbed MFS shareholders with this money. National Bank not only in fact forced banks-shareholders of MFS to affirmatively vote this suicide for MFS decision, but also confirmed its willingness to devote funds for equity capital increase of commercial central depository. One more innovation of this year – Mr. Stelmakh and his companions don’t refer to the President any more. Either it is out of fashion, or commercial participants of the process began to express their comprehension. Crisis, you know! Banks couldn’t survive without National Bank. But with our National Bank most likely banks will survive but not their clients. n
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chronology
The newest history of the Central Securities Depository creation in Ukraine 2005 National Security and Defense Council of Ukraine (NSDCU) carries resolution regarding exchange trade consolidation and central depository establishment on the basis of National Depository of Ukraine (NDU) Jan 2006 Cabinet of Ministers of Ukraine (CMU) denounces US-Ukrainian Memorandum of Understanding regarding creation of clearing and settlement depository on the basis of MFS Depository (MFS) March 2006 Cancellation of the President decree #703/99 of 22.06.1999 that blocked the professional activities of NDU Sept 2006 NDU gets a license for depository activity Dec 2006 State agency of Ukraine for investments and innovations (SAUII) brings into the line with CMU project of creation of National financial center of Ukraine (NFCU) in Kontrakova Square, Kiev (Geste project) March 2007 Through the State program of National depository system development 25 mln UAH are laid out, including construction of NFCU (Geste project) in 1 Kontrakova Square, Kiev (CMU decree #452) Apr 2007 SAUII receives administrative control over a building in 4 Kontrakova Square (Kiev) which is a part of property complex regarding Geste project (CMU decree #190-p) Aug 2007 NDU shareholders decide to raise authorized capital up to 103,2 mln UAH, OMX group (Sweden) is ready to purchase part of additional issue of shares Summer-Fall 2007 Offshore company Oakcroft Investments (British Virgin Islands) consolidates control stake of Ukrainian Interbank Currency Exchange (UICE) and replaces senior management of UICE Sept 2007 Construction works regarding Geste project are assigned to UICE (CMU decree #1113) Sept-Oct 2007 Break off negotiations related to clearing depository establishment between NDU and UICE due to crucial differences of opinions 8 Nov 2007 The Concept of State program of capital markets development in Ukraine is approved (CMU decree #976-p) 15 Nov 2007 NDU passes documents on receiving a license for clearing and settlement activity to SSMSC 26 Nov 2007 Mr. Anatoliy Balyuk in his letter to the President of Ukraine (#100/18915) proposes to allow NBU depository to service corporate securities Nov 2007 SSMSC initiates creation of AUSD as a central depository 23 Nov 2007 President of Ukraine puts on hold CMU decree regarding additional issue of NDU shares (decree 1143) Dec 2007 SSMSC refuses NDU with a license for clearing and settlement activity. NDU puts the law on SSMSC 14 Feb 2008 NBU, 19 commercial banks, UICE and PFTS exchange sign articles of incorporation of OSJC “AUSD” 27 Feb 2008 Concept of capital markets development in Ukraine is canceled (CMU decree #349-p) NDU’s control stake (71,7%) is placed in SSMSC management (CMU decree #104) Decision on SAUII’s administrative control over a building in 4 Kontrakova Square is cancelled (CMU decree #350-p) 28 Feb 2008 NDU establishes correspondent relations with Infinitum Specialized Depository and Central Moscow Depository (both Russia Federation) March 2008 NDU puts into operation new technological complex of depository activity 1 Apr 2008 SSMSC initiates shareholders meeting and tries to change NDU management 17 Apr 2008 NDU establishes correspondent relations with Central Depository of Austria – OeKB 21 Apr 2008 NDU receives a license for clearing and settlement activity by decision of a court May 2008 NDU signs agreements on clearing and settlement of securities transactions with East European Stock Exchange (Kiev) and Perspektyva Stock Exchange (Dnipropetrovsk) Jul 2008 At the suggestion of SSMSC, CMU introduces a draft law “On depository recording system” to the Parliament (#3021) Oct 2008 State program of National depository system development is cancelled (CMU decree #1071) Dec 2008 - NDU executes first transactions of securities nominated in foreign currency, including transactions on DVP basis Feb 2009 Dec 2008- AUSD spends 51 mln UAH (64% of authorized capital) on purchase of 2 residential buildings and 0,2 Ha land plot Jan 2009 Feb 2009 MFS Depository shareholders adopt decision to sell all MFS Depository assets to AUSD for 9 mln UAH March 2009 AUSD shareholders adopt decision to purchase shares of MFS Depository for 44 mln UAH (125 000 UAH per share)
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№3 e m u l vo Leak of shareholders registers People involved in the All-Ukrainian Securities Depository buy information about Ukrainian shareholders for 9 mln UAH
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ho, de facto, will provide storage of the securities of the majority of issuers in Ukraine? Interesting question. The answer is simple: they will be transferred to the youngest depositary — AllUkrainian Securities Depository (AUSD). But how it is possible - you will be indignant, - it did not even manage to obtain the depositary license at all. And there are no bases for its obtaining — after all AUSD has neither technologies for securities storage, nor equipment or qualified personnel. Yes, you are right, thus far, it is only «the paper project». But who already invested 80 million UAH in it? Figurants are all the same National bank and a small circle of big banks. But how? Shareholders of the largest and oldest Ukrainian depositary – MFS Depository — decided to sell its property complex. The new owner of MFS property (computers, software and, the most valuable, servers with databases on Ukrainian joint-stock companies shareholders) will likely become AUSD. This depositary has been incorporated just one year ago by National bank of Ukraine and small group of the largest (according to the Ukrainian classification) domestic banks, recently sold to foreigners. Bankers have played a key role in the unprecedented decision of MFS shareholders meeting (decision for the sale of depositary’s property complex was upheld by 66% of shareholders present at the meeting, mainly representatives of commercial banks who execute control over both depositaries — 55,97 % of MFS shares belong to 57 banks, 14 of which are also the shareholders of the new depositary and possess 51,5 % of AUSD shares). The intentions of bankers to sell the MFS property complex may be obstructed by the Economic court of Kiev which rendered a decision prohibiting the alienation of property and shares of MFS even before the meeting of its shareholders had been conducted. But, the reasons that have induced the court to prohibit the sale of MFS property are unknown. However from the legal point of view the doubtful-
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ness of the transaction on MFS property sale is obvious. Even before MFS shareholders meeting lawyers have repeatedly indicated a number of infringements which can entail a recognition of the transaction illegal. The transaction on sale of MFS property complex to AUSD has caused a particular interest not only because its details are unusual in the conditions of an accruing bank crisis. After all AUSD is ready to pay for MFS property the sum of 9 million UAH that approximately coincides with its value according to MFS balance sheets. However, beside that, AUSD will additionally pay to MFS shareholders 44 million UAH, i.e. 125 000 UAH for each share that is ten times (!) more than their face-value. Despite of a growing financial crisis, money of the new depositary, obviously, will satisfy all MFS shareholders. Just to remind, only National bank of Ukraine invested in AUSD 20 million UAH. Coincidence or not, but AUSD will pay such sum to MFS shareholders as advance payment for their shares. If it was a question of purchase of the profitable company, such generosity of bankers would not cause any serious questions, but, after all, according to the Ukrainian legislation depositaries cannot distribute the received profit between shareholders! But it is far not the only strangeness of the transaction! In general the right of MFS shareholders to sell its property complex is very doubtful, as it on 60 % consists of the property provided on a free of charge basis by the US government to the Cabinet of Ministers of Ukraine within the framework of the technical aid granting treaty. And this property, firstly, has the target recipient — clearing depositary MFS, and its transfer to other entities, especially for monetary consideration, is fraught with sanctions by the US government against the government of Ukraine. Secondly, this property is in state ownership. And manipulations with this property, performed by MFS management back in 2003,
can be hardly considered as a sufficient legal grounding for its privatization and, the more so, for resale. It is necessary to remind that 10 years ago US Agency on international development, more known as USAID, signed a promising document with the Cabinet of Ministers and the National bank — the Memorandum on establishment of the clearing depositary that will settle securities transactions at Ukrainian stock exchanges. According to this agreement the American side allocated to the Cabinet of Ministers a technical aid of 5,3 million USD. The considerable part of this sum in the form of computers and office equipment was provided to MFS as to the recipient of the technical help of the US government. In particular, MFS received computers, phones and other equipment on a total sum of 308 200 USD and 519 130 UAH. Besides, Americans also invested about 800 000 USD in office premises purchase in the centre of Kiev. Eventually, all property transferred by the US government has been distributed between the private shareholders of MFS, the most influential among which at that time and now are the «Privat» group, Ukrsotsbank, association PFTS and the Ukrainian interbank currency exchange. The scheme, on which the international technical help to the Cabinet of Ministers became a private property, did not look less strange, than the present transaction on sale of MFS property complex to the new depositary. Despite the obvious illegality of privatization of the property transferred within the framework of the inter-governmental treaty (that was repeatedly noticed by officers of SSMSC, the General Prosecutor’s Office, Security Service of Ukraine and even by the dedicated committee of Verkhovna Rada on privatization), MFS shareholders by means of denomination of shares have increased the depositary registered capital more than 2,5 times — from 1,76 to 4,345 million UAH. The capital increase was not sourced by own money of shareholders as it usually happens,
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but by the technical aid to the Ukrainian government from Americans which by simple accounting manipulations had been credited in structure of MFS incomes and through dividends was reinvested in the registered capital of the depositary. However, despite the multimillion assistance of the US government, the problem on creation of the settlement-clearing depositary on the basis of MFS has not been realized. The only valuable asset of the depositary (apart from the insider information on shareholders of Ukrainian enterprises) is office building in the centre of Kiev. It is possible that now via the sale of MFS property complex some shareholders of the depositary and the corrupted officials are trying to cover up tracks and to escape responsibility for frank plundering of funds of the international technical aid to the Ukrainian government. Furthermore, the property transaction between two depositaries would not look so strange at least if in the purchase contract that was approved by MFS and AUSD shareholders meetings, the same surname did not appear from both parties. The situation when
chairman of MFS board Nikolay Shvetsov sells a complete property complex of the depositary to the same chairman of AUSD board Nikolay Shvetsov looks quite suspicious. Perhaps just due to this circumstance the agreement on MFS property sale for 9 million UAH included a phrase about a postponement of payment for the whole ten (!) years. One may remind a parable when Hadzha Nasreddin for approximately same term promised sultan to teach a donkey to speak! The key figure in MFS property complex sale is the Head of depository’s Supervisory council Mr. Borys Timonkin, the banker with the vast specific (in context with abovementioned) experience. The importance of Mr. Timonkin is proved with his own statements at MFS shareholders meeting. Banker confirmed that together with the Chairman of the Board of AUSD, he met with the main banker of Ukraine – Mr. Vladimir Stelmakh, for coordination of resolutions related to mechanisms of MFS and AUSD integration. But above we spoke about 60% of MFS property complex estimated for 9 mln UAH. But what are “ex-our banks” headed by “still
yet our” National Bank going to pay extra 44 mln UAH for? May be they pay for the brand name of depository with no house no home? And they want to become a co-litigant in American-Ukrainian government suit? Not a chance! The point is that even after the property complex sale all uncertified securities pro forma are stored there, except for those kept by National Depository and government securities kept by National Bank (currently nominal value of securities, corporate bonds and funds certificates on MFS accounts constitute 311,2 billion UAH). It’s actually not clear how MFS will perform keeping these securities. And how will custodians work if MFS equipment will be passed to AUSD? But it’s already clear why AUSD pay 10 nominal values for MFS shares. It pays for our securities! But the main question still remains – What legal basis is for MFS Depository to consider accredited information about all Ukrainian uncertified securities its own ownership and what legal basis is for its sale? Such situation is not new – it’s quite similar to that made by banks with bank deposits.n
Professional opinions Vadim Grib, the head of MFS Depository shareholders council and member of Supervisory board According to participants of professional securities market, the format of sale of MFS property complex at inadequate cost is not an association which would benefit the market, but rather is a simple «drain of assets». The sale of property actually means MFS liquidation, although de jure everything has been presented as property alienation, for the decision
Igor Mazepa, the general director of «Concorde Capital» National bank can be the instrument for particular persons to achieve the creation of the new depositary and to eliminate MFS from the market. The decision on sale of MFS property complex was adopted as a result of high pressure of National bank on commercial banks - shareholders of MFS which are not interested in the conflict with a regulator. I am convinced that such merger is necessary, however it should occur on the basis of MFS, instead of AUSD. As a matter of fact, MFS now is the working business, the set system which works without failures. And AUSD as of today, besides that its shareholder is National bank of Ukraine (25%) and possesses some buildings, does not have anything else.
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about which only more than 50 % of votes is required. More than 75 % of votes to initiators of the given process were not possible to collect and hardly will it be possible, and the cynical scheme of alienation of property has therefore been brought up. How does the sale of MFS property threaten the market? First of all, by increase of tariffs.
All understand that a single depository – when all shares shall be switched within the coming two years to the book-entry form (according to the new Law ‘On Joint Stock Companies’) - may face two prospects: first, significant increase of financial flows; second, disposal of an enormous database
Anatoly Otchenash, the president of FC “Autoalliance-invest” In Ukraine one more step is taken to create a stock market dominated by banks. The resolution of the MFS general shareholders meeting, which approved its sale to AUSD, is the precondition for creation of a stock market dominated by banks. Such stock market model operates in Germany and Poland. However it is important that regulation of a “bank” stock market is adequate and is equitable first of all to interests of investors and issuers, instead of infrastructure institutions.
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In media Lodging question of AUSD When stock market is in ruins, on the backstage real whingdings are going on. And in the center of interests is not technology development and software purchase, but real estate in Kiev. Investgazeta (06.04.2009) Newest depository technologies … from foam and concrete Project of financial regulators “NBU- SSMSC” tandem regarding creation of central depository has nothing in common with the national interests of Ukraine. Under the shiny curtain of crucial efforts focused on Ukrainian capital markets development, there are trivial deals with again trivial real estate. Zerkalo Nedeli (28.03.2009)
In three-depository kingdom … The fight for depository system opens with new powers. The first victim of lobbying interests and administrative pressure became MFS depository. The MFS Depository assets sale to AUSD cracked stock market in two. Investgazeta (09.03.2009) Will corruption influence depositories? “Giant and dwarf” merger by dissolution of a “giant” triggered numerous discussions and corruption talks. Stock market players are confirmed that this scheme is conducted by NBU, although even NBU might be a pawn in larger-scale game. Delo (13.03.2009)
Scheme of sale or “selling” scheme? Sale of MFS property complex to AUSD triggered interest not only for its unusual clauses in financial crisis times. It’s not improbable that some MFS shareholders and corrupted administrative officials are trying to cover up traces and sidetrack responsibility for plundering international technical assistance by sale of MFS property complex. 2000 (06.03.2009)
EXPERTS CONSIDER EFFICIENT TO ATTACH AUSD TO MFS Ukrainian news (23.02.2009) http://bin.com.ua/templates/news_article_big.shtml?id=87152
THE BIGGEST UKRAINIAN DEPOSITORY: COMPULSION TO SALE Delo (02.03.2009) http://delo.ua/news/102045/
HOSTILE DEVELOPMENT. “UKRAINIAN EXCHANGE” BUYS IN MFS DEPOSITORY SHARES Kommersant (26.02.2009) http://www.kommersant.ua/doc-rss.html?docId=1126186&issueId=7000057
“UKRAINIAN EXCHANGE” BUYS 6,53% MFS SHARES Interfax-Ukraine (02.03.09) http://news.finance.ua/ru/~/1/0/all/2009/02/28/153288
MFS SHAREHOLDERS WILL BLOCK MERGER WITH AUSD Ekonomicheskie izvestiya (26.02.2009) NBU IS BLAMED FOR BLACKMAILING COMMERCIAL BANKS Interfax-Ukraine (27.02.2009) http://minprom.com.ua/page8/news10521.html MFS MAY BE JOINED WITH AUSD Ekonomicheskie izvestiya (27.02.2009) http://www.eizvestia.com/fin/full/4177412 MFS SHAREHOLDERS MEETING ADOPTS DECISION TO SELL OWN PROPERTY COMPLEX TO AUSD RBC-Ukraine (27.02.2009) http://www.rbc.ua/rus/newsline/2009/02/27/510884.shtml
MFS MINOR SHAREHOLDERS: SALE OF DEPOSITORY PROPERTY CONFLICTS WITH THE STOCK MARKET INTERESTS Investfunds.com.ua (02.03.2009) http://www.fundmarket.com.ua/press/49abe289c4d38/ DEPOSITORIES CAME TOGETHER Ekonomicheskaya Pravda (02.03.2009) http://www.epravda.com.ua/markets/49abcd12914c4/ AUSD DECIDES TO BUY OUT MFS PROPERTY COMPLEX Kommersant (03.03.2009) BANKS WILL BECOME DOMINANT STOCK MARKET PLAYERS FundMarket (03.03.2009) http://www.fundmarket.com.ua/news/49acf1a555690/
THE COURT BANNED MFS PROPERTY SALE UNIAN (27.02.2009) http://glavred.info/archive/2009/02/27/193608-8.html
MFS DEPOSITORY SALE ENHANCES BANKS POSITION IN THE STOCK MARKET UNIAN (03.03.2009) http://economics.unian.net/rus/detail/6378
MFS DEPOSITORY COMES INTO THE MARKET Kommersant (02.03.2009) http://www.kommersant.ua/doc.html?DocID=1128379&IssueId=7000059
AUSD BUYS OUT MFS Interfax (05.03.2009) http://www.fundmarket.com.ua/news/49af791116561/
MFS INTERMARRIES NBU. MFS SALE CONFLICT IS FAR FROM ITS RESOLUTION Ekonomicheskie izvestiya (02.03.2009) http://www.eizvestia.com/fin/full/
THE BIGGEST DEPOSITORY GOES IN SHADOW Fraza (13.03.2009) http://www.fraza.ua/analitics/13.03.09/65312.html
Sources of information used in this edition:
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