Nikolay Levitskiy's shady dealings on the Hong Kong stock market

Best known for the bankruptcies of his businesses, Russian businessman Nikolay Levitskiy, who was earlier spotted among founders of “Geotech” Oil Service Holding and having held the position of Director General of “EuroChem” owned and managed by the trustees of a discretionary trust since 2006, after his participation in a number of unsuccessful business projects is actively providing services as a nominee asset holder-keeper of assets of the Russian oligarchs, who are under international sanctions.

Levitskiy is buying up shares in the projects associated with big capital, by carrying out market manipulations with shares listed on the Stock Exchange of Hong Kong Limited.

Following Russia’s full-scale invasion of Ukraine, a significant number of Russian billionaires were added to the sanctioned lists of EU, USA, UK and other Western countries characterised as “members of Vladimir Putin’s inner circle”.

In response they have been seeking ways to safeguard their Russian assets.

Over the last two years, a systematic method has been devised for the seemingly routine transfer of assets to lesser-known Russian businessmen who, on paper, assume the role of new owners.

A representative case in point is the story of Nikolay Levitskiy, who in 2022 became known as a nominal holder of assets that are subject to international sanctions (Far Eastern Vanino Port, Primorskaya Water Power Plant, mining companies), and also those of Gennady Timchenko and his son-in-law Gleb Frank (“Tuloma” Sea Terminal), former Minister of Energy Sergey Generalov (AO “NPF MIKRAN”), Boris Aleshin (OOO “IK Axioma”).

And the majority of his fictitious activity remains beyond the reach of access of Western regulatory authorities.

Nikolay Levitskiy became the beneficiary of the “former” assets between 2022 and 2023. For any business analyst, this sequence of events would come as a complete surprise.

Because purchase of the assets took place after a number of business failures – scandalous withdrawal from IGSS (“Geotech”), increasing the company’s debt to $700 mil through financial fraud and bankruptcy of its last asset (“Deka” Kvass Factory in Novgorod).

However in April 2022 Nikolay Levitskiy suddenly became a buyer of Andrey Melnichenko’s Donalink Ltd that reportedly had a controlling interest in Primorskaya Water Power Plant.

Even more astonishing was the acquisition, taking place in 2021-2023 through a series of transactions of control over IRC company, the owner of Kimkano-Sutarsky GOK (Ore-dressing and processing enterprise) in the Jewish Autonomous Region, the largest iron ore producer in the Russian Far East.

Such an asset would command a substantial price even in the challenging economic times in the Russian Federation, since the primary market for products of GOK is China, and IRC shares are traded on the Stock Exchange of Hong Kong Limited.

Using the takeover of Kimkano-Sutarsky GOK as an illustrative example, we have discerned the inner workings of the scheme, which involves several individuals, including Marina Kolesnikova, acting as Levitskiy’s nominee and as the owner of OOO “MIK INVEST” (one of the key shareholders of IRC), as well as Olga Chesnokova.

A financial adviser of Levitskiy and a member of the Board of Directors of his “Geotech Holding”, she also acts as his nominee in Oikku Finance (a shareholder of IRC actively participating in Levitskiy’s financial schemes).

How Kimkano-Sutarsky GOK was taken over

In December 2021, Levitskiy through his offshore Axiomi Consolidation Ltd has acquired 29.86% of IRC shares, which at that moment were encumbered in favour of Gazprombank with the credit of $113 mil extended to Kimkano-Sutarsky GOK (hereinafter – KS GOK).

Just two months later, in February 2022, Gazprombank “unexpectedly” assigned its loan rights in favour of OOO “MIK INVEST”, registered in the name of the nominee Marina Kolesnikova.

To secure full operational control over the enterprise, Levitskiy has formed his puppet Board of Directors at IRC in July 2022, composed of the individuals who previously worked for Levitskiy in his other businesses: Denis Cherednichenko, Dmitry Dobryak, Natalia Ozhegina, Vitaly Sheremet, Alexey Romanenko.

Denis Vitalyevich Cherednichenko was appointed Executive Director – formerly a subordinate of Levitskiy and former Vice-President and member of Board of Directors of Geotech Holding.

With the Board of Directors now being under his control, Nikolay Levitskiy managed to implement the scheme for buying up and consolidation of IRC share package. He has done it using the funds from the main, income producing KS GOK enterprise.

To solidify his complete control over the asset, IRC carried out additional issuance of 16.7% shares in October 2022. It has been noted that this was done at no cost.

New shares, by agreement, were sold to MIK INVEST for $19 mil for repayment of the same credit.

The funds arrived at IRC and on the following day, after the credit repayment by GOK in favour of MIK INVEST, they were returned to the original source, and as a result of such scheme, MIK INVEST became a new shareholder of IRC holding a 16.7% stake.

To avoid attention of regulators, in July 2023, Levitskiy has re-registered his package “diluted” by additional issue and already not encumbered with the pledge, and amounting to 24.88% shares, from Axiomi Consolidation Ltd. to his other offshore company Axioma Capital FZE (based in United Arab Emirates), and acquired additionally 1.01% from Ineth Limited.

Furthermore, in November 2023, Levitskiy has acquired 4.72% shares from his own Oikku Finance (apparently owned by his former subordinate and nominee Olga Chesnokova). The amount of transaction was 47 mil HKD ($6 mil).

It should be noted that Oikku Finance has purchased its share package (4.72%) for the same $6 mil in 2022, which had been received through a series of transactions, initially from Kimkano-Sutarsky GOK for MIK INVEST, and further for Oikku Finance, again with the approval of the Board of Directors, which is fully controlled by Levitskiy.

As a result, by November 2023, Levitskiy had accumulated a 30.61% share of IRC, while MIK INVEST held 16.67%.

Following that Levitskiy’s company Axioma Capital FZE has extended a shares redemption offer to other shareholders at the same price – 0.118 HKD per share, valuing the entire IRC at 1 billion HKD ($129 mil).

Widely closed eyes of the regulators

In essence, within almost two years the enterprise was transferred out of the sanctions zone at minimal cost, as Levitskiy’s structures have full control over Kimkano-Sutarsky GOK.

That is why the enterprise must give all its earned money to its own shareholder (MIK INVEST) to service debts. It would have been impossible to implement such an arrangement without the involvement of authorities.

And thus, an old acquaintance of Levitskiy, the active Governor of Jewish Autonomous Region Rostislav Goldshtein becomes involved in the scheme.

The “warm relationship” between the businessman and the Head of the Region traces back to 2003, when Levitskiy was holding the position of Vice-Governor of Komi Republic, and Goldshtein was the Chairman of State Council of Komi Republic.

Beyond tacit consent for the scheme’s execution, the presence of a “friendly” Governor secured additional tax concessions for GOK, which contributes 10% of the tax revenues of the Jewish Autonomous Region.

While such schemes are not unusual in contemporary Russia, the lack of interest from international regulators is puzzling.

The Stock Exchange in Hong Kong does not disclose the affiliations of all three companies involved in recent transactions – Axioma Capital FZE, Oikku Finance, and MIK INVEST – despite the apparent shared source of funding from KS GOK and their close interconnection through mutual financing chains.

Furthermore, Mrs Chesnokova consistently received financing from OOO “MIK” through Levitskiy’s companies via her own companies in 2021-2022. OOO “MIK” is owned by the same nominee of Levitskiy as in MIK INVEST M.A. Kolesnikova.

In 2022, Mr Levitskiy himself received financing via KS GOK and MIK INVEST personally for himself and for his OOO “IK “AXIOMA”, to which the assets were transferred with the purpose of evading the sanctions.

As a result, Levitskiy and his affiliated companies, through the unjust redemption of shares at the price significantly different from the actual market price, consolidated a 47% stake in IRC in the hands of a single nominal shareholder.

The acquisition of shares was financed by the issuer itself, IRC, extracting the funds from KS GOK.

The fact that bona fide shareholders of IRC have been misled for these purposes should have long become the subject of investigation by regulatory authorities.

Until such scrutiny occurs, the risk of the scheme’s expansion and further dilution of other shareholders’ stakes is very high.

NB. An earlier version of this article erronouesly referred to Andrey Melnichenko as the owner of EuroChem.

Mr. Melnichenko was the beneficiary of the discretionary trust until March 2022 but since then he has no relation to it. He also has no relation to the assets that may be nominally held by Nikolay Levitskiy.