Owing Prominvestbank $110 million, the owner of "Velta" Andriy Brodskyi plans to spend almost twice as much in Israel
The industrial-commercial firm "Velta," which exploits the Byrzulivske deposit of titanium-ilmenite ores in the Kirovohrad region, has announced its intention to transfer one of its titanium product manufacturing operations to Israel. According to a report from "Velta" citing the Ministry of Economy and Industry of Israel, the parent company of the group – Velta Group Global – has already received land in the Mishor Rotem technology park for the construction of a titanium dioxide production plant.
The capacity of the Velta Titanium division, established in Israel, will be 40 thousand tons of pigment, with the potential to increase production to 70 thousand tons per year. The enterprise plans to process concentrate manufactured by "Velta" in the Kirovohrad region. Thus, the owner of "Velta," Dnipro businessman Andriy Brodskyi, is building a vertically integrated business.
The reason for planning to build production facilities in the Israeli Negev desert is cited as very attractive incentives. With the cost of the pigment titanium dioxide plant estimated between $150-200 million, Velta Titanium could save about 30% of investments under Israeli investment support legislation. The investor can also claim an additional 10-20% discount due to the peripheral location of the enterprise in a border town, where oil shale extraction and processing for electricity are conducted, along with the operation of an ammonia plant and several other enterprises. Such generosity from the Israeli authorities would be very beneficial to the owner of Velta Group Global, Andriy Brodskyi, as his Ukrainian titanium ore plant, which began construction in mid-2011 and started operation in 2012, remains unprofitable.
In the photo – Prominvestbank
The main creditor of LLC "PCF ’Velta’" is the Ukrainian subsidiary of the Russian Vnesheconombank – Prominvestbank, with which Brodskyy’s company entered into a credit line agreement as early as October 2011. Taking into account the amendments to the agreement dated 14.09.2012, the bank issued "Velta" a total of over $93.3 million. Of this, $34.1 million was used to repay debt to Ukrgasbank for a previously taken loan, $15 million for refinancing the debt to Prominvestbank itself, $2 million for replenishing working capital, $27.6 million as capital investments for the construction of the first phase of the beneficiation production with a capacity of 185 thousand tons of ilmenite concentrate per year, and $14.8 million for increasing production to 300 thousand tons.
To secure the loan, the borrower mortgaged its main production facilities to PIB and committed to sell the products exclusively through the bank. According to the business plan, "Velta" was supposed to repay the loan in 2016. However, the ore plant never reached its planned capacity. The maximum concentrate production volume achieved in summer 2014 was 5.2 thousand tons per month per line, approximately 125 thousand tons annually. By October 2014, the first phase of the titanium raw material enrichment complex located in the village of Korobchyne (Novomyrhorod district of the Kirovohrad region) nearly completely burned in a five-hour fire. The fire destroyed the gravity shop and its equipment, damaged the product finishing shop building and equipment, as well as the power control room. These buildings were structurally connected with each other.
Because of this, "Velta" lost 60% of its production capacity, and it became clear that the PIB debt would not be paid back on time. Law enforcement authorities concluded that the arson was intentional. However, neither the perpetrators nor the instigators were identified.
In the photo – Andriy Brodskyi
Before the debt repayment deadline, which was due on June 30, 2016, the parties did not agree to extend the credit agreement "due to significantly changed circumstances," as "Velta" desired. Brodskyi was unwilling to transfer the property to the bank. And on July 5, 2016, the Kyiv Commercial Court accepted for consideration "Velta’s" lawsuit against PIB to prohibit any actions regarding the pledged property, re-registration of ownership rights to it, foreclosure on "Velta’s" accounts, and 100% of its shares owned by Velta Group Global Limited. A month later, "Velta" obtained such a court ruling, significantly strengthening its position in the conflict with the Russian bank subsidiary. At the end of March 2017, the Kyiv Commercial Court, at the insistence of Andriy Brodskyi’s company, set the term for the repayment of credit funds under the agreement with PIB to July 1, 2021. Finally, in December of the same year, the Kyiv Commercial Court ruled that as of October 2017, regardless of the final debt repayment date, the bank had no right to demand the repayment of the loan principal or interest for its improper use from "Velta" (the total debt is currently estimated at $110 million).
While PIB unsuccessfully seeks to challenge these decisions in courts of various instances, the favor of the Ukrainian judiciary allows the owner of "Velta" to nurture plans for expanding his business in Israel. The start of production at the Velta Titanium plant is scheduled for the second quarter of 2019, with its launch in the first half of 2021. During this period, the Ukrainian "Velta" will be able to guarantee the supply of raw materials to the parent company. This circumstance allows Andriy Brodskyi to count on attracting financial partners to his Israeli project, promising them not only an increase in raw material assets but also deeper processing, along with diversification of activities across different regions of the world. The creation of another processing plant may make the creditor bank more amenable, seeking any return from "Velta."