Is the Hidden Hand of the Bank of Georgia behind the Rustavi Nitrogen Ownership Change?

New details of the Rustavi Nitrogen (Azot) ownership change are coming to light, this time concerning a number of shady dealings between the factory’s former owner, Roman Pipia, the new owners EU Investments, and the National Bank of Georgia. Several media outlets have already reported on the issue, but it was Commersant.ge that revealed most details of the deals going on behind the scenes. Given a recent surge in society’s interest towards it, GEORGIA TODAY offers its readers a short retelling of Commersant’s investigation.

The company that acquired the Rustavi Nitrogen factory recently fired up to 350 of its workers amid furious protests. The workers demanded an explanation for their dismissal and unconditional restoration to their posts. On February 2, the tensions reached a peak with the factory’s new owner calling on the police to disperse the protestors.

But what really happened (and is still happening) in the 50-year-old facility, which remains the sole producer of nitrogen-based fertilizer in the Caucasus, is something of a mystery. According to information spread by media, behind EU Investments, the factory’s new owner, is the Bank of Georgia, which allegedly used a whole range of non-transparent, shady and arguably illegitimate actions to acquire the facility. Roman Pipia cannot boast an immaculate business record either, having made Rustavi Nitrogen a hostage of his creditors at a certain point in the past. All this begs the question: Has Rustavi Nitrogen become yet another of Bank of Georgia’s “non-core assets”?

Various media outlets claim that in summer 2014, Loyal Capital Group, owned by Roman Pipia, received a $100 million standby loan from a Luxembourg-based bank. Apparently, the purpose of the loan was to purchase the fertilizer factory’s stocks. At the time, Pipia already possessed 55% of shares. However, events took a different turn when $40 million from the loan was almost immediately transferred elsewhere, to a completely unrelated company’s account. Pipia refused to comment on the fact, although it was later discovered that the “unrelated” company that received the $40 million was also affiliated with him, with its Luxembourg office registered in the same building as that of Loyal Capital Group.

According to widespread information, after Pipia ceded almost half of his $100 mln loan, he tried refinancing it in 2015, but was unable to do so. Loyal Capital Group failed to pay back the loan after its grace period expired, and the bank in Luxembourg took the matter to court.

At that time, the price of Rustavi Nitrogen’s chief product (ammonium saltpeter) on the world market was in decline, while the price of natural gas, its primary input resource, remained largely the same. Most of the factory’s means of production was mortgaged to the Bank of Georgia and could not be utilized to overcome the crisis. This resulted in the factory’s already numerous problems becoming very acute; its working assets shrunk and wage arrears began to occur. It was at this difficult moment that the Bank of Georgia decided to auction off the factory’s mortgaged resources.

During the auction period, everything was apparently done to disregard other creditors’ interests, especially those of the Luxembourg bank that sought repayment of its loan, as well as those of the European Bank for Reconstruction and Development (EBRD), which was involved in the refinancing of problematic loans. Both banks were unceremoniously sidelined, even prevented from participating in the auction.

Eurobank is said to have received information of the September 1, 2016 auction only two days beforehand. Further, the message informing interested parties in Europe about the auction was published in the Georgian language only. As a result, EU Investments, a company associated with the Bank of Georgia, took ownership of Rustavi Nitrogen and all its means of production.

The future of Rustavi Nitrogen, the country’s largest chemical factory, is murky at present. Considering that the price of natural gas is now growing, while the value of ammonium saltpeter remains low, it is unlikely that the factory can expect sizeable income in the near future. There is also a high probability of the factory ceasing production altogether, meaning the 2000 workers that survived the first wave of lay-offs may also be facing unemployment.

Vazha Tavberidze