Dragon Capital Reports Pressure on Its Business

Over the past several months, we have encountered increased scrutiny by the Economic Security Bureau of Ukraine (ESBU) regarding the activities of the Victoria Gardens shopping and entertainment center (Victoria Gardens Mall) in Lviv — one of Dragon Capital’s key assets, which we acquired from Turkish businessmen in March 2018.

Initially, detectives from the Kyiv Territorial Department of the ESBU, within a criminal proceeding opened in 2017 (i.e., prior to our acquisition of the asset), accused the company of tax evasion related to the sale transaction of Victoria Gardens Mall from Phoenix Capital LLC to Europolis Property Holding LLC (the current owner of Victoria Gardens Mall). We provided all necessary explanations and documents. Our employees, including those in Lviv, were interviewed with the involvement of detectives from the Lviv Territorial Department of the ESBU. It appeared that all questions concerning alleged tax non-payment had been resolved.

However, in May of this year, Europolis Property Holding LLC received a similar request from detectives of the Lviv Territorial Department of the ESBU — but in a different criminal case from 2017 — demanding the same explanations and documents regarding the same transaction. After Europolis Property Holding LLC provided their explanations and reminded the detectives that these circumstances had already been subject to investigation by another territorial department of the ESBU, we received a further demand from the Lviv detectives, accompanied by warnings of possible seizures and searches.

Dragon Capital believes that this duplication of investigative efforts by the ESBU detectives and the company’s involvement in “historical” criminal proceedings constitute a form of pressure on business.

Dragon Capital calls for an end to such practices and the creation of favorable conditions for conducting business in Ukraine. The company hopes for the support of state authorities in establishing a transparent and fair business environment.

Additional Information:

As mentioned above, Dragon Capital acquired the corporate rights of Phoenix Capital LLC, which owned Victoria Gardens Mall at that time, in 2018. At the time of purchase, the total accumulated losses of this company amounted to approximately half a billion hryvnias, primarily due to exchange rate differences on a loan from a non-resident company. The purpose of this acquisition was to increase the investment value of the asset through reconstruction, modernization, and turning an unprofitable enterprise into a profitable one.

To our knowledge, the previous owner of this company — the foreign company GLOBCON LIMITED and its beneficial owners — faced attempts of raider seizure of Victoria Gardens Mall in 2017, organized by the former director of Phoenix Capital LLC together with other persons. According to the sellers, sufficient measures were taken to prevent any illegal claims against the new owner of Phoenix Capital LLC/Victoria Gardens Mall, including through more than five criminal proceedings opened in 2017.

However, it turned out that despite the change of ownership of Phoenix Capital LLC, attempts to seize Victoria Gardens Mall did not stop, and Dragon Capital faced the threat of losing control over the lawfully acquired assets. To provide additional legal protection to Victoria Gardens Mall from unlawful encroachments, it was decided to sell the mall to another company within the Dragon Capital group at a market price determined by an independent expert.

As a result of this sale, Phoenix Capital LLC paid over UAH 80 million in VAT directly to the budget in September 2018.

Following this, we carried out reconstruction and other improvements of the property totaling over UAH 250 million, which significantly increased the market value of Victoria Gardens Mall.

These transactions were audited by the tax authorities in 2021 during a scheduled documentary field audit.

Europolis Property Holding LLC (the current owner of Victoria Gardens Mall) began paying VAT on leasing operations of retail space in Victoria Gardens directly to the budget starting February 2021. This currently amounts to approximately UAH 9 million per month. As of the end of 2023, the company finally became profitable: it paid UAH 54.5 million in corporate profit tax during the year, and UAH 12 million in the first quarter of 2024. This is a significant contribution, for a single Ukrainian enterprise, toward strengthening the country’s defense capabilities.

About Dragon Capital

Dragon Capital is one of the largest corporate groups in Ukraine, operating since 2000 in the fields of investment and financial services, providing a full range of investment banking and brokerage services, direct investments, and asset management. The company has more than 20 years of successful direct investment experience in various sectors of the Ukrainian economy, including real estate.

Dragon Capital Property Management is the managing team responsible for the company’s residential and commercial real estate portfolio. Currently, it manages 26 commercial real estate properties, including 11 office properties, 6 retail properties, and 9 logistics complexes, totaling 531,000 square meters, making the company one of the largest players in the Ukrainian real estate market.