Western minority shareholders in Kernel are mounting a legal challenge against a move by a Ukrainian oligarch to delist the nation's largest producer and exporter of sunflower oil from the Warsaw Stock Exchange.

Minority investors from Europe and the US claim that the buyback by Andrii Verevskyi, the company’s majority shareholder, represents “extortion” and is part of a wider degradation of corporate governance standards.  

Verevskyi’s investment vehicle Namsen Ltd, which owns about 41% of the shares, last month announced an offer to buy out all the other shareholders, with a subsequent delisting.

However, institutional investors from Poland, Scandinavia and the US representing about 21% of the company have formed a coalition to drag the oligarch through the Polish and Luxembourg courts.

“Kernel is trying to extort minority shareholders by offering to buy them out a price that significantly undervalues the company,” a European investor told bne Intellinews. “It’s part of an overall debasement of corporate governance.”

Kernel is a major supplier of agricultural products from the Black Sea region to international markets. The company say its delisting is driven by Russia’s invasion of Ukraine over a year ago and the blockade of the Black Sea ports, which made it difficult for Kernel to monetise its harvest and sent its shares plunging by more than 60%.

Before the invasion, Ukraine contributed to 29% of global sunflower oil output. The company swung to a consolidated net loss of $41 mln for the financial year ended June 2022 against a profit of $506mn for the year prior.

Management also detailed its frustrations with its listing on the Warsaw exchange, where the number of traded stocks is now at its lowest in more than a decade. In a statement, Kernel argued that efforts to improve the stock’s visibility and widen its shareholder base had mostly failed.

Kernel also maintains that the stock suffers from a “lack of financial visibility and poor analyst coverage”, while low liquidity prevents investors from selling “in a fast and predictable fashion, especially with the war-related risks.”

A leading Scandinavian investor suggested Kernel is trying to use the conflict with Russia as an opportunity to retake full control of the company at the lower price.

“At a time where Ukraine needs the support and aid from foreign investors and donors more than ever, one the largest companies in the country is trying to take advantage of the situation at the cost of shareholders in some the countries supporting Ukraine the most,” said the investor in a letter seen by bne IntelliNews.

Kernel shares traded at PLN18.16 (€3.96) on Wednesday, compared with the buyout offer at PLN18.5. Its shares peaked above PLN86 in 2011 and traded at around PLN60 before Russia’s invasion started.

One European shareholder said he would be happy to take PLN40 per share, whereas some Polish investors are holding out for PLN100.

“The stock is trading at a massive discount to its peers like Astarta Agricultural Holding in Ukraine and elsewhere,” said a long-term investor. “We are happy to hold for another five to ten years and wait for it to recover, but the company just wants to shaft us.”

Investors complained of a lack of communication by Kernel since the invasion started and the closure of an e-mail account dedicated to investor relations. One shareholder also questioned the wisdom of why the company had maintained a large cash position in cryptocurrency.

Polish minority shareholders in Kernel have called for an EGM to discuss the delisting of Kernel's shares from the Warsaw Stock Exchange.

A letter published on the exchange's website on April 17 said the delisting is clearly contrary to article 91 (3) of Polish law, since such a decision must be accepted by a 90% majority vote in the presence of shareholders representing at least half of the charter capital.

Polish investors say the delisting will force some minority shareholders to sell shares under the offer owing to the legal inability of the funds to invest its assets in shares of private [non-public] companies.

“Pension funds will not be able to retain the company's shares in their portfolio after the termination of their circulation on the organised market," the letter’s authors said.

For its part, Kernel claims that these provisions of Polish law do not apply, since its holding company is registered in Luxembourg and is regulated by Luxembourg laws, and a decision by the board of directors is sufficient for delisting.

"The interpretation of Polish legislation on delisting issues, including in the shareholders' letter, is not true and misleads other shareholders of the company," said Kernel.

The company also argues that Polish investors are no longer Kernel's core base shareholders. It said:  “After an IPO, up to 80% of company’s free float was composed of Polish investors, stemming from the successful pension reform in Poland. Today, according to our estimates, less than 15% of shareholders are investors from Poland.”

Verevskiy, 48, started trading in grain when he just 19 and founded Kernel a decade later growing it into Ukraine's largest sunflower oil producer.  Despite the country’s political volatility, he has always managed to stay on the right side of whoever is in power and retain crucial rights for grain export quotas.

After the country’s Orange Revolution in 2005, he became a parliamentary deputy belonging to the Yulia Tymoshenko faction. When the political winds blew in a different direction, Verevskiy switched his allegiance to a faction loyal to then President Viktor Yanukovych’s Party of the Regions, which was backed by the Kremlin.  

Namsen said a failed bid to raise emergency equity funding in September faced “huge resistance” from minority shareholders, who showed “no interest” in the company’s longer-term prospects.

The board of directors unanimously supported the delisting, but some shareholders questioned the impartiality of its two independent directors.

Kernel’s listing in 2007 came amid a push to encourage Ukrainian firms to the Polish exchange. Its initial public offering (IPO) and three subsequent share issues between 2008 and 2011 raised a total of PLN1.2bn zloty ($270bn). 

The row reignites the debate over Ukraine as an investment destination and criticism that its institutions lack credibility with regard to protecting the rights of minority investors.

Kernel turned to the European Bank for Reconstruction and Development (EBRD) in 2021 for a loan worth $57mn to help maintain the procurement, storage, transportation and export of agricultural commodities. The loan was part of a $200mn syndication arranged by the French investment bank Natixis.

The EBRD says its investments “are combined with support for policies that promote the fight against corruption, good governance of state-owned enterprises, structural reforms and a more transparent business environment.”

Kernel’s press service did not respond to a request for comment.