Ukrainian oligarch Rinat Akhmetov whose major assets are located in the industrial East Ukraine is said to have lost nearly $6 billion last year due to the war

This article originally appeared at Financial Times

Ukraine’s billionaires are losing their cash, especially those with significant assets in the Donbas, an area that has become a battlefield between pro-Russian rebels and units loyal to Kiev. According to Forbes’ 2015 billionaires list, Rinat Akhmetov, Ukraine’s richest man, has lost as much as $5.8bn over the past year.

The mining, steel-making, energy and heavy engineering units of Akhmetov’s SCM Group have been forced to halt operations or reduce their capacity in territories controlled by separatists or near the front line. The Group’s media, telecommunications and banking businesses are also feeling the effects of the rebellion.

On Friday, SCM’s power generator and coal producer DTEK posted a full-year net loss of 19bn hryvnia ($850m) in 2014, after a net profit of 3bn hryvnia in the previous year. “Military operations and difficult macroeconomic situation in Ukraine have resulted in a significant decrease in the net profit of DTEK’s companies,” Piotr Fokow, finance director, said in a statement.

DTEK’s mines and power plants have been damaged by shelling, by pro-Kiev forces and by pro-Russian separatists; they have experienced power blackouts and other logistical problems.

Two of DTEK’s producers of anthracite, Rovenkianthracite and Sverdlovanthracite, have been running at between a quarter and a third of capacity, mainly due to the destruction of railway infrastructure. In peacetime, they produce up to 40,000 tonnes of coal a day; now, they are managing just 8,000 tonnes.

DTEK’s Krivorozhska and Pridneprovska thermal plants in Kiev-controlled Dnipropetrovsk region are short of thermal coal and being forced to import it from Russia, Australia and South Africa.

The Zuyevska thermal power plant, which is situated in rebel territory but still controlled by DTEK, is experiencing serious shortages of coal supplied from Kiev-controlled areas. “If the plant stops, this could lead to power cuts for half of Donetsk region, including Ukraine-controlled territory,” SCM’s media office told beyondbrics.

Casualties are also part of DTEK’s bitter reality. Dozens of miners and employees of power companies have been killed or injured at their workplaces or at home.

This year, DTEK faces payments on a record amount of its debt: up to $950m, including $200m for eurobonds that mature in late April. Last week, Fokow said DTEK would approach holders of those bonds to seek restructuring. On Monday, the company’s credit ratings were downgraded by Fitch from CCC to C, indicating imminent default.

SCM’s steel arm Metinvest, another of the group’s backbone companies, is also in trouble. In the second half of 2014, steel production plunged by 2m tonnes compared with the first half due to the hostilities in the Donbas and increasing competition on global markets. “These 2m tonnes would have enabled the company to earn $160m – $170m at the level of Ebitda,” says Ivan Dzvinka of Kiev-based Eavex Capital.

In February, SCM’s Yenakiive plant, the sixth largest steel mill in the country, and its Makiivka branch were halted due to shortages of raw materials resulting, in particular, from damage to the railways. “The resumption of production will depend on further developments in the region,” says SCM’s media office.

The Avdiivka coke plant, situated five kilometres from Donetsk in Kiev-controlled territory, has been forced to reduce production due to constant shelling and power blackouts. Before the crisis, Avdiivka covered about 55 per cent of Metinvest’s demand for coke, with 23 per cent of the country’s total coke production.

Metinvest must repay up to $900m of its debt in 2015, including $114m for eurobonds that mature in May. According to Dzvinka, the company is negotiating a possible restructuring with investors. However, this could be a tall order due to “unfavourable conditions on the steel market, as well as the fact that a substantial part of the company’s assets are concentrated in the [war-affected] Donbas,” Dzvinka says. Metinvest has already restructured $386m of eurobonds maturing in 2015.

The list of SCM’s troubled assets goes on. Corum Group, its heavy engineering arm, has lost three of its plants in the Donbas after they were seized by the self-proclaimed Donetsk People’s Republic in August. “Since then, Corum has not controlled these plants,” SCM’s media office says.

Today, more than 70,000 people employed by Akhmetov-owned firms remain in rebel-controlled territories in Donetsk and Luhansk. These are mainly miners and workers at power companies. SCM stresses that all of these companies, which are still controlled by the Group, are operating under Ukrainian law, including tax regulations.

Akhmetov’s banking business has also been hit by the crisis. The SCM-controlled First Ukrainian International Bank has been forced to temporarily close 30 branches in Donetsk and Luhansk. Akhmetov’s media empire, including TV channels and newspapers, is also affected. In particular, pro-Russian rebels seized equipment of the “Ukraine” TV channel.

The current fragile ceasefire in the Donbas offers some relief. But businesses in the rebel-controlled territories are unlikely to be successful as long as they are not reintegrated into Ukraine’s economy – a process that could be very painful for both sides and take many years.

“Metinvest’s plants in the Donbas have very close operational connections with the company’s other assets in Ukraine. The company has a keen interest in operating within the system of the Ukrainian economy,” says Dzvinka.

Over the past year, Akhmetov has tried to maintain a balance between official Kiev and the pro-Russian rebels, without declaring clear support from either side. Alexander Paraschiy, head of research at Kiev-based Concorde Capital, says this is a clear illustration of Akhmetov’s desire to keep his assets in the Donbas.

But Akhmetov also faces other troubles. Authorities in Crimea, annexed by Russia one year ago, announced in January and February the “nationalisation” of DTEK’s energy giant Krymenergo and of SCM’s telecommunication assets in Crimea.

According to SCM’s media office, the Group does not see any legal grounds for such a step and “considers it an encroachment on private property”. The Group underlines that its companies have not received any court decisions on violations that could lead to “nationalisation”.

SCM does not rule out the possibility of applying to international courts; in such a scenario it should be able to count on support from Kiev. Petro Poroshenko, Ukraine’s president, said in a TV interview in March that the government should provide legal protection to Ukrainian property in the Crimea, both public and corporate.

According to Poroshenko, the government, with assistance from foreign lawyers, “should develop and begin to implement a strategy for providing legal protection to Ukrainian interests.”

That will be but a faint hope to Akhmetov, and to his companies’ bondholders.