New York – Lawyers representing Togliattiazot (TOAZ), the world’s largest ammonia producer, appealed in an open letter to Russian Prosecutor General Yuri Chaika, head of the investigations committee Alexander Bastrykin, and chairwoman of the State Duma’s anticorruption committee Irina Yarovaya, bringing their attention to a possible multi-billion corruption scheme related to Togliattiazot. The investigation can affect the ammonia producer, according to the research note by RUXX Index that tracks Russian companies.
This is the second appeal to the Russian authorities issued by TOAZ lawyers, who requested the government intervention to help them fight off what they perceive as the raider attack on the company. The investigations committee of the Samara region where Togliattiazot is headquartered issued a formal reply but no investigation was conducted and the company is still in the midst of the anti-raider effort.
March 6, 2013, New York, NY – One of Sibir Cement founders, former President and CEO Andrey Muraviev has been nominated for the holding company’s Board of Directors. SibCem shareholders explain their decision to nominate Muraviev by their hope that “the former executive’s experience would help the company recover its market share and excellent financial performance.” SibCem is a major Russian cement producer, with assets across the vast Russian super-region of Siberia, serving the nation’s ambitious infrastructure projects and booming real estate market.
Andrey Muraviev is a US-educated Russian entrepreneur, who ran Sibir Cement since 2004 and led the company as its President for its first four years (through 2008). During these years, the company brought under its umbrella all the cement assets it controls, stepped up investment in innovative technologies and did an IPO. Muraviev also was successful in building an effective marketing system for the cement holding company. SibCem was Russia’s No. 2 cement producer by mid-2008 and was widely seen as the most efficient company in the sector (with an operating margin of 53% that year). Market watchers note that the company was worth US$ 6 billion at one point, making Sibir Cement “arguably the most valuable cement company in the world.” Muraviev quit as CEO in August 2008 over disagreements with SibCem’s Chairman Oleg Sharykin.
Andrey Muraviev is currently President of Parus Capital, a Russia-dedicated investment fund which is a member of the Investor Rights Protection Association.
Muraviev commented on his possible return to Sibir Cement as a top manager: “I hope to become a Director and take a minority equity stake in the company. I believe SibCem is now one of the most undervalued cement companies the world. I see the main reasons for this in its low transparency and poor corporate governance, lack of new assets and inefficient personnel management. I look forward to honest and constructive cooperation with all SibCem directors for the benefit of all shareholders, rather than just the core shareholders. I believe the company is currently flouting the rights of minority shareholders, who have been trying in vain to collect dividends from the company for many years. I want to change this.”
The holding company has seen dramatic changes in its management and Board of Directors since August 2008, as the entire top management team and all directors have been replaced. SibCem’s annual revenues have declined by 75% after Muraviev’s departure, while its earnings and market capitalization have also taken a hit. Investment analysts would see Muraviev’s possible return as a boon for shareholders: “Muraviev essentially built the company into a market leader, he has a very impressive track record. Investors have very good reasons to expect the company to rely on his experience to regain its strong financial performance and market share,” says Michael Thompson, equity markets analyst with the Russian Industrial Leaders Index.
The year 2012 was a record year for Russian law enforcement agencies’ meddling in the private sector, RUXX Analytics Center reports. The number of searches, police raids, corporate records withdrawals, and criminal cases against entrepreneurs is up more than 20% year-over-year, to a level exceeding even that seen in the 1990s, when law enforcers were frequently used as a tool for pressuring competition and to oust current owners from a desirable company.
“On the surface, it would seem that the government’s pressure on the private sector has increased recently, through increasingly active involvement of law enforcement agencies”, says RUXX analyst Michael Thompson. “However, this is not actually the case: law enforcers are just a tool some private industrial groups are using to gain control over assets of other private groups. The government is not exercising more stringent control; in fact, if anything, it has become weaker,” Thompson adds.
The most recent egregious example of law enforcers brought in to solve a commercial dispute between private parties is the conflict between core shareholders in Tolyattiazot, a major global ammonia producer, and Uralchem Holding Company and its affiliated company Belport Investments Limited registered in the British Virgin Islands. Tolyattiazot’s lawyers have sent an open letter to Chairman of Russia’s Investigative Committee Alexander Bastrykin after the local police investigators initiated criminal proceedings against the company based on Belport’s unverified claims, which may cost the ammonia producer $200 million in additional expenses. The significant amount at stake is typical of a corporate blackmailers’ “raid,” when core shareholders are usually offered a chance to see charges dropped for a smaller amount.
In another high-profile case, the conflict between key partners in TNK-BP, a Russian-British major oil joint venture, has seen many police searches, denied and withdrawn Russian entry visas, and other actions by law enforcers to stymie the efforts of British executives at the company and BP as a major shareholder to promote their strategy for the joint venture, and to support the case of ARR – the Russian partner in the venture, essentially a group of some of the most powerful Russian tycoons. BP was eventually forced to sell its stake in TNK-BP to Rosneft in 2012.
“There are numerous examples with law enforcers’ attempts to put pressure on business”, says Thompson: “Cases against Alexander Lebedev, owner of NRC bank, against Ikea and other major businesses are well-known”.
Business ombudsmen, an institution recently established in Russia to protect business rights, is swamped with complaints. More than 700 companies have turned to business ombudsmen in a year, predominantly with complaints against law enforcers. The Russian leadership is attempting to win back the trust of domestic and international companies and entrepreneurs by improving the available infrastructure and enacting new business-friendly laws, but until the corrupt link between the private sector and law enforcers is broken or at least severely limited, trumped-up criminal charges, even if they do not stand up in court, still can damage the reputation of companies and their managers, and will interfere with operation of both Russian companies and international investors in Russia.
“Criminal investigations against industrial companies have become a fact of life in 2013 Russia. The mere fact of a criminal investigation can cause trouble for a company by making debt more difficult to procure, and affect the stock price, and corporate raiders and blackmail artists take advantage of that,” Michael Thompson comments on the general situation. According to the RUXX Index, which includes a majority of publicly traded Russian companies, inflow of investment in Russia is on decline. “We explain this primarily by the pressure from law enforcement agencies getting out of control.”
Moscow ― A multi million-dollar deal to sell Borjomi, a mineral water brand famous in the former Soviet Union, as well as other assets of Salford Capital Partners, a company controlled by Russian businessman Boris Berezovsky and his late business partner Boris Patarkatsishvili’s heirs, may be foiled if reports of a Russian court putting a freeze on Salford’s assets in Russia is confirmed. The court injunction was allegedly ruled on Tuesday, said a RUXX Index Alert citing a source close to the deal. RUXX Index tracks Russian stocks traded internationally.
Owners of Salford Capital Partners that controls IDS Borjomi and other FSU and Eastern European assets began looking for buyers for this asset earlier this year. TPG Capital, the Russian Private Equity Fund, Klever Asset Management and Sistema have been named among possible prospective bidders. However, many potential buyers stepped away from the deal after finding out that IDS Borjomi was ultimately controlled by Berezovsky and Patarkatsishvili’s heirs who are currently under criminal investigation. The police searched Borjomi offices in September 2012.
A source connected with the deal has told RUXX that a freeze on Berezovsky’s and Patarkatsishvili's other Russian, Balkan, Georgian and Ukrainian assets appears likely. Salford owns significant assets in these countries and regions.
Analysts value IDS Borjomi at more than USD 400 million. However, RUXX Director of Research Ilya Lushnikov believes political and legal risks associated with the asset may be overwhelming. “Buying an asset that is likely to be seized under a court order would come with very significant risks and may make sense only for a buyer enjoying support of the Russian authorities, which would provide insurance against an asset freeze,” says Lushnikov. “Salford also has substantial assets in several Balkan countries whose treaties with Russia are likely to entail an asset freeze in the Balkans as well.”
IDS Borjomi is Salford’s biggest asset. The company is a major player on the Russian mineral water market. It controls two large bottlers in Russia, and bought a large mineral water producer in 2009, whose brand portfolio includes the popular Russian brand Sacred Spring. Salford also owns several mineral water brands and bottlers in Ukraine, Borjomi mineral water springs in Georgia, and Bambi and Knyaz Milos plants and brands in the Balkans.