Financial News
23 February 2009
By Jason Corcoran
Letter from Moscow
Moscow’s mild-mannered Swedish investors are mad as hell and are not going to take it any more. Prosperity Capital and East Capital are two of the largest and longest-serving fund managers operating in Russia. The two firms have historically adopted a softly-softly approach to engaging with errant Russian corporates, but those tactics have recently proved as useful as lighting a match in a Siberian snowstorm.
Prosperity, whose founders have been investing in Russia since 1992, is warning of another Yukos blow-up occurring because of a major dispute it has with Russia’s wealthiest oligarch Mikhail Prokhorov over the regional power-generating company TGK-4.
Prosperity, along with other minority shareholders, took a hit when Prokhorov’s investment holding company Onexim reneged in September on a deal worth close to $1bn to buy back minorities. Prosperity has since been appointed as de facto spokesman by East Capital and a bevy of western portfolio investors, to defend their interests.
The comparison with Yukos, whereby the company was stripped of its assets and its founder Mikhail Khodorkovsky was jailed, is overstated although the number of western financial institutions being dragged into litigation is going up.
Prokhorov’s Onexim, which has a 50% stake in TGK-4, has issued a flurry of lawsuits against Deutsche Bank, Citigroup, Morgan Stanley, Clearstream and other minority shareholders. Onexim has disputed its obligation for the mandatory buyout of the minorities and has won recent cases in court against Halcyon Advisors and Deutsche. The larger minorities continue to defend their position while Morgan Stanley and others have settled.
Prosperity has received backing from the main market regulator, the Federal Service on Financial Markets (FSFM) and various ministries and even made its case to Russia’s Prime Minister Vladimir Putin, but to no avail. And just like the news anchor in the seminal US film Network, the Swedes have reached the end of their tether and are beginning to shout their discontent from the rooftops.
A release last week by Prosperity described actions taken by Prokhorov’s Onexim group as “a stark example of legal nihilism”. It said: “Prokhorov’s Onexim Group is now inflicting serious damage on Russia’s reputation as a place to do business. The company’s latest statements on the TGK-4 situation are dishonest, self-serving and plain wrong – and everyone involved in Russia’s financial markets knows it.”
Onexim, a Cyprus-registered investment group, has responded by calling Prosperity’s management “speculators” and “foreigners” because they raise their money from overseas.
Disputes between minorities and controlling shareholders are on the rise in the recently deregulated utility sector and other sectors where controlling shareholders face the squeeze.
Prokhorov, however, is king of the cash pile after selling his stake in metals giant Norilsk Nickel last April at the top of the market for an estimated $10bn.
Moscow financiers say the spat reflects badly on local brokerage Renaissance Capital, which Prokhorov took a 50% stake in last October at a knockdown price of $500m.
Renaissance may want to rein in Prokhorov but its hands could be tied trying to put out fires elsewhere. One banker said: “Renaissance’s great reputation in the market with investors is being tarnished by association, but it could be the case that Prokhorov has them over a barrel.”
Showing posts with label TGK-4. Show all posts
Showing posts with label TGK-4. Show all posts
Monday, 23 February 2009
Monday, 17 November 2008
Russian power plays highlight risks for minority investors
Financial News
Jason Corcoran in Moscow
17 November 2008
Energy company has been hit by governance failings
The crash in Russian equities has exposed serious risks for minority shareholders, despite an amelioration in the country’s corporate governance over the past few years.
The growth of Russian capital markets and the recent boom in initial public offerings has led to an improvement in corporate governance and accounting practices among the blue chips, but violations continue in the small to medium tier. A number of Russian utility companies that were spun off from the electricity monopoly have been particularly affected.
A group of 15 minority shareholders in power generator TGK-4 last month wrote to President Dmitry Medvedev claiming Onexim Group, an investment firm owned by Russian billionaire Mikhail Prokhorov, had exerted pressure on Russian officials to act in Prokhorov’s interest after Onexim agreed to buy it in May.
By law, as a majority shareholder, Onexim was required to offer to buy out minority investors. Investors said Prokhorov promised to do so.
However, following the slide in the Russian stock market, the required offer price for the buyout of TGK-4 shares stood at a 50% premium to the utility’s market price.
The group of minority shareholders, headed by Swedish investment firm Prosperity Capital and including a number of Russian and international hedge funds, claims Prokhorov reneged on his promise.
In an open letter to the President, the investors accused Prokohorov of “trying to avoid obligations by manipulating facts and using legal loopholes.
The shareholders wrote: “We appeal to you with a request to take immediate measures to protect the foundations of the Russian financial market and legal system, and to help set right these flagrant violations of the principles of corporate management.”
Alexander Branis, a director at Prosperity, which has about $4bn in funds under management, said the Kremlin had not replied. The Kremlin did not return calls inviting comment for this article.
James Fenkner, founder of Moscow hedge fund Red Star Invest and a local authority on corporate governance, added: “TGK-4 has been made into a strategic asset. The situation is borderline criminal, but you can see that corporate governance always gets worse at the bottom of a cycle.”
Onexim said it was no longer obliged to buy out the minority shareholders despite initially promising to do so when they acquired the majority sake in May.
Since its purchase of the stake, it had managed, in a way Prosperity questions, to lower its stake in TGK-4 below 50%, eliminating its obligation to buy the remainder of the shares.
TGK-4 also recently landed on a list of state “natural” monopolies, which prevents those companies from being bought. Investors claimed Onexim had applied pressure on the anti-monopoly regulator to include it on the list.
Prokhorov says he has a big capital investment programme, which will benefit the company and its shareholders who lost out from the buyout.
In a statement, he said: “I am certain that, once TGK-4 carries out its investment programme, the investors will earn a lot more than they would by pulling out their money now.”
Prosperity has sold down its original 18% stake of TGK-4, but remains a substantial shareholder. Other large investors include RusHydro and Federal Grid Company, which were spun off from the electricity monopoly UES. Fund sources suggested the latter two might come to a separate arrangement with Prokhorov in relation to their stakes in TGK-4.
Igor Goncharov, analyst at UBS in Moscow, said the market weakness had highlighted problems at energy companies TGK-2, TGK-4 and OGK-3 and could led to potential risks at OGK-2, 6, TGK-6, 7 and 9.
He said: “The most apparent risk is that the core shareholders may economically dilute minority shareholders by buying newly issued shares at current valuations, which we find to be substantially below intrinsic fair value for most of the companies.”
Branis of Prosperity said Russia’s main financial regulator, Federal Financial Markets Service was beginning to talk robustly about minority shareholders rights and had stepped in at OGK 3 and TGK-4 in a practical way. The free float in these other utilities is rather small and Goncharov is concerned that abuses could occur.
He said: “The regulator has mobilised itself to get involved in upholding the rule of the law and this is very encouraging.”
Jason Corcoran in Moscow
17 November 2008
Energy company has been hit by governance failings
The crash in Russian equities has exposed serious risks for minority shareholders, despite an amelioration in the country’s corporate governance over the past few years.
The growth of Russian capital markets and the recent boom in initial public offerings has led to an improvement in corporate governance and accounting practices among the blue chips, but violations continue in the small to medium tier. A number of Russian utility companies that were spun off from the electricity monopoly have been particularly affected.
A group of 15 minority shareholders in power generator TGK-4 last month wrote to President Dmitry Medvedev claiming Onexim Group, an investment firm owned by Russian billionaire Mikhail Prokhorov, had exerted pressure on Russian officials to act in Prokhorov’s interest after Onexim agreed to buy it in May.
By law, as a majority shareholder, Onexim was required to offer to buy out minority investors. Investors said Prokhorov promised to do so.
However, following the slide in the Russian stock market, the required offer price for the buyout of TGK-4 shares stood at a 50% premium to the utility’s market price.
The group of minority shareholders, headed by Swedish investment firm Prosperity Capital and including a number of Russian and international hedge funds, claims Prokhorov reneged on his promise.
In an open letter to the President, the investors accused Prokohorov of “trying to avoid obligations by manipulating facts and using legal loopholes.
The shareholders wrote: “We appeal to you with a request to take immediate measures to protect the foundations of the Russian financial market and legal system, and to help set right these flagrant violations of the principles of corporate management.”
Alexander Branis, a director at Prosperity, which has about $4bn in funds under management, said the Kremlin had not replied. The Kremlin did not return calls inviting comment for this article.
James Fenkner, founder of Moscow hedge fund Red Star Invest and a local authority on corporate governance, added: “TGK-4 has been made into a strategic asset. The situation is borderline criminal, but you can see that corporate governance always gets worse at the bottom of a cycle.”
Onexim said it was no longer obliged to buy out the minority shareholders despite initially promising to do so when they acquired the majority sake in May.
Since its purchase of the stake, it had managed, in a way Prosperity questions, to lower its stake in TGK-4 below 50%, eliminating its obligation to buy the remainder of the shares.
TGK-4 also recently landed on a list of state “natural” monopolies, which prevents those companies from being bought. Investors claimed Onexim had applied pressure on the anti-monopoly regulator to include it on the list.
Prokhorov says he has a big capital investment programme, which will benefit the company and its shareholders who lost out from the buyout.
In a statement, he said: “I am certain that, once TGK-4 carries out its investment programme, the investors will earn a lot more than they would by pulling out their money now.”
Prosperity has sold down its original 18% stake of TGK-4, but remains a substantial shareholder. Other large investors include RusHydro and Federal Grid Company, which were spun off from the electricity monopoly UES. Fund sources suggested the latter two might come to a separate arrangement with Prokhorov in relation to their stakes in TGK-4.
Igor Goncharov, analyst at UBS in Moscow, said the market weakness had highlighted problems at energy companies TGK-2, TGK-4 and OGK-3 and could led to potential risks at OGK-2, 6, TGK-6, 7 and 9.
He said: “The most apparent risk is that the core shareholders may economically dilute minority shareholders by buying newly issued shares at current valuations, which we find to be substantially below intrinsic fair value for most of the companies.”
Branis of Prosperity said Russia’s main financial regulator, Federal Financial Markets Service was beginning to talk robustly about minority shareholders rights and had stepped in at OGK 3 and TGK-4 in a practical way. The free float in these other utilities is rather small and Goncharov is concerned that abuses could occur.
He said: “The regulator has mobilised itself to get involved in upholding the rule of the law and this is very encouraging.”
Subscribe to:
Posts (Atom)
Posts
