Russia’s Minority Shareholders Panicking
The RUXX Research Department has produced a new report related to foreign investors’ increasing concerns over the Russian business environment, with a focus on the dispute between minority shareholders of power generator TGK-4 and billionaire Mikhail Prokhorov (photo), who reneged on an agreement for a share buyout following the economic crisis, thanks to a special monopoly designation from the government. Minority shareholders believe that Prokhorov’s group, Onexim, may have influenced the government to put TGK-4 on this list given the timing, and now they are lobbying the president to intervene. Isn’t it funny and sadly self-perpetuating when the victims of arbitrary and illegal state interventions seek to produce yet another arbitrary exercise of power to fix the problem instead of seeking legal remedy? It’s tough to use a broken system to solve the very problems that it causes. From RUXX:
The enraged minority shareholders, a group that includes 15 foreign and domestic portfolio investors and managing companies and thousands of individual representatives of four Western companies (among them a Bostonbased hedge fund Spinnaker Capital) have turned to Russia’s highest authority for help. In an open letter to President Dmitry Medvedev printed in Vedomosti, the country’s major business daily, the minorities called Prokhorov’s strategy “a plot” and requested state intervention:
“[W]e believe they are attempting to back out of meeting their obligations, manipulating facts and exploiting legal loopholes. We, the minority shareholders and their representatives, being in possession of stakes in these companies, are outraged at this thinly veiled attempt to violate Russian laws.“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.”Their attempt is likely futile, the Global Insight report predicts, as Prokhorov’s strategy of securing the government decree was “legally flawless”: “Prokhorov has demonstrated his trademark cunning by finding a legally correct but glaringly contrived strategy to escape from inconvenient financial obligations,” the global forecasting firm states.It is no small irony that after long fearing state interference in their Russian business dealings, Western investors are now hoping for just that with their appeal to Medvedev. As the Global Insight report concludes, TGK’s minority shareholders want the president to “see through the perceived abuse of legal intricacies and induce Prokhorov to meet his obligations, to sustain governmental claims that foreign investors are well protected in Russia. … The case is snowballing fast, and gaining substantial domestic and international resonance. Russia’s president and government are facing an uncomfortable proposition to intervene in the market and the workings of Russia’s legal system for the sake of protecting the country’s investment reputation; good publicity currently can do more for Russia’s investment image than legislation.”
In other news, Reuters is reporting on efforts by Russia’s economic officials to soothe investor fears, but only behind closed doors:
Aivaras Abromavicius, from Sweden’s East Capital, asked Kremlin’s economic aide Arkady Dvorkovich what the government is planning to do about some majority owners pulling out of share buyouts despite complaints from minority shareholders.Dvorkovich said the matter should be taken to court and the government did not plan to interfere in court decisions. Abromavicius said he was happy Dvorkovich was at least aware of the problem.
