Sibir Energy’s Corporate Scandal

The financial crisis may require that companies make sacrifices to protect themselves from ruin, but ‘this is ridiculous‘, says The Times of London.  The investor community is in an outrage over Sibir Energy’s latest move, already dubbed a ‘corporate scandal of the first class‘, and the latest blow to Russia’s already-sketchy record of investor appeal. 

Sibir’s shareholders have agreed to buy a portfolio of 10 property projects from Chalva Tchigirinski, the businessman who owns about 23% of the company.  His property projects, including hotels and skyscrapers, are worth roughly $340 million.  But Sibir’s projects, you’ll note, are in the energy sector, not the property sector – which seems the most obvious reason why the news caused the company’s value to halve almost immediately.

From the Financial Times:

Shareholders gave a mixed reaction on Wednesday. Some accepted the purchase could be the best way to keep Sibir afloat through financial turbulence in Russia.

However, James Fenkner, founder of Red Star Asset Management, a Moscow-based hedge fund, said: “This is insane. This is going back to ’98. This place hasn’t changed.” Some investors have started to fear Russian businessmen could revert to old practices honed in the 1998 crisis, when cash-strapped oligarchs stripped their companies’ assets.

Sibir has had a history of battles with other Russian businesses. It recently settled a dispute with Gazprom, the state-controlled gas company, over control of a Moscow refinery and an oil field, and tried to take Roman Abramovich, the owner of Chelsea football club, to court in London in October.

Behind all that, however, it has done well in its core business. The development of the Salym field in western Siberia, a joint venture with Royal Dutch Shell, has been a huge success, taking Sibir’s production to 76,700 barrels of oil per day last month, a very respectable amount for an independent. It has proved and tested reserves, under Russian definition, of 491m barrels of oil.

An often-rumoured deal with Shell has so far come to nothing. But the reserves remain a valuable asset and the best hope for shareholders is that some way can be found to realise that value.