Russian minority investors are enduring the worst year for corporate governance scandals since 2009, according to Mattias Westman, chief executive officer of Prosperity Capital Management.
“There have been structural improvements, but the specific corporate governance scandals this year have been striking,” Westman, whose firm manages about $4 billion and is the world’s largest Russia-focused money manager, said today by phone from London. “It’s the worst year since after the crisis in 2009.”
Prosperity and investors including Templeton Emerging Markets Group and Allianz Investments are contesting a move by OAO Rosneft (ROSN), the world’s biggest publicly traded oil producer, not to buy out minority shareholders in oil producer TNK-BP.
President Vladimir Putin’s government is struggling to lure foreign investors to counter capital outflows due to corporate governance disputes this year at TNK-BP, OAO Pharmstandard, Russia’s biggest drugmaker, and OAO Uralkali, the world’s largest potash producer. Russia’s benchmark Micex Index (MOSBIRZ) trades at the cheapest levels of all major emerging-market indexes.
Shares in TNK-BP, since renamed OAO RN Holding, jumped as much as 18 percent on Sept. 27 after Rosneft CEO Igor Sechin said his company may buy back minority shareholders at a premium. Until then, Sechin had resisted minority investors’ demands, saying at Rosneft’s annual general meeting in April that Rosneft was “not a charity fund.”
Rosneft has approved a buyout at 67 rubles a common share and 55 rubles for preferred shares in RN Holding. Sberbank CIB analysts said the offer was “disappointing” for investors as they estimated Rosneft paid about $3.70 a share, or about 120 rubles a share, to London-based BP Plc (BP/) and a group of Russian billionaires in a $55 billion cash-and-share deal.
Westman said Prosperity hasn’t received the offer. “We will want to see a buyout offer that is higher, but some investors had given up and didn’t think we get anything,” he said.
Alexander Branis, chief investment officer at Moscow-based Prosperity, advises the Kremlin on corporate governance and will shortly submit proposals on mandatory offers for minority shareholders, according to Westman.
“As part of our work trying to make Moscow into an international finance center, we are coming up with proposals to strengthen the hand of minority shareholders,” he said, without going into specific details.
Hermitage Capital, once Russia’s largest portfolio investor, shut its Russia fund in March as its founder, Bill Browder, was being sued for libel in London and tried in absentia for tax evasion in Moscow.
Hermitage, a shareholder activist fund that American-born Browder started in 1996 with the late billionaire Edmond Safra, peaked at more than $4 billion in 2005, according to Browder. Russia that year barred Browder from the country without explanation, triggering years of legal conflict, including over the 2009 death of Hermitage adviser Sergei Magnitsky while he was in pretrial detention in Moscow.
Westman said he had “no fears” that Prosperity could be hounded from Russia as Hermitage was.
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