Photographer: Andrey Rudakov/Bloomberg

Russia Investors Find No Company Is Safe in Sechin's Crosshairs

  • Rosneft lawsuit seen as latest blow to investment climate
  • Putin had publicly endorsed Sistema share price in 2014

If a Russian company’s share price gets an endorsement from President Vladimir Putin, investors might be forgiven for thinking it’s a safe bet.

Not when Rosneft PJSC Chief Executive Igor Sechin has it in his crosshairs.

When Putin publicly proclaimed in late 2014 that he hoped the share price of Sistema PJSC would “restore its position on the market and get beyond this,” the market took it as a sign that the troubles of its embattled billionaire owner, Vladimir Evtushenkov, were behind him. Sistema shares more than doubled over the next six months.

But this week, investors in Sistema got a shock as Rosneft launched a $1.9 billion lawsuit against it, wiping more than a third off the company’s market value in two days. Bond prices also plunged.

“Of course it’s negative for the sentiment, and there isn’t much left of the Russian investment climate,” Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow who sold Sistema shares on Wednesday, said by phone. “With every case like this one it’s clear that private property means very little in Russia.”

The case is seen as the latest in a string of power plays by Sechin, a pugnacious ally of Putin who is widely feared in Moscow’s business community.

Sechin spearheaded Rosneft’s acquisition late last year of Bashneft from the Russian government after a bitter struggle in which Economy Minister Alexei Ulyukayev was arrested weeks later on charges of accepting a bribe related to the deal. That was just two years after Bashneft was seized from Sistema amid a money-laundering case which saw Evtushenkov held under house arrest for several months. The charges were ultimately dropped.

In recent months, Sechin has also masterminded the $11 billion investment into Rosneft by Glencore Plc and the Qatar Investment Authority, while Rosneft has clashed publicly with Transneft PJSC, the state oil-pipeline monopoly, and Ramzan Kadyrov, the powerful Chechen leader.

‘Lot of Questions’

“He feels like he can attack whomever he wants,” Vladimir Milov, a former deputy energy minister turned opposition politician, said of Sechin. “His tactic is always to ‘dig up’ something on somebody’s ‘wrongdoing’ and present new evidence to Putin, saying, ‘See, this guy has been stealing, we need to go after him.’”

Rosneft declined to comment on the lawsuit. Sechin has repeatedly denied pressuring business rivals.

Rosneft has been investigating Bashneft’s historical activities ever since it took control of the company last October. At the time, Rosneft spokesman Mikhail Leontyev said there were “a lot of questions” about Bashneft’s finances. A minority shareholder in the oil company said it had complained to Sistema that its rights were violated in a 2014 reorganization that eliminated a large debt owed to Bashneft by Sistema.

This week’s lawsuit comes as Dmitry Medvedev, Russia’s prime minister and an ally of Evtushenkov, is under growing pressure amid corruption allegations that sparked the biggest anti-Kremlin protests in years.

All the same, many investors and businesspeople see it as primarily a dispute between two of Moscow’s most powerful men. Sechin is widely believed to have orchestrated the seizure of Bashneft from Evtushenkov in 2014 –- something he has denied.

Shareholder Questions

Not everyone in Moscow’s business community sees Rosneft’s move as negative for the investment climate. Alexander Branis, chief investment adviser at Prosperity Capital Management and one of Russia’s most prominent fund managers, said he agreed with Rosneft’s complaints about Sistema.

“There were indeed some transactions that were unfair to Bashneft and its minority shareholders. We expressed these views to Sistema when these transactions took place,” Branis said by phone, referring to the 2014 reorganization and other deals between Sistema and Bashneft.

No details of the lawsuit have yet been published, and Sistema has limited its public comments on the matter to a short statement saying it had not yet seen any details of the case. The suit centers on the 2014 reorganization, Interfax cited a person familiar with it as saying.

“This is politics, there’s obviously a conflict between Sechin and Evtushenkov,” Sabina Mukhamedzhanova, a money manager at Promsvyaz Asset Management in Moscow, who is an investor in Sistema subsidiary Mobile TeleSystems PJSC, said by phone. “Unfortunately, this is another example of Russia’s poor investment climate. You can’t view this as a separate case, it’s a pattern.”

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