Jason Corcoran in Moscow.
A bitter dispute between billionaire Mikhail Prokhorov and Swedish fund manager Prosperity Capital over a cancelled share buyback at utility TGK4 may soon be resolved.
A source close to Prokhorov’s investment holding Onexim last week told Interfax that he hopes to resolve the situation with respect to claims from TGK4 minority shareholders in the near future.
Mattias Westman, chief executive of Prosperity, told Emergingmarkets.me rather cryptically that “we will see” when asked whether an end game was in sight. He added: “Unfortunately I cannot confirm exactly at what stage we are right now. We are still pursuing our claim very vigorously.
The original offer was launched in July 2008 at a price of $0.027 per share, but was revoked in October on the grounds that TGK4 had been declared a “strategic asset” by the government and necessary government approval for the transfer of ownership control (to Onexim) had not been obtained.
Prosperity Capital is the largest and longest serving fund manager operating in Russia. The firm has traditionally adopted a softly-softly approach to engaging with errant Russian corporates. But those tactics have recently proved as useful as a matchstick in a Siberian snowstorm.
The firm, along with other minority shareholders, took a large hit when Onexim reneged in September on the deal worth close to $1bn to buyback minorities. Prosperity has since been engaged in a persistent campaign through the courts and the press to get what it maintains was pledged by Onexim.
Other minorities, such as Western bulge bracket banks and other hedge funds, settled long ago but Prosperity has stubbornly stood the course despite setbacks in the courts. Claims by the state-controlled RusHydro and Federal Grid Company (FSK) have also been recently settled indicating that only Prosperity Capital is yet to do so.
The language in the battle has been combative and the legal teams must have made a heap from the prolonged squabble. A release by Prosperity described actions taken by Prokhorov’s Onexim as “a stark example of legal nihilism.” It said: “Onexim is inflicting serious damage on Russia’s reputation as a place to do business.”
Onexim, Cyprus-registered investment group, responded by calling Prosperity “speculators” and “foreigners” because they raise their money from overseas.
Disputes between minorities and controlling shareholders are on the rise in Russia’s recently deregulated utility sector and other sectors, where controlling shareholders are facing the squeeze. In his inauguration speech last May, President Medvedev placed emphasis on eradicating “legal nihilism” in the Russian judiciary. But mooted reforms have been slow coming in a system with a reputation for corruption and bureaucracy.
Prosperity itself won little change from its battle in the courts. Its lobbying of bankers at Renaissance Capital, in which Prokhorov’s Onexim Group took a 50% stake, may have proved more effective. The damage to Rencap and to the market may have convinced Prokhorov to call it a day.
If Prosperity has won out by holding its nerve, their battle will have heartened other minority investors who are struggling to see their rights upheld.
The Swedish fund manager has shouted the loudest and the longest but it remains to be seen whether a settlement by Prokhorov’s Onexim will be extended to other shareholders who have already settled with the oligarch.
