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August 25, 2017 www.intellinews.com I Page 2
Russia’s property rights again under scrutiny as Rosneft lands €2bn blow on Sistema
sold on to Rosneft in 2016. Having lost control
of Bashneft to Rosneft, Sistema now has to compensate the state-owned company for its stewardship of its former asset, in what is being seen as another blow to investor confidence in the Russian business environment.
Sistema could be forced to sell or collateralise its stake in one of country’s “big three” mobile opera- tors in order to pay the €1.95bn compensation slapped on it by a Bashkortostan court, analysts surveyed by Vedomosti daily believe.
Gazprombank on August 24 estimated the
total value of Sistema’s assets at RUB475bn,
out of which RUB250bn was a stake in Mobile TeleSystems (MTS). The bank does not rule out that Sistema could agree with Rosneft to transfer a part of its assets, including a large minority stake in MTS, in lieu of payment for the claim.
Sistema shares fell 3% after the announcement of the court ruling and its market capitalization has declined by RUB108bn since the lawsuit was filed, but Gazprombank sees a potential for further loss of RUB28bn. The company’s shares have lost some two- thirds of their value since the row with Rosneft began.
The investment conglomerate has one month
to appeal the court decision. The highly likely defeat of the appeal makes the Sistema case a dangerous precedent, damaging Russia’s already embattled investment climate, analysts say. “The judge has questioned the legality of such standard corporate procedures as preparations for an IPO and buying out its own shares,” a representative of Sistema, Sergei Kopitov, commented.
Previously, Sistema’s appeals to remove the
lockdown of RUB170bn worth of its assets, including the stake in MTS, have been denied.
The head and founder of Sistema, Vladimir Yev- tushenkov, was put under house arrest in 2014 for alleged irregularities in Bashneft’s privatisation before being released after transferring owner- ship of the oil company to the state. The lucra- tive oil asset, now state owned, was then sold
to Rosneft, despite the fact the “privatisation” was technically between two state companies.
Rosneft again stands to benefit from the latest compensation to be paid by Sistema. VTB Capital estimated on August 24 that RUB136bn awarded to it by the court represents around 12% of Rosneft’s 2017 Ebitda. Potentially, assuming a 50% payout ra- tio, Rosneft’s dividend yield could rise from currently estimated 3.8% to healthier 5.5%, VTB calculates.
The case against Sistema and its owner Yevtush- enkov has echoes of the corporate attack that the head of Rosneft, Igor Sechin, conducted against the billionaire Mikhail Khodorkovsky and the now defunct Yukos Oil, then Russia’s largest oil compa- ny. That ended with Yukos being broken up and its prized assets acquired for a song by Rosneft, while Khodorkovsky was jailed for 10 years. It also ended any illusion by foreign investors that Vladimir Pu- tin’s regime would respect property rights.
Fitch Ratings on June 28 placed Sistema and its main asset MTS on rating watch negative “follow- ing a Russian court injunction to freeze significant Sistema assets including its 31.76% stake in MTS, in relation to claims filed by Rosneft against Sistema”.
“The court injunction and the subsequent bailiff’s decision [on the asset freeze] significantly limit Sistema’s ability to control a sizable portion of its assets, and may reduce the flow of dividends to the holding company,” Fitch warned.
As well as Sistema’s 31.76% stake in MTS, 100% in the Medsi private healthcare chain and 90.47% in Bashkirian Power Grid Company were arrested earlier this month by court order in Bashkortostan.