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22 I Companies & Markets bne February 2018
bne:Deal
Russia's Rosneft and Sistema end their corporate war with $1.7bn settlement
IntelliNews Pro
The corporate war between Russia’s state-owned oil major Rosneft and conglomerate AFK Sistema has
come to an end after the two companies announced a settlement on December 22, the day after the heads of the two companies met with president Vladimir Putin. All the legal suits will be dropped and Sistema has agreed to pay Rosneft RUB100bn ($1.7bn) in damages.
The saga is connected to the nationalisation of Bashneft
in 2014 that previously belonged to Sistema but was then bought by Rosneft in a privatisation. The battle between the two companies has gone on for a year and has done massive damage to Russia’s investment case. It has undermined confidence in the rule of law, emphasised that the stoligarchs, the powerful businessmen close to Putin, are above the law, and caught up some of Russia’s blue chip stocks owned by Sistema as collateral damage.
The London-listed Sistema has been a favourite of investors and one of the most successful companies on the Russian market. Its portfolio includes some of the best names in retail and telecom such as big-three phone company Mobile TeleSystems (MTS) and children’s toy retailed Detsky Mir.
In addition to facing over $5bn in damage claims brought
by Rosneft, Sistema is currently cut off from the shares and dividends of all its major assets, frozen by court orders, and had an SPO of subsidiary Detsky Mir sabotaged earlier in December by a hasty court ruling initiated by Rosneft the day before the SPO was offered.
Shares of AFK Sistema on Moscow Exchange sank another 13% to a four-year low only last week as they were hit yet again by the news that the private investment conglomerate lost another appeal against Rosneft. All-in-all Sistema’s share price are down by over three quarters since the dispute started.
President Vladimir Putin has personally intervened. He met with the head of Rosneft, Igor Sechin, and Sistema CEO Vladimir Yevtushenko again on December 21 and clearly told them to end their conflict.
Formerly the resolution was brokered by the sovereign wealth fund Russian Direct Investment Fund (RDIF) together with state-owned banking behemoth Sberbank.
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“The Russian Direct Investment Fund, the sovereign wealth fund of the Russian Federation, welcomes the amicable settlement between AFK “Sistema” and “Bashneft”, achieved with the Fund’s active facilitation,” RDIF said in a press release
“Sistema is currently cut off from the shares and dividends of all its major assets”
on December 22. “This compromise achieved meets both sides' interests, sends a positive signal to the market and improves the investment climate in Russia. We are grateful to both sides for entrusting the Russian Direct Investment Fund during negotiations.”
The settlement includes a payment from Sistema to Rosneft of RUB100bn ($1.7bn), the company said, which is less than Rosneft’s two lawsuits worth a total of RUB367bn. Sistema recently countered with lawsuit for RUB331bn, which it has agreed to drop as part of the deal.
Sistema said in a statement that it would “make this payment using its own as well as borrowed funds” suggesting that both RDIF and Sberbank were prepared to provide the financing for part of the payment, although no details
were released.
The settlement is a victory for Sechin who has waged
a vindictive campaign against Sistema and Yevtushenko,
ever since the Kremlin renationalized Sistema’s oil company Bashneft. Analysts say the claims against Bashneft of stripping cash out of Bashneft ahead during the nationalisation are dubious and the Russian court decisions were not based on the merits of the case.
According to bne IntelliNews sources close to Sistema, standing behind the whole case is the money Bashneft used to provide to the Tatarstan region – a major source of income to the region – which found itself cut off from these revenues
after Sistema took the oil company over. Clearly the case is intensely political.