The association of investors accuses the subsidiary company of Oleg Deripaska’s En+ Group of understating the price of the mandatory offer made to minority shareholders by more than RUB 8 billion. The API has reported this to the London Stock Exchange where En+ expects to conduct an IPO.
The Association of Institutional Investors (API) uniting 25 most active major investors has notified the London Stock Exchange (LSE) of the infringements it detected in the mandatory repurchase of shares from the minority shareholders of a company of Oleg Deripaska’s En+ holding.
“The API has sent a letter of information to the LSE on which En+ Group expects to conduct an IPO. The letter contains a summary of the below information and a request to make it available to all potential purchasers of the group’s securities in case of their offering, for familiarization purposes," the Association said in a press release.
En+ Group owns a 48.13% stake in UC Rusal, as well as Russia’s largest privately-held power company EuroSibEnergo, metallurgical and coal production assets, and a logistic business. The company intended to conduct an IPO on the LSE in the first half of 2017; later, Deripaska announced a decision within 18 months.
The API’s letter refers to the transaction concluded by Telmamskaya HPP, a company controlled by EuroSibEnergo, in June 2016: the acquisition by Telmamskaya HPP of 40.285% of Irkutskenergo shares from Inter RAO for 70 billion rubles enabled EuroSibEnergo to consolidate 90.5% of the company. Following that transaction, however, EvroSibEnergo companies did not make a mandatory offer to minority shareholders as it was obliged to do by the law on joint-stock companies within one month (until July 12, 2016), the Association notes.
As previously reported by Kommersant, the Central Bank restricted the voting power of EuroSibEnergo and Telmamskaya HPP at shareholders meetings of Irkutskenergo in response to a complaint from the minority shareholders. Besides, the Central Bank imposed an administrative penalty of 500,000 rubles on the infringer and filed a lawsuit seeking enforcement of the order in the Arbitration Court of Irkutsk region in mid-March 2017.
Telmamskaya HPP eventually made the offer to the minority shareholders at the end of June 2017. Each security was priced at 17.42 rubles equal to the weighted average stock exchange price in the last six months, the whole 9.5% stake being valued at 7.6 billion rubles. It should be noted that Deripaska’s company purchased Irkutskenergo shares from Inter RAO at an almost two times higher price of 36.45 rubles per share the year before. Had Telmamskaya HPP acquired the shares from the minority shareholders at the same price, the buyout would have cost it about 16 billion rubles.
Therefore, the API believes that the company understated the buyout price and saved about 8.4 billion rubles on minority shareholders.
“The stock buyout price for the offer made by Telmamskaya HPP was calculated proceeding from the weighted average stock price of Irkutskenergo shares across the 6-month period in accordance with Russian laws. The offer parameters were approved by the Central Bank,” the En+ Group spokesperson commented for RBC. Irkutskenergo shares have seen “strong upward dynamics” in the past two years soaring in price by more than 200%, he noted. However, given the low volume of trading in these securities, selling a more or less large package in the market without sending the stock price tumbling is “quite problematic”. The En+ spokesperson is certain that most of the minority shareholders will accept the offer of Telmamskaya HPP.
The API also highlighted the Bank of Russia’s limited influence on infringers of legal requirements and the inadequacy of the statutory punishment for such infringements. In particular, Sergey Shvetsov, First Deputy Chairman of the Central Bank of Russia, said to Interfax that the Russian legislation did not currently empower the regulatory authority to influence the offer price. He admitted that "the imperfect legislation prevents the Central Bank from making the timeframe underlying the price a matter of discussion, the current law explicitly states that it is six months before making the offer.” In this case, the Central Bank only had the power to force the infringer to eventually make the offer to the minorities, Shvetsov said.
According to a comment from Mikhail Alexandrov, a partner of the A2 law firm, if En+ decides to conduct an IPO on the London Stock Exchange, the investors’ interest in its securities may be affected by the corporate governance weaknesses this case brings to light rather than the claim of Irkutskenergo minority shareholders as such.
By: Svetlana Burmistrova
For details, visit RBC: