On April 7, the Board of Directors of PJSC Rostelecom and representatives of its majority shareholder, Russia’s Federal Agency for State Property Management / Rosimushchestvo, discussed the agreement on managing the telco’s quasi-treasury shares, a source close to Rostelecom’s Board of Directors informed the Vedomosti. The report was confirmed by an anonymous Rostelecom employee. Both noted that the Board of Directors found a way to control this share package that would suit all parties: the package itself is under control of Rosimushchestvo and cannot be sold without its knowledge or consent, but the power to vote these securities is vested in members of the company’s Board of Directors. This will eliminate the issue of shares actually being under control of the management team (as previously was the case) and serve the interest of minority shareholders whose rights would have been infringed, had the right to vote these securities been transferred to Rosimushchestvo, one of the Vedomosti sources commented adding that the best way would be to cancel these shares, but the management team is confident of their value to the company.
Rostelecom representative Kira Kiryukhina confirmed that the Board of Directors had discussed its role in the context of the shareholder agreement with Rosimushchestvo on April 7. The focus is on 15.06% of the ordinary shares and 30.79% of the preferred shares of Rostelecom belonging to its subsidiary Mobitel. Rostelecom consolidated this share package through a number of acquisitions from minority shareholders at prices exceeding Rostelecom’s current stock price. For example, in 2013, the operator acquired 7.45% of its ordinary shares from Gazprombank for RUB 25.2 billion, i.e. paying RUB 126.7 per share (Gazprombank previously acquired this stake from businessman Konstantin Malofeev’s entities). At the close of 2013, Rostelecom shareholders voted on the divestiture of its mobile assets with the aim of setting up a joint venture with Tele2, and the shareholders opposing the decision sold their shares to Rostelecom at a price of RUB 123.93 per ordinary share, RUB 87.8 per preferred share. Earlier, in 2012, Rostelecom acquired a 1.68% stake at a price of RUB 167 per ordinary share from VTB which, according to various sources, acquired the securities in the interest of Suleyman Kerimov. At the end of the trading session on Friday, each ordinary share of Rostelecom cost RUB 98.13 (see the chart).
The management team of Rostelecom noted repeatedly that quasi-treasury shares could be used for payment in asset purchase transactions, but no such transactions have been consummated so far. In October 2013, RDIF and Deutsche Bank together acquired 2.7% of Rostelecom’s ordinary shares, but Deutsche Bank later disposed of its 1.35% stake while Rostelecom had to buy back RFPI’s share at a price twice above what it previously earned from its sale. The Vedomosti source close to Rostelecom called that “loan repayment.”
The shares belonging to Mobitel came into play at the meeting of Rostelecom shareholders addressing the approval of several loans amounting to RUB 90 billion from VTB in the summer of 2015. The telecom operator asked the shareholders to approve the borrowings in advance to avoid convening extraordinary meetings addressing each of the loans separately. Rosimushchestvo, a major co-owner of both Rostelecom and VTB, was not allowed to vote, and the company needed the votes carried by more than half of the remaining 53% of shares for the quorum. That was the moment of glory for the shares owned by Mobitel: the quorum seemed to fail but additional votes came an hour later. The shares belonging to Rostelecom subsidiary did vote, Rostelecom managers commented on the sidelines of the meeting.
This practice discontented the internal audit commission of PJSC Rostelecom. The commission recommended that the management team of Rostelecom stop voting the quasi-treasury package. According to Alexander Shevchuk, Executive Director of the Association of Institutional Investors (API), one of the commission members, the best global and Russian corporate governance practices suggest non-involvement of quasi-treasury securities in the voting so as to keep the balance between the shareholders.
The purpose of the agreement with Rosimushchestvo was to guarantee that the shares belonging to the Rostelecom subsidiary will not be sold without the Government of Russia’s approval. The Government believes that the shares should not be used in transactions for non-cash payment but can only be sold for money, one of the Vedomosti sources close to the Government noted.
Initially, the voting rights were supposed to be transferred to Rosimushchestvo, which would infringe the rights of other shareholders, Shevchuk says. With this in mind, the API proposed that Rosimushchestvo, just as Rostelecom, refrain from voting quasi-treasury shares. According to minority shareholders, the transfer of the right to manage the share package to the Board of Directors is lesser evil, he says; however, it would be better to let a committee composed of solely independent directors decide how to vote.
The Rosimushchestvo representative declined to comment on the issue.
· Elizaveta Sergina