Challenging by the Federal Antimonopoly Service (FAS) and the Central Bank (CB) of the purchase by Arkhangelskgeoldobycha (AGD) from Lukoil of Lukoil holding in Lukoil for $ 1.45 billion in 2017 threatens the investment climate in Russia, VTB said in a statement. In this transaction, the State Bank acted as a consultant and lender to the buyer. The transaction was approved by the government commission on foreign investment.
The purchase of AGD aroused suspicion from the Central Bank; it will act as a third party in the lawsuit of the FAS. During the rehabilitation of Otkritie Bank, which partially financed the deal, the Central Bank decided that its amount more than doubled the value of the enterprise, the FAS noted. Last week, the service went to court.
The final amount for the purchase of AGDs amounted to $ 1.6 billion, said a representative of Trust, to whom the holding's debts to Otkrytie passed. The amount was as follows: in addition to buying shares for $ 1.05 billion, AGD debt to Lukoil in the amount of $ 400 million was repaid and a trading company for $ 170 million was acquired. The market price of AGD at the time of the transaction, according to the Trust, did not exceed $ 700 million.
The FAS also revealed that the transaction was in violation of the law on foreign investment in strategically important enterprises. The Foreign Investment Commission approved the deal, but the buyer did not disclose to her information about the presence of a number of beneficiaries of Otkritie Holding holding a second citizenship. As a result, control over the strategic asset was received (at that time) by a group of people with two citizenships.
Actions aimed at revising the decisions of the commission create the prerequisites for the revision of tens and hundreds of multi-billion dollar investment agreements, VTB believes. Moreover, a precedent is being created, which, in essence, allows new owners to reconsider, under a far-fetched pretext, any transactions made by previous owners, the bank notes, recalling: this is a deal between two private commercial entities.
“It is obvious that the state bodies in this story are roughly used in solving purely commercial problems. This disorientates market participants and undermines the basic condition for doing business - trust, ”the state bank said in a statement.
VTB was the main creditor of the transaction: the loan amount was not disclosed, but, in addition to guarantees to the bank in the amount of $ 1.5 billion, VTB incorporated all the companies involved in the transaction, Kommersant wrote. Goldman Sachs acted as a consultant to Lukoil. It reminds VTB: the deal underwent a thorough multilateral examination, and the price of the company was recognized as the market price by both deal consultants and satisfied the buyer and seller. The participants in the transaction received all the necessary permissions and conclusions from the regulatory authorities, VTB recalled.
VTB is surprised at such actions by government agencies, especially during a period of significant deterioration in the economic situation in the country and the world against the backdrop of the coronavirus pandemic. “While the government and the entire business community are developing and implementing plans to stabilize the economy, restore it and subsequently grow, steps are being taken that threaten to turn back not only foreign but also Russian investors from Russia,” the state bank warns.
Lukoil also responded to FAS claims. The company built a diamond mining asset from scratch, and the deal was passed after the permission of the government commission to control the implementation of foreign investments, the FAS itself also agreed to the deal. The FAS lawsuit, according to Lukoil, casts doubt on the procedure for state control of foreign investment in strategic enterprises: the antimonopoly service with its lawsuit "essentially disputes the legitimacy of the decision made by the government commission."
The FAS does not agree that contesting a transaction concluded on the basis of knowingly false data may lead to a deterioration in the investment climate, the agency’s representative says: when approving transactions, the authorized body proceeds from the applicant’s good faith and the accuracy of the information provided by him. The FAS does not dispute the legitimacy of the decision adopted by the government commission on foreign investment, the representative of the agency notes, the deal was agreed on the conditions and taking into account the consequences that were presented by the applicant as part of the application. But in fact, it was committed on other conditions, the FAS representative summed up: information on the share of foreign participation in relation to a strategic society is essential when a government commission makes a decision.
A spokesman for Goldman Sachs declined to comment.
Mishustin is asked to intervene
President of the Russian Union of Industrialists and Entrepreneurs (RSPP) Alexander Shokhin wrote a letter to Prime Minister Mikhail Mishustin with a request to consider the possibility of withdrawing the FAS claim and to develop proposals for resolving the problem out of court. Vedomosti got acquainted with a copy of the letter, a representative of the Russian Union of Industrialists and Entrepreneurs confirmed its authenticity.
Shokhin writes that the initiation of the FAS lawsuit calls into question the procedure for state control of foreign investment in strategic enterprises, and also creates the prerequisites for a “serious image blow to the business climate in Russia.” The actions of the FAS, writes Shokhin, offset the positive effect of the joint long-term work of the government and the business community to promote Russia in the World Bank's Doing Business ranking. In the conditions of instability of the world economy and toughening competition between states, investors will prefer jurisdictions with a reputation of a "safe haven" that protects the rights of business. Shokhin on behalf of the Russian Union of Industrialists and Entrepreneurs asks the prime minister to instruct the Ministry of Economic Development, the Justice Ministry and the FAS itself, together with the business community, to discuss the conflict.
Claims put forward by the service a few years after the transaction raises many questions, says Vitaly Dianov, partner at Bryan Cave Leighton Paisner (Russia) LLP. Firstly, even if one agrees with the presence of a violation in the buyer’s actions, is the reversal of such a large transaction an adequate response, provided that the violation itself looks rather formal, and the consequences of the reversal of the transaction mainly affect the second party to the transaction? Secondly, the expert continues, the government commission includes representatives of law enforcement agencies, who write their own conclusions on each transaction. Why, then, the fact of dual citizenship of a number of shareholders was missed, wonders Dianov. Thirdly, the transaction price is not included in the subject of verification by the FAS and the legal commission and cannot be included by definition, because this is a field for an agreement between the two parties, the expert notes: why then comments appear about its unreasonably high cost?
Vedomosti sent inquiries to representatives of the government, the Ministry of Economic Development, the Ministry of Justice and the FAS.