Doing business Russian style
Got to repay your overdraft but can’t sell your house and don’t want to sell your shares in your favourite company? Then sell the company your home and repay the bank. Not on? It is if you’re Russian.
This is the audacious scheme devised to bail out Chalva Tchigirinski who owes his banks a fortune, can’t sell his property schemes but owns a 23 per cent stake in Sibir Energy worth £16m. His plan is to sell $500m of property to the Russian oil company and get the banks off his back.
Perhaps you are not worried what foreigners get up to, but Sibir is a UK registered company. It is quoted on the Aim market in the City. Indeed, it was Aim’s largest company – so large that when it was worth £2.5bn this summer it was about to obtain a full London share listing.
So it is not just Russian corporate governance that gets a bad name from this cosy deal, it is the Square Mile and the London Stock Exchange.
The first $157m of property – a Moscow hotel - has already been bought from Tchigirinski by Sibir. That wasn’t enough to satisfy the banks however, so another $340m is now going the same way, including the site of what will be Europe’s tallest building, Moscow’s Russia Tower.
Tchigirinski cannot sell them on the open market because it has closed. Why then should an oil company go into the property business to help out a minority shareholder? Who says the property is worth the price and who will finance the development of Russia Tower, which may well be more a liability than an asset.
Sibir’s answer is that if he sold his shares he would damage the company – presumably because the shares are unsaleable too. As the whole company is worth only £72m, having lost 97 per cent of its value since summer, a sale would do little to satisfy the banks any way.
Shareholders get to vote on this scandalous deal but as two-thirds of the shares are in Russian hands, it will go through.
Sibir’s chief executive calmly tells other shareholders that “Russia has never been for the feint-hearted” but what this lesson proves is that business there has not moved on from the days 10 years ago when the country defaulted and the oligarchs grabbed the assets.
UK companies should be very wary of a country that does business in this way. The London Stock Exchange should be very wary of accepting business from a country that does business in this way – or it may find UK companies wary of using the London Stock Exchange.
