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Rosneft Prevails in Lawsuit Against Sistema

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Rosneft Prevails in Lawsuit Against Sistema WSJ.com, 23.08.2017 Rosneft Prevails in Lawsuit Against Sistema Oil giant awarded billions in case, seen as test of Russia’s investment climate By Thomas Grove MOSCOW—A regional arbitration court in Russia ruled in favor of Russian oil giant PAO Rosneft, in a case seen as a test of the country’s investment climate. A judge in the Bashkiria region ruled Wednesday that conglomerate AFK Sistema must pay Rosneft 136 billion rubles ($2.3 billion) over its management of oil producer Bashneft . Rosneft said Sistema, the former owner of Bashneft, destroyed value in the medium-size company and removed assets from the company. Sistema had a controlling share in Bashneft when the government took over the oil company in 2014, saying an initial privatization was void. Rosneft subsequently bought Bashneft in a sale criticized by some Russian entrepreneurs. Sistema said the restructuring of Bashneft—the main issue in the case—was done to prepare the company for an initial public offering. The case has been closely watched in Russia, in no small part because Rosneft is run by Igor Sechin, a former intelligence officer and close ally of Russian President Vladimir Putin. Rosneft said it was pleased with the decision, but the Russian news agency Interfax quoted Rosneft spokesman Mikhail Leontiev as saying the company would decide whether to appeal the decision to award less than the 170.6 billion rubles the company was seeking. A spokesman for Sistema said the “absurd” decision was a blow against Russia’s economy and that the company would appeal. During a protracted proceeding, a judge dismissed a number of motions from Sistema, including a request to use independent experts to determine whether Sistema had destroyed value during its holding of the company. Sistema officials said they were adding value to the company during their tenure over the company and were preparing for an IPO, which included the restructuring of noncore assets, obligatory buyback of minority shareholders and the cancellation of stock the treasury owned in the company. Rosneft’s lawsuit against the conglomerate sent waves through the Russian business community. Russia has been recovering from a recession brought on by Western sanctions and a drop in oil prices; in February, Russia’s top children’s goods retailer, Detsky Mir , held the first major initial public offering in the country since the annexation of the Black Sea peninsula of Crimea in 2014. Sistema, the main owner of Detsky Mir, previously had put off plans for an IPO, and the placement sent a signal investors were starting to warm to Russia again. Timothy Ash, senior strategist at BlueBay Asset Management in London, said the case has boosted worries that investors may once again be deterred by a politicized business environment. “It underscores the risk of doing business in Russia overall,” he said. “The interesting thing for me is the Russian macro story looks pretty good, but on a structural reform/business environment side, I don’t see much change.” —Nathan Hodge in Moscow contributed to this article. .
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