Shareholder Spat Hinders Ingosstrakh Acquisitions

The country's second-biggest insurer, Ingosstrakh, will soon acquire three leading firms in the former Soviet Union, but its growth is being hampered by a shareholder dispute, its controlling shareholder, Basic Element, said.

The acquisitions in Azerbaijan, Uzbekistan and Kazakhstan will either be the largest or in the top five in their markets, said Olga Zinovieva, head of financial services at Basic Element, a conglomerate owned by billionaire Oleg Deripaska.

"These talks are in their very final stages. Virtually all we have to do is pay for the acquisitions," which Ingosstrakh will do in cash in the coming months, she said in an interview last week.

But Czech PPF Investments, which owns a 38.5 percent stake in Ingosstrakh, stands in the way of the insurer's main strategic goals, such as expanding in eastern Europe and winning large state insurance contracts, Zinovieva said.

"For [PPF] to stay as an investor I think is bad for the company and bad for its shareholders," Zinovieva said, adding that Basic Element would use every legal means to secure outright control over Ingosstrakh.

It was partly to this end that Basic Element voted to quadruple Ingosstrakh's capital to 10 billion rubles ($411 million) at an Oct. 8 shareholders meeting, a move that would cut PPF's stake to below 10 percent, PPF chairman Tomas Brzobohaty said.

PPF filed several lawsuits and regulatory complaints to block the dilutive share issue, and a Moscow court ruled this month that Basic Element's plans must be frozen until both sides present their cases and a verdict is reached, possibly in December.

When the two sides do sit down to talk about the situation, as they say they have never done, a buyout is the most likely resolution, said PPF's Brzobohaty: "We are quite flexible and open to talks about that."

Otherwise, PPF will have the option of buying into the increased capital to keep its stake above 25 percent. "We have no legal means to prevent this," Zinovieva said. "But for us to move forward with our development strategy under such conditions is just not realistic."

BasEl's distaste for PPF's partnership goes back to September 2006 when businessman Alexander Mamut proposed selling his 38.5 percent stake to the Czechs. Zinovieva said she then went to Prague with a BasEl delegation and was not impressed with what she found, either in terms of the know-how or the insurance assets of PPF Group, the parent company of PPF Investments.

For Brzobohaty it also became clear after that visit that there was no scope for an alliance, but PPF decided to enter Ingosstrakh anyway, "strictly as a private equity investment." With a foreign investor on the board, Zinovieva said Ingosstrakh stood to lose lucrative state insurance contracts.

The Federal Security Service and other branches of the secret services do not buy insurance from firms with foreign investors, said Oleg Ivanov, adviser to the State Duma committee on credit organizations. "There is nothing in the law that prevents these kinds of deals. But the agencies have fears that foreigners on the board would access private information," Ivanov said.