FSC Launches Norilsk Investigation

The Federal Securities Commission is investigating metals giant Norilsk Nickel for allegedly manipulating its stock price and violating the rights of its shareholders.

The FSC announced the investigation late Tuesday after numerous appeals from Norilsks minority shareholders, who claim the company is violating their rights in pursuit of a complicated and controversial restructuring scheme that calls for the death of Norilsk Nickel as a company.

The FSC has given Norilsk until Tuesday to submit documents explaining exactly how it intends to implement the restructuring, Norilsk spokesman Yury Oleinik said Wednesday.

The restructuring scheme, to be implemented in four stages over the next 12 months, involves transferring all of Norilsks assets to a subsidiary, Norilsk Mining Co., or NGK. Also, NGK is to acquire in full the British firm Norimet Ltd., Norilsk Nickels exclusive partner for selling nickel and copper abroad.

After swapping shares, shareholders in Norilsk will receive 88.5 percent of NGK, while the former owners of Norimet will hold 11.5 percent. The first of three planned share issues has already taken place, resulting in Norilsk shareholders owning 36.4 percent of NGK.

Minority shareholders who last month only found out about the restructuring after it had already begun charge that Norilsk instigated the scheme in order to dilute the value of their holdings. They fear that the swap of shares will benefit only major shareholders and Norimets former owners, Kommersant reported Wednesday.

Despite the investigation, analysts said it was unlikely that the FSC would find the move technically illegal because the laws are so vague they leave a lot of room to maneuver.

Renaissance Capital metals analyst Svetlana Smirnova said in a telephone interview Wednesday that Norilsk hired two respected Western firms Deutsche Bank and law firm Clifford Chance Punder to analyze the legality of the restructuring plan before it went ahead. "I dont think that the FSC will find serious violations that will stop the [restructuring] process," she said.

Mikhail Armyakov, metals analyst for the NIKoil brokerage, said that even though it is "irreversible" that the holdings of Norilsks minority shareholders will be diluted, the "investigation will show that everything was done according to the law."

Armyakov said current Russian legislation is incapable of adequately protecting the rights of minority shareholders. "We have to blame current legislation, not the company," he said. "Such an investigation is necessary, but its too late. Everything has already been done."

The restructuring, which has caused havoc with Norilsks share price, is politically advantageous. By transferring all its shares to NGK, the ongoing investigation by the Prosecutor Generals Office into Norilsks 1997 privatization will likely be shut down.