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. Last Updated: 07/27/2016

Primorsky Share Issue Approved

Shareholders of Russia's Primorsky Shipping Company, in which CS First Boston holds a 12 percent stake, have agreed to a controversial share issue which Western investors say amounts to a share dilution.

A shareholders meeting Friday approved the issue, which has a nominal value of 221.22 million rubles ($43,000). The issue was registered in March without consulting new shareholders and brokers said the process was riddled with wrongdoings.

Western investors, who own up to 20 percent of Primorsky, said the secret issue doubled the number of Primorsky shares to 22 million.

The shares were bought quietly by Primorsky subsidiary PRISCO-Stocks. Primorsky owns 15 percent of PRISCO-Stocks and PRISCO-Stocks owns 12 percent of Primorsky.

An official at Gambit Securities, which represented foreign investors at Friday's meeting, said the management compromised by offering the issue to its new shareholders after CS First Boston protested crude violations of its rights.

Brokers say PRISCO-Stocks has acquired the whole issue for 300 million rubles. At the current market price of some $2 a share, 11 million Primorsky shares should have cost some $22 million or more.

As a compromise, PRISCO-Stocks will offer the new shares to existing shareholders at $1.5 a share from May 5 to June 5 and at $3 a share from June 6, brokers said.

But the Gambit Securities official said the new shares were issued by the management "behind closed doors" and there was no prospectus for the issue.

"There were major violations of the law," she said. "The management gave us letters promising it would protect our rights as shareholders. They say they want to compromise but we are not convinced."

The second share issue doubled Primorsky's capital to 442.44 million rubles, the company said.