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. Last Updated: 07/27/2016

Russia Seeks Recourse On Failed STET Deal

The Russian government plans to take Italian telecommunications giant STET to court in connection with the breakdown of its bid to buy into telecommunications holding company Svyazinvest, claiming STET failed to pay $60 million as a nonreturnable security deposit, government representatives confirmed Thursday.

Upset by the collapse of the deal to buy a quarter of Russia's largest telecommunications company, the government wants to collect at least part of the $1.4 million which STET bid in total for the two-part tender.

"We have all the legal basis for taking STET to an international court," State Property Committee spokesman Igor Plotnikov said Thursday. "It is a very complicated matter and our lawyers and legal experts are working on this case now."

Last month STET won a two-part tender for Svyazinvest in competition with a consortium of France Telecommunications, Deutsche Telekom and the Russian unit of US West Inc.

The conditions of the tender, said Russian Privatization Center spokeswoman Yelena Shalneva, laid down two nonreturnable deposits from the bidders -- one of $2.5 million as part of the first tender for the 25 percent stake, and another, of at least $25 million, as part of the second tender, which demanded a further investment in the company over two years. STET bid $638 for the first tender and $770 million for the second.

STET, along with the competing consortium, paid the $2.5 million deposit in full, and after winning the first tender proposed depositing another $60 million, rather than the original $25 million. The Russian Privatization Center said the reason for this increased deposit was "confidential information."

However, STET did not transfer the money, privatization officials said, a contention the company does not dispute.

Earlier this week Russia's First Deputy Prime Minister Anatoly Chubais, in an interview published in the Russian weekly magazine Ekspert, said: "We took the $2.5 million right away, and we will try to take the $60 million through the courts. There is no other way around it. STET dealt a strong blow [to the budget]. We failed to receive 1.9 trillion rubles."

STET refused to make the $60 million deposit and other initial payment for the equity directly to the Russian government, saying that a number of problems remained to be solved first. The company offered to pay the money into an escrow account pending resolution of the issues. The Russian side refused, calling it a breach of the terms of the tender.

Carlo del Bo, STET's Moscow representative, said Thursday he did not know about the Russian government's plans to take his company to court."They can do whatever they want but I think they cannot obtain this money," he said on being told what the Russian side had said.

Chubais' office was not available for comment Thursday, but Plotnikov of the State Property Committee said the government is afraid the collapse of the deal could discourage other potential deals with international investors in 1996.

"Along with the failure to receive a quarter of what the government planned to get from privatization last year the deal could also have a negative psychological impact on potential investors," he said.

Plotnikov agreed that the Svyazinvest deal was prepared hastily. "We had very little time but we had the budgetary task, and could not do anything about it," he said. "The deal had to be concluded by Dec. 22. Unfortunately the conditions of the deal have not been met by STET and the deal collapsed."

STET said earlier this week that it was ready to resume negotiations with Svyazinvest, and that it was seeking a meeting with Chubais and Prime Minister Viktor Chernomyrdin. Del Bo reiterated this position Thursday: "We are ready to sit at the table with Mr. Chubais and discuss the deal again."

STET's chairman, Ernesto Pascale, will fly to Moscow in the next two weeks to meet with politicians and management of Svyazinvest, the Milan financial daily Il Sole 24 Ore reported.

The government is also considering suing for damages on the basis that the collapse of negotiations could deter investors for future privatization tenders.