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. Last Updated: 07/27/2016

Banks Likely to Keep Shares

The government appears ready to let the Sept. 1 deadline for repaying banks under last year's controversial loans-for-shares auctions pass quietly, allowing the banks to consolidate their control over some of Russia's prize blue-chip companies.


Under terms of the auctions, the banks would now be free to sell the stakes in companies they hold in trust. But officials and analysts said Friday that the banks and government were likely to agree on maintaining a murky form of joint control that serves the interests of both sides.


Although government and banking sources earlier had said the Sept. 1 deadline might be extended, a privatization official Friday said the banks would now be free to sell their stakes if they wished.


"So far no one has taken that right away from the banks," said Igor Plotnikov, a spokesman for the State Property Committee.


Despite talk earlier in the spring that the government might try to repay some loans and hang on to stakes in several oil companies, there are no indications now that the cash-strapped government is willing to pay back some 5 trillion rubles ($950 million) to the banks.


The government counted that money as privatization revenue last year, in return handing over share packages in enterprises such as Norilsk Nickel and the Sidanko and Yukos oil companies.


Although the government's deadline has passed, the two banks that dominated the auctions, Uneximbank and Menatep, said they have no plans to sell the shares they control. Representatives for the banks said they expect the government will introduce amendments to the program at a later point, possibly changing it into a long-term trust management scheme.


Modest Kolerov, a spokesman for Uneximbank, said the bank is aware that it could sell its controlling stakes in the oil major Sidanko and in Norilsk Nickel as of Monday. "But we never intended this, and do not intend it now," he said.


Under the terms of the program the banks would have the right to keep 30 percent of capital gains in the event of a sale within three years, while the state would take 70 percent.


But financial analysts said the probability of the banks putting the stakes up for sale are "close to zero."


According to James Fenkner, head of research at the CentreInvest securities house, both the banks and the government may be well served with the current situation, where it is unclear what will happen when the three-year program expires.


"Uncertainty is useful for both sides," Fenkner said. While the government can use it as a bargaining chip in dealings with the banks and companies -- for example, to impose tax discipline -- the banks need the time to gain effective control over the holdings, he said.


Government officials were tight-lipped Friday regarding possible changes to the program, but banking sources confirmed that negotiations between the banks and the government may result in changes to a program that has already been amended.


"Everyone expects that the [scheme] will be prolonged," said a source at Bank Menatep.


The appointment earlier this month of Uneximbank president Vladimir Potanin, who crafted the banks' original loans-for-shares idea, as first deputy prime minister has been interpreted as a political guarantee that the result of the auctions will not be reversed.


Officials at Inkombank, which had protested the outcome of two of the auctions, for the oil companies Yukos and Sibneft, said they have dropped further court action.


"All cases protesting the loans-for-shares auctions were defeated in the arbitration courts," said Ilya Yakushev of Inkombank. Yakushev said Potanin's appointment had made it almost certain that the results of the auctions will remain unchanged.


Indeed, the winning banks have consolidated their hold over the companies auctioned last year and would in some cases be able to keep control even in the highly unlikely event that the auctions were reversed.


Menatep, which took control over a 45 percent stake in Yukos under the loans-for-shares scheme, owns another 41 percent of Yukos stock and expects to increase this to a controlling stake next month, when the oil company will make a new share offering.


Uneximbank has carried out sweeping management changes at Sidanko and Norilsk Nickel and is widely expected to clinch another 34 percent stake in Sidanko in an apparently tailor-made September auction.


Meanwhile, the Audit Chamber, a parliamentary watchdog institution, this week called on the Prosecutor General's office to annul the loans-for-shares auctions entirely, Interfax reported.