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. Last Updated: 07/27/2016

Property Committee Joins Novolipetsk Suit

The Russian State Property Committee has joined a group of shareholders in suing the Novolipetsk Metallurgy Combine, a steel smelter locked in a battle with its investors over management control and voting rights.


Moreover, investigators from the Federal Commission on Securities have launched a probe into the group's allegations that Novolipetsk, Russia's largest steel producer, prevented them from nominating candidates to the board of directors.


Five lawsuits have been filed to date against Novolipetsk, three by foreign shareholder groups, one by MFK, a subsidiary of Uneximbank, and the fifth by the State Property Fund.


The fund's lawsuit, which along with that of MFK seeks to throw out a Novolipetsk decision to strip MFK of part of its voting rights, will be heard in a Lipetsk court April 8, a Sputnik spokesman said.


On April 16, the Lipetsk court is expected to hear separately the suit brought by MFK, as well as two others filed by shareholders Cambridge Capital Management and Renaissance Capital's Sputnik Fund, officials said.


Capital and Sputnik both allege that Novolipetsk illegally refused to consider their candidates for board seats, which were nominated by other shareholders, for four of the nine directors. Four directors is roughly representative of the shareholders group's stake in the company.


Yet another suit in which Sputnik is attempting to invalidate a 1996 annual shareholder's meeting is slated to be heard in early April. The date was not yet known.


"The litigation process is proceeding," said Jim Dannis, head of investment banking for Salomon Brothers, which represents Cambridge Capital Management. "Our lawyers remain fully confident that our legal rights will be upheld."


Cambridge Capital Management holds a 17.2 percent stake in the steel factory. Renaissance Capital's Sputnik Fund and Russia's powerful Uneximbank hold 9 percent and roughly 15 percent, respectively, for a total of just more than 40 percent between the entire group.


Russian securities law dictates that minority shareholders holding at least 2 percent of shares are entitled to nominate candidates for the board of directors. Officials at Novolipetsk have said the nominations were received too late.


Vladimir Lavrentuk, director of the State Property Fund's office in Lipetsk, said that the arbitration court hearings would be taking place next month, and said that despite the fund's "very small" holding in the steel company -- less than 1 percent -- it supported the litigation process.


"We support whatever is the country's law," Lavrentuk said. "Whatever fulfills that law is what we support."


Separately, the Federal Commission on Securities has opened an investigation into whether Novolipetsk's actions represent a violation of securities law, a commission spokeswoman said.


"A team of [commission] people has gone there and come back, and they are looking into it. Until they complete a report, the commission does not want to comment," she said.


Cambridge earlier this month said its Moscow attorneys, Chadbourne & Parke, had filed complaints with the commission. Sputnik had filed a complaint with federal prosecutors in Lipetsk regarding the Novolipetsk management.


Meanwhile, Dannis said he was unaware of any steps yet taken by Trans-World Metals, the largest remaining shareholder in the steel factory with 37.5 percent, to sell its stake in the factory.


Trans-World's chairman David Reuben said recently that "we have too much working capital invested in Novolipetsk" and that he was in discussions with management to finance a re-purchase of Trans World's 37.5 percent stake.


"As of last week, he was still working to help them obtain financing for this," said a Trans-World spokeswoman in the United States.