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. Last Updated: 07/27/2016

Lipetsk Set For Long Court Fight With MFK

A lawyer for Novolipetsk Metallurgical Combine, or NLMK, on Monday downplayed the company's first court victories against a group of outside shareholders, calling the rulings just the first steps in a longer legal process.

The two cases, filed by company shareholder MFK, a subsidiary investment bank of Uneximbank, and the State Property Committee, involve the conversion of 4.84 percent of MFK's 14.84 percent of stock into preferred, nonvoting shares.

MFK is a member in a larger group of so-called "reform" shareholders engaged in a fierce battle with the massive steel plant for more transparency and board representation. The shareholder group includes Uneximbank's MFK, Renaissance Capital's direct investment Sputnik Fund and Cambridge Capital Management, represented by Salomon Brothers.

Together, they claim to hold a majority of NLMK voting shares, just more than 50 percent. But that majority includes the disputed 4.84 percent that the Lipetsk arbitration court ruled last week to be nonvoting stock.

Igor Fyodorov, a lawyer for NLMK with Gagarin, Reznik i Partnyory in Moscow, said it is difficult to tell whether the decisions are in and of themselves significant, since other cases are pending and each is likely to be appealed at every step.

"There are still many more hearings to go," he said.

Rafael Akopov, head of Renaissance Capital's legal team, said last week that both rulings would be appealed.

Under the 1995 loans-for-shares program, Uneximbank's MFK won the right to manage a 14.84-percent government stake in Novolipetsk Metallurgy Combine, one of Russia's largest steel producers.

MFK filed suit protesting a decision by Novolipetsk's board of directors ahead of the 1996 annual general meeting, to change the status of 4.84 percent of MFK's common, voting shares into preferred, nonvoting shares. The board argued a mistake had been made at the time of privatization and the shares had been inadvertently classified as common instead of preferred.

Russia's State Property Committee filed a second suit supporting MFK's protest, throwing the support of the federal privatization agency behind MFK's case.

On April 8 and 9 of this year, a panel of Lipetsk arbitration court judges heard the two cases, but didn't rule until just last week. The judges ruled against MFK's request to void the decisions of last year's annual general meeting at the steel plant, on the grounds that the board of directors had illegally reclassified the shares. The court also ruled against an MFK request to void the share registry entry reclassifying the shares from common to preferred.

Officials from the shareholder group tried to maintain a positive spin on the rulings, despite the fact these were the first against the group in court.

"This is just the first round, and we don't have any reason to think the fairness of the courts is changing," said a source from the outside shareholders group.