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. Last Updated: 07/27/2016

U.S. Investors Fight for Tsar's Porcelain

A group of foreign investors has bought a controlling stake in Russia's oldest porcelain factory, but the factory management has locked them out, saying it was cheated.

The New York-based investment company Kohlberg Kravis Roberts & Co., or KKR, and the U.S. Russia Investment Fund, each bought 19.95 percent, and a firm set up by Maxwell Asgari, former Moscow president for the international engineering corporation ABB, purchased 14 percent of the Lomonosov Porcelain Factory from two brokerages this fall.

The brokerages, the St. Petersburg factory claims, bought the shares at below value from unpaid employees through a questionable scheme. The factory has challenged the sale in court.

Founded in 1744, Lomonosov, formerly the Imperial Porcelain Factory, was the first to be built in Russia and only the third in Europe. Its products, such as exquisite tea and coffee services and sculptures, have been a mark of refinement and wealth in Russia ever since. Demand for Lomonosov products continues to exceed supply.

Many of the items the Lomonosov factory produces today are handmade by some of Russia's finest artists, as they have been for centuries. The factory has a museum boasting 25,000 items, including several made by the Russian scholar Mikhail Lomonosov, who spent some time perfecting porcelain technology.

The foreign investors said they wanted to revamp the factory make it more competitive and to boost sales.

The investors' spokesperson, who asked not to be identified, said they had determined that the St. Petersburg brokerages had the right to sell the shares, although they did not know the details of how the brokers acquired the shares.

A financial consultant to the factory, however, said the investors did not exercise due diligence when dealing with the brokerages, which were reported to have been involved in questionable stock transactions in the past.

"This was negligence on the part of the foreign companies," said Vladimir Lopukhin, president of Vanguard, the financial consultant.

The two brokerages, Stoomhammer and Randevu, could not be reached for comment Tuesday evening.

Lomonosovsky is a closed joint-stock company, which means a shareholder cannot sell his shares to a third party without other shareholders' approval. Lopukhin said the shares were sold through a scheme by which a factory employee gave one of his shares as a gift to an intermediary company, which thus became a shareholder and could buy any number of shares.

A St. Petersburg court has agreed to look into the case after finding that there was reason to believe the deal may have been illegal.

The brokerages picked August for their takeover plan, knowing that the factory had been shut down for a month and a half in June and July and unable to pay its workers, Lopukhin said.

The shares were bought up for half their face value of 50 rubles ($8 at the August exchange rate), said factory director general Yevgeny Barkov.

Barkov said the investors have refused to meet with him to settle the dispute and were sending intermediaries instead. The spokesperson for the investor group said this was not true and that it was Barkov who was avoiding the investors.

As the dispute drags on, the issue of millions of dollars in investment that the new shareholders have pledged has been put on the back burner.

The factory has refused to let the new investors come into the factory or to look at its books.

The factory claims that the companies have no investment plan, but the spokesperson for the group said there can be no plan before investors are given access to the company's books.

"They cannot invest anything as long as they are standing on the street outside," he said. "They are ready to cooperate with the management, and they are ready to put up the money. They know what a magnificent factory it is."

According to Lopukhin, the factory welcomes "honest investors" such as KKR and the U.S. Russia Investment Fund, but is opposed to "criminal elements" getting on board along with them. He said Stoomhammer, one of the brokerages, still holds a 10 percent stake in Lomonosov as a result of the deal.

Stoomhammer and Randevu, which also has offices in St. Petersburg, have participated in similar stock transactions involving St. Petersburg companies, Lopukhin said.

A project manager with Vanguard was brutally beaten with iron rods by unknown men this month just as he was in the middle of negotiations with KKR and the investment fund managers, said Lopukhin, the Vanguard president. He blamed St. Petersburg mafia, which he said profited from the stock deal and was trying to prevent a fair agreement between the factory and foreign investors.