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. Last Updated: 07/27/2016

Watchdog Suspends Sidanko Issue Plan




Russia's Federal Securities Commission on Friday said it was suspending a controversial issue of convertible bonds by oil holding company Sidanko, pending the results of an investigation.


The securities watchdog said in a statement it had found "doubtful information" in documents Sidanko submitted when registering the bond issue Dec. 17. The suspension is effective until the investigation has been completed.


Sidanko's plans to triple its share capital with the issue of 402 million convertible bonds has rankled minority shareholders in the holding company, who have been excluded from the bond issue and say it severely dilutes their holdings.


Sidanko's controlling shareholder, Uneximbank, has defended the issue as legal but is holding talks with aggrieved shareholders in an attempt to settle the matter amicably. The securities commission last week announced it would investigate the bond issue after receiving a written complaint from former Finance Minister Boris Fyodorov.


Uneximbank and its affiliate MFK-Renaissance investment bank own 96 percent of Sidanko, while minority shareholders control 4 percent. Uneximbank designed the bond issue as a share swap with investors in Sidanko's daughter companies but allowed only two daughter-company shareholders, both tied to Uneximbank, to take part in the issue.


By one analyst's estimate, Sidanko sold itself the bonds at about $1.60 per share, a price equal to one-tenth of Sidanko's market price.


MFK-Renaissance president and chief executive Boris Jordan on Friday defended the issue as legal and fair, saying minority shareholders' stakes had not decreased in value even though the percentage of their holdings had dropped.


Shareholders now own a smaller piece of a bigger pie, Jordan said, stating that Uneximbank had added $3.5 billion in value to Sidanko in the past year. Participating in the exclusive bond offer is the bank's reward for contributing this worth, he added.


Uneximbank has added value by attracting British Petroleum as Sidanko's strategic partner, acquiring a controlling stake in a massive Siberian gas development project and by offering to Sidanko increased control in its subsidiaries, Jordan said.


"The issue is not whether you have been diluted. The issue is whether you retained your value. The argument is that all investors have retained the value in their shares." Jordan said.


The Western-managed Hermitage Fund is the primary minority shareholder in Sidanko, holding about 3 percent of the company, said Leonid Rozhetskin, managing director of MFK-Renaissance. Rozhetskin is representing Uneximbank in talks with Hermitage Fund's lead investor in an attempt to settle the dispute amicably.


The two parties are each assessing the worth of Hermitage's stake in order to determine whether it has decreased in value, Rozhetskin said. If it has, the value will be made up, possibly in the form of a share subscription.