Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Watchdog to Investigate Hydro Share Issue

The Federal Securities Commission has announced an investigation into a stock issue that would dilute United Energy Systems' control of one of Russia's largest hydroelectric power plants.

Commission chairman Dmitri Vasilyev on Monday ordered "an unplanned review" of a rights issue by Krasnoyarsk Hydro over the next two weeks. A special report is due March 15.

The Federal Securities Commission, or FSC, Russia's stock market watchdog, has recently stepped up its efforts to protect shareholders rights. Last week it took action against two major oil companies, Sidanko and Yukos.

In this latest case, it is responding to bitter complaints from UES, Russia's electricity monopoly, against moves that could result in Krasnoyarsk Hydro passing out of its hands for almost nothing.

UES once had a controlling 51 percent stake in Krasnoyarsk Hydro through its local subsidiary, Krasnoyarsk Energo. But in January last year, Krasnoyarsk Energo sold a 23 percent stake in the hydro plant to a company controlled by the Krasnoyarsk Aluminum plant, or KrAZ, the hydro plant's biggest customer.

First Deputy Prime Minister Boris Nemtsov called the deal a "fraud,",charging that the stake was sold too cheaply. UES has challenged it in court and suspended Vladimir Ivannikov, the Krasnoyarsk Energo chief executive who authorized the deal.

In the meantime, UES and Krasnoyarsk Energo were left with only a 28 percent stake in the hydro plant, while KrAZ raised its stake to 35 percent.

The FSC is now investigating a Krasnoyarsk Hydro shareholders meeting a month ago which, UES says, approved a rights issue equal to another 18 percent of stock. Under the terms of the issue, Krasnoyarsk Energo would not have the right to buy the new stock and its stake would be further diluted.

UES has already challenged the rights issue in court on several grounds. It alleges that Ivannikov was allowed to vote on behalf of Krasnoyarsk Energo at the meeting, even though he had been suspended as chief executive.

Andrei Grigoryev, a spokesman for KrAZ, denied Tuesday that the Krasnoyarsk Hydro meeting in January had given final approval to the 18 percent issue. But he said a proposal for a smaller issue, equal to 12 percent of stock, was now being put to shareholders, and the results of a postal vote will be made public this week. Grigoryev said it was "a forgone conclusion" that the issue would be approved, and Rossiisky Kredit Bank, a close ally of KrAZ, would likely be the buyer. He said KrAZ felt "confident" that all the deals surrounding Krasnoyarsk Hydro were "legal and proper."

The battle for control of Krasnoyarsk Hydro runs parallel to a battle at the top of UES between its Soviet-era chairman, Anatoly Dyakov, and current chief executive Boris Brevnov, who is fighting to maintain UES control over the hydro plant.

Grigoryev said it was this battle, due to be decided at a UES shareholders meeting April 4, that would determine events in Krasnoyarsk.

Boris Sinegubko, a utilities analyst at Brunswick Brokerage, agreed that the securities commission, "lacking the powers of a court," would not resolve the dispute. But he said it was a "test case for corporate governance" and the FSC could use its powers to ensure that the rights issue was sold fairly.