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. Last Updated: 07/27/2016

Investor Appeals Lomonosov Ruling

A Western investor said Friday it has filed an appeal over a court ruling to renationalize the 255-year-old Lomonosov Porcelain Factory.

The St. Petersburg Arbitration Court is scheduled Dec. 21 to hear the appeal brought by The U.S. Russia Investment Fund, a U.S. government-funded organization set up in 1994 to promote direct investment in the Russian economy, against the State Property Ministry.

A federal Moscow court decided last month to renationalize Lomonosov after factory management and the State Property Ministry claimed Russia was losing a national treasure to the West. The court ruled that Lomonosov had illegally been set up as a joint stock company when it was privatized in 1993.

However, The U.S. Russia Investment Fund is disputing the ruling, saying the path to the privatization was correctly followed.

"There were no mistakes in the privatization and in the founding agreement [to set up the joint-stock company]," said Alistair Stobie, vice president of Delta Capital Management Inc., which manages The U.S. Russia Investment Fund. "We can prove those facts with documents."

"The initial suit made no sense whatsoever and they [the State Property Ministry] forced through the suit for political purposes," he said in an interview.

Delta Capital Management associate Eva Baxter told reporters Friday that if the ministry was worried about who would buy the shares, it should have paid more attention to that concern when it privatized the factory.

The fund is fighting to hold on to a 25 percent stake it has acquired in Lomonosov since September 1998. The fund spent $4.25 million to buy the shares, which have changed hands several times since the factory was privatized.

The fund's shares, together with a blocking stake of just over 25 percent held by Wall Street buyout giant Kohlberg Kravis Roberts & Co., had given Western investors control of the factory.

Baxter said the investors decided it made more sense to file only an appeal from the fund rather than identical appeals from two companies.

Stobie said he was confident The U.S. Russia Investment Fund has a strong legal case to support its appeal.

However, he said he was not optimistic that the St. Petersburg court would rule in favor of the fund.

Officials from the State Property Ministry were unavailable for comment Friday.

The porcelain dispute started when top managers at Lomonosov, learning that foreign investors had acquired a majority stake, asked the State Property Ministry to retake control of the factory.

Calling Lomonosov part of Russia's heritage, plant officials charged that the foreigners did not have an investment plan and merely wanted to loot the priceless collection of porcelain held at the factory museum.

Subsequently, the government has admitted that the museum is no longer an issue and investors would have no control over museum pieces, U.S. Russia Investment Fund officials said.