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. Last Updated: 07/27/2016

Nationalization Threatens Lomonosov

Russia's oldest and best-known maker of fine china, the Lomonosov Porcelain Factory, could be re-nationalized after the State Property Ministry asked the regional arbitration court to declare the factory's 1993 privatization invalid.

If the Arbitration Court of St. Petersburg and the Leningrad region makes such a decision, then all share deals will also be invalid.

The court hearings were scheduled for Aug. 23, but have been postponed until Oct. 4.

A group of foreign investors, including The U.S.-Russia Investment Fund, or TUSRIF, and the U.S. investment firm KKR purchased their stakes in the factory last year from a number of offshore-registered companies.

But in a long-running dispute with the factory's owners, the foreigners were barred from entering the factory premises or attending shareholders meetings.

Only in April was David Jones, president and chief executive officer of TUSRIF, able to meet for the first time with factory general director Yevgeny Barkov. The meeting resulted in a joint letter of intention, giving a general plan for the factory's development.

TUSRIF announced its intention to invest $2 million in the factory, and in July, TUSRIF representatives were allowed onto the premises to carry out an audit of the factory.

A TUSRIF news release issued last week said the rights of the factory's foreign shareholders have been repeatedly violated. If re-nationalization takes place, the factory's co-owners will lose their investments completely.

"The nationalization of Lomonosov Porcelain Factory would inflict a loss on the investment climate in Russia," the press release said.

TUSRIF, which is U.S.-funded, declined to specify how much it had paid for its shares, but it is estimated that the brokerages that made the initial share purchases spent $700,000 on a 64 percent stake in the factory's shares. These were in turn bought by foreign investors - TUSRIF currently holds 19.95 percent of the factory.

Factory officials said the foreigners are neither investors nor shareholders.

A factory lawyer said TUSRIF is not listed in the company's register and has no shareholder's rights.

"TUSRIF has no proof it purchased the shares," said the lawyer, who declined to be identified.

"[TUSRIF] has not put any money into the factory," factory spokeswoman Galina Agarkova said.She said the foreigners want to get hold of the factory's museum and archives, "which are as old as the factory and older than the United States, and include several drawings by [Vasily] Kandinsky, each worth tens of thousands of dollars," she said.

Both the museum and the archives were transferred to state control in accordance with a Culture Ministry resolution issued July 1, Agarkova said.

Foreign shareholders have the support of the Federal Securities Commission, which is headed by Dmitry Vasilyev.