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. Last Updated: 07/27/2016

American to Rule Over Tsar's Porcelain




In a startling turnabout in what had appeared to be a losing battle for shareholders rights, Western investors Thursday took control of the board of the 255-year-old Lomonosov Porcelain Factory and appointed an American as the new director.


Foreign shareholders The U.S. Russia Investment Fund and Kohlberg Kravis Roberts & Co., who have been fighting for three months against a court decision to renationalize the famous St. Petersburg plant, took five of the nine board seats including the chair, The U.S. Russia Investment Fund said.


Only 21 of the factory's 1,700 workers cast ballots at Thursday's annual shareholders meeting, officials said.


The new board chose Douglas Boyce, vice president of Delta Capital Management, which runs the U.S. Russian fund, as new general director.


However, Western investors were not celebrating their takeover of the board.


New board chairman and Delta Capital Management vice president Alistair Stobie sounded grim in a telephone interview from St. Petersburg, saying his first move would be to try to get the courts to recognize the validity of the meeting. Stobie has been leading the investors' unsuccessful battle over the renationalization of Lomonosov in court.


"This marks the end of a slide backward instead of a step forward," he said. "The real definition of success will come with being able to enforce the decisions made by a legal shareholders meeting.


"We are going to go and see the general director tomorrow and see if he will give up the [factory] stamp and control over the bank account."


The victorious shareholders, who have previously been locked out of the plant, decided not to go to Lomonosov after the meeting Thursday because they wanted to avoid an angry confrontation similar to the one that played out at the Vyborg Pulp and Paper Mill in the Leningrad region last year, Stobie said. Violence broke out when its British owners tried to enter the mill.


Lomonosov general director Yevgeny Barkov refused to comment on the shareholders meeting, saying late Thursday he had yet to receive official notification of his dismissal.


Delta Capital Management associate Eva Baxter said her fund is putting together an emergency $2.7 million package to renovate the deteriorating porcelain factory, which at one time produced the finest dishes for Russia's tsars.


On paper, the issue of the plant's ownership looks clear cut. The U.S. Russia Investment Fund, set up by the U.S. government to support direct investment in Russia, and Wall Street buyout giant KKR together own slightly more than 58 percent of the shares.


However, their combined $8.25 million investment appeared to be lost after the St. Petersburg arbitration court ruled last October that the factory had been illegally privatized in 1993 and ordered that the government take it back. An appeal lodged by the U.S. Russia Investment Fund was rejected last month.


Russian factory management and the State Property Ministry had originally brought the case to court after they found out that foreigners had secured a controlling stake in the factory. They said Lomonosov was a national treasure that Russia could not afford to lose.


It was unclear how the court's resulting renationalization order would be reconciled with Thursday's outcome.


The Lomonosov dispute - the first time the government has tried to renationalize a factory with a foreign interest - is widely seen in the West as a test of shareholder rights in Russia.


Market observers welcomed the Western investors' step Thursday.


"This is very good news for foreign direct investment," said Peter Westin of the Russian European Center for Economic Policy. "Renationalization in this way is completely unacceptable."


Stobie said the election of the Western-led board almost did not take place. Factory management and the State Property Ministry had each filed injunctions to block the meeting. Shareholders met 90 minutes late after a St. Petersburg court rejected the injunctions.


Thursday's annual shareholders meeting was the first one held since April 1998. Five previous attempts to hold a meeting to elect a new board failed after plant management filed injunctions and courts ruled in their favor.


The Lomonosov turnabout follows other recent resolutions in shareholder rights disputes. BP-Amoco has ended a long-running feud over control of Sidanko, investor Kenneth Dart has made peace with oil giant Yukos, and just on Tuesday Vyborg workers embraced their British owners.


- Galina Stolyarova contributed to this story from St. Petersburg.