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. Last Updated: 07/27/2016

State Blasts Millhouse Move at Aeroflot

The government rejected and then blasted efforts by Roman Abramovich's Millhouse Capital to change Aeroflot's board of directors at an extraordinary shareholders meeting Saturday.

"The state does not see any grounds to terminate the work of the board that was elected in May," Aeroflot chairman and Transport Minister Sergei Frank told reporters after the meeting. "This could be the wish of one of the shareholders, but it is disrespectful to other shareholders."

Millhouse, which controls 26 percent of the flagship carrier, won three seats on the 11-member board at the annual shareholders meeting in May. A few weeks later it called an extraordinary meeting reportedly in an effort to get Aeroflot chief financial officer Alexander Zurabov back on the board.

Prior to the Saturday meeting, Millhouse chairman Yevgeny Shvidler said in an e-mail interview that "Millhouse supports those candidates whose activity increases the capitalization of the company. ... If Zurabov meets these requirements, we will vote for him."

Zurabov was not available for comment.

Frank said the government, which owns 51 percent of the carrier, wanted to send a message to Millhouse, whose holdings include oil major Sibneft and metals giant Russian Aluminum, that "instability" is "not desirable."

For the May vote, Aeroflot employees, who own 12 percent of the carrier, nominated Zurabov and CEO Valery Okulov and were expected to split their votes between the two candidates, which would have assured both were re-elected. Instead, employees apparently opted for Okulov by a large majority, keeping Zurabov off the board and allowing the government to get seven seats, one more than expected.

On Saturday, the government decided to keep it that way.

"We are sending a signal that we are for stability. If this signal is not given straight away, then it can be repeated over and over," Frank said. "Let's be more responsible at annual meetings. If you've come and made your decision, why call for an [extraordinary general meeting] after two weeks?"

Alexander Bordin, who heads the Property Ministry's transportation and communication department, said the issue of Zurabov, who is widely credited with turning the company around, was the last thing on the government's mind.

"This is the second time in a row [that the owners of Millhouse] have demanded an EGM," said Bordin, who was filling in for First Deputy Property Minister Alexander Braverman. "This is a problem."

Millhouse spokesman Alexei Gaidin said the government had the right to block the reelection proposal and that Millhouse would hold no grudge.

A source within Aeroflot said Saturday that the government's decision appeared to be a signal to investors that they should not dabble in businesses it controls.

"It's a message that the state will not be acting in the interests of the company's strategic development or the interests of minority shareholders," the source said.

After reviewing the company in spring 2001, international ratings agency Standard & Poor's said that Aeroflot's biggest drawback was that the government is the largest shareholder, adding that political interests can be detrimental to the management's business goals.

Aton aviation analyst Madina Butayeva echoed the conclusion.

"The state has strengthened its position in the company, but it does not always make decisions that lead to effective results. This is negative news for Aeroflot," she said.

On another front, however, Millhouse was victorious, as the government acquiesced to its demand that its representatives be included on Aeroflot's internal audit commission.

Gaidin said his company was grateful to the government for letting it have two of its people on the five-member commission, adding that it would make the company's operations more transparent.