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. Last Updated: 07/27/2016

Transneft Beneficiaries to Be Named

Itar-TassA Transneft terminal on the Baltic Sea. The demand to disclose share ownership could "worsen sentiment," UFG said.
The Prosecutor General's Office has demanded to know who the beneficiaries of pipeline monopoly Transneft's preferred shares are, brokerages said Friday, two weeks after the shares were frozen by a Moscow court.

Detailed information about the owners of Transneft's preferred shares must be disclosed because of an ongoing criminal investigation into abuses by former Transneft managers during the company's privatization, senior investigator Roman Sokolov said in a letter sent to several Moscow brokerages last week.

Several brokerages said they would reveal the information, while one bank said the demand would "worsen sentiment" around Transneft shares.

"By law, we are required to comply with the Prosecutor General's request," said Vladislav Kochetkov, a spokesman for Finam investment company. It was the first time Finam had received this kind of request, Kochetkov said Friday.

Badri Gobechiya, general director of Otkrytie Investment Group, said he would also disclose the information.

The state holds 75 percent of Transneft in ordinary shares, which provide voting rights. Owners of preferred shares, who do not hold voting rights but are paid dividends before common stock holders, are not publicly known.

The investigation would not affect Transneft's daily operations, Transneft vice president Sergei Grigoryev said Friday. The company's top managers do not own any shares, he said.

On Thursday, Industry and Energy Minister Viktor Khristenko confirmed to reporters that the government was considering merging Transneft with state-owned oil products pipeline firm Transnefteprodukt.

Transneft did not initiate the merger, Grigoryev said Friday, but as with other decisions, the company would go along with the state's plans.

Stephen Dashevsky, head of research at Aton brokerage, said he doubted there was any direct link between the possible merger and the shares investigation. While it was difficult to understand what the prosecutors were really after, Dashevsky said, the affair was likely to send a warning to investors in state-run companies. "The theory that investing in state-run enterprises is risk-free is wrong," Dashevsky said.

A spokeswoman for the prosecutor's office declined to comment Friday on the letter to brokerages, saying that it could hinder the investigation.

Investigators might take a long time to go through thousands of accounts and share transactions, but could turn up few results, Alfa Bank said in a research note Friday. "This could mean increased uncertainty over when the investigation will end and what results it is supposed to achieve exactly," the bank said.

Deutsche UFG said in a note Friday that asking brokerages to disclose beneficiary owners of a company's shares "is an unprecedented case for the Russian stock market, which in our view will likely further worsen sentiment surrounding Transneft shares."

"If some documents prove to be incorrectly written, then it could provide the prosecutor's office with grounds to challenge some transactions in the courts," Deutsche UFG said.