Rosneft claims against “the System” could worsen the investment climate

Even by the standards of Igor Sechin these serious responses were overkill. When an influential Director of the state oil company asked, did the high profile court proceedings at the deterioration of the investment climate in Russia, he turned the question on its head: “It has improved the investment climate, because the system of management and shareholders become more transparent and more responsible”, — he said.

Investors are unlikely to agree with this. 30 days after filing a lawsuit in early may, the indicators of a broader Russian market fell by 14%. Many saw in this trial a personal vendetta on behalf of Rosneft, which has awakened in the memory of the awkward memories of the previous seizures of private property of the powerful persons enjoying political support.

Sechin, who until Rosneft held the position of Deputy head of administration of Russian President Vladimir Putin and Deputy Prime Minister, admittedly, is the most powerful man in Russia outside the presidential administration. Claims associated with Bashneft, a regional oil producer, now part of the Empire to Rosneft. Rosneft accuses private group AFK “System” in the withdrawal of assets of “Bashneft” in the period from 2009 to 2014, when the company was part of his portfolio. The “system” denies all the charges.

AFK “System” has almost deja vu. In 2014, the concern’s owner Vladimir Yevtushenkov was placed under house arrest, and the company “Bashneft” was captured. Subsequently it was nationalized after the investigation has decided that the assets of the company acquired illegally in dashing 90-e years when was sold to Russian state-owned company worth billions of dollars.

Mr Sechin has acquired Bashneft from the state last year. Sistema and Russian investors have suggested that the story ended. Sechin received the assets that are wanted, Mr. Evtushenkov received its sanction, and even Mr Putin wished the group all the best in his future after a trial with Rosneft.

Two international investor in a private conversation said that the biggest concern is not even the aspect of the claim that private enterprise has lost its assets, and the fact that close to the Kremlin, an interested person seeks to obtain compensation. This development is very similar to the case of Mikhail Khodorkovsky, who after a conflict with Putin in early 2000-ies was in prison for almost a decade and lost its oil company “Yukos”. Rosneft now controls most of Yukos assets.

Not everyone in the Russian investment community believe Sistema victim. Some observers say that due to certain decisions of the group market value of Bashneft decreased, and decisions were made not in favor of minority shareholders. One of them holding shares of the company “Bashneft”, but it is not a party to the case, told the Financial Times that the “System” could be held legally responsible for the underestimation of the value of Bashneft almost 30 billion — about one sixth of that, how much demanded from concern Rosneft.

Building on shareholder value (share price “the System” fell by half after the start of the trial, while the share price of Rosneft rose by 3%), investors believe that this time mister Sechin will win. Last week the “System” filed a complaint against the presiding judge, accusing him of bias.

“How are judicial process, as courts make decisions… raises serious doubts about the objectivity,” — said the press Secretary Sergei Kopytov.

All 15 of the applications “the System” to the judge, including the request for the appointment of an independent auditor to assess the financial requirements were rejected. During a hearing last week, one of the applications of AFK “System” has rejected a few seconds after the lawyer finished his speech. The failure to hold the auditor may “to indicate that the court trusts the evaluations carried out by Rosneft, which would be a negative development for Sistema,” — says Igor Goncharov Moscow exchange analyst from BCS Global Markets.

As one of the nominated experts from AFK “System” in the case, former head of the Russian markets regulator said last week that the alleged unlawful practice is “a standard of corporate behavior”, and if the company will be punished, questioned will be the use of Russian financial regulators. As appears from judicial documents, among nine experts of Rosneft, which includes University student and a recent graduate of the faculty of Economics.

The President of AFK “Sistema” Mikhail Shamolin in a recent interview said that his company blamed “some logic, which would be discussed in the press that the company acted improperly — by the rules.”

In the June interview, Mr. Sechin denied that this is a political case. “We have no conflict with Mr. Yevtushenkov, nothing personal, he said. I did everything correctly — went to court”.