Strategic Sectors Law Update – Second Meeting of 2011

On July 20, 2011, the Commission on Foreign Investments met for the second time this year and reviewed 13 applications from foreign investors wishing to pursue business projects in Russia.

Deals Reviewed

Total S.A.–20.5%–>OAO “Yamal LNG”

This is part of a larger deal where Total is paying $4 bln for 12% of Novatek – Russia’s largest natural gas producer – and 20% of Yamal.  As part of the deal, Total received a seat on Novatek’s board and the option to increase it’s stake to 19.4% in three years.  In 2009, Novatek acquired a 51% stake in Yamal for $650 mln from Gunvor, the oil trading company owned by Putin-buddy Gennady Timchenko (coincidentally, Timchenko owned 18.2% of Novatek at the time).

Last year, Timchenko became Novatek’s largest shareholder after Gazprom sold 9.4% of its 19.4% stake (detailed background here).  In December 2010, Gazprom’s shares were acquired by Gazprombank for an undisclosed amount via a special purpose vehicle (SPV) named Dhignfinolhu Holding Ltd.  Gazprom’s proceeds from the sale were later revealed in January 2011: $1.96 bln, well below the $2.84 bln market value of the 9.4% stake at the time of the sale.  In April 2011, the SPV – Dhignfinolhu Holding Ltd. – “informed” Novatek that its wholly-owned subsidiary, ZGG Cayman Holdings Ltd., had  “decreased its stake in the ordinary shares of NOVATEK from 9.4031% to zero.”  At the same time, SWGI Growth Fund (Cyprus) Ltd. “informed” Novatek that it had “increased its share in NOVATEK’s equity from 11.6473% to 15.4004%.”  SWGI Growth Fund, according to SWGI’s Annual Report, is “owned by senior [Novatek] management,” including general director Leonid Mikhelson.

There were similarly suspicious activities surrounding the Yamal sales.  In 2009, Novatek purchased 51% of Yamal LNG for $650 mln from Gunvor, Timchenko’s trading company (i.e., from one of  its largest shareholders).  Novatek also obtained an option to purchase the remaining 23.9% share for $450 mln belonging to Volga Resources, another Timchenko-affiliated company.  In March 2011, Novatek acquired 25.1% of Yamal for $526 mln, bringing its total ownership from 51% to 76.1%.  The source of this 25.1% stake is a bit mysterious – at the end of Q1 2010, Cyprus-registered Siritia Ventures Ltd. owned the 25.1%.  Siritia is owned by Gazprombank.  At the end of Q2 2010, the 25.1% had shifted to Varix Enterprises Ltd., controlled by gas monopoly Gazprom, which owns 41.73% of Gazprombank.  The actual seller has thus far not been disclosed.

ZAO “Mirakl” –100%–> ZAO “SIBUR Holding”

It is not every day that 100% of Russia’s largest petrochemical company is sold to some unknown company, but the Commission approved the sale without blinking.  So who is the owner of Mirakl?  It is none other than Leonid Mikhelson, the general director and major shareholder of Novatek (yes, the same one discussed above).  And who sold Mirakl all the shares to Sibur?  Gazprombank (yes, as above).  And as you may have guessed, the price was a little strange: valuations at time of sale (excluding debt) ranged from $7.4 to $8.2 billion, while Mirakl reportedly purchased the 100% stake for a cool $5.34 bln (150 bln RUR).

Renova –73.6%–>OAO “Nizhny Novgorod International Airport”

The Commission approved the application of OAO “Koltsovo Airport” to acquire a 76.3% stake in the Nizhny Novgorod Int’l Airport.  Koltsovo Airport is majority-owned by OAO “Koltsovo-Invest”, which is controlled by Viktor Vekselberg’s Renova.  The Federal Agency for State Property (Rosimuschestvo) owns a blocking stake in Koltsovo Airport.

Passed-Over Deals

The Commission passed over the application of:

– T.S. Trans Siberia Co Limited for the acquisition of Tolmachevo Airport
– Universal Cargo Logistics Holding for the acquisition of OAO “Vaninsky Morskoy Torgoviy Port.”

Amendments Update

In a press conference about the Commission meeting, an FAS representative stated that the amendments to the Strategic Sectors Law will be passed by the Duma in September.  The amendments are currently in the middle of their second reading, and sources indicate that they have stalled over disagreements between FAS and and the Ministry of Industry and Trade (Minprom) over how to handle changes to the “group of persons” concept (see this post).

As always, here is VVP opening the meeting:

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