The column is led by Dmitry Polonsky

// FRIENDLY MATCH

On May 27, a meeting of shareholders of Russia's second largest gas producer, NOVATEK, voted for changes in the composition of the company's board of directors. Instead of the former Minister for Antimonopoly Policy of the Russian Federation, independent director Ilya Yuzhanov, the founder and co-owner of the largest oil trader Gunvor, Gennady Timchenko, joined the board. The remaining members of the council have not changed, as well as its head Alexander Natalenko. On the same day, Volga Resources SICAV-SIF SA announced the acquisition of a 13.13% stake in NOVATEK from Cartagena Development Inc., a gas company controlled by management. After completion of the transaction, Volga's share in NOVATEK's capital will be 18.2%. Volga Resources is a private investment fund created in 2007 in Luxembourg; its founder and co-owner is Gennady Timchenko. Let us recall that Timchenko, together with Prime Minister Vladimir Putin, worked in the administration of St. Petersburg in the early 1990s and was one of the founders of the foundation of the Yavara-Neva judo sports club, where Putin is the honorary president. Some analysts believe that the deal means the establishment of strategic, albeit indirect, state control over NOVATEK. The total share of Gazprom and Timchenko in NOVATEK will now be 37.4%, and the share of management may decrease to 31%. Volga Resources reported that “the deal was concluded at a market price”, will come into force after receiving approval from the FAS, “and the package will be paid for in cash in several stages.” That is, with NOVATEK’s capitalization on the RTS at $11.8 billion, Timchenko will have to pay $1.54 billion. However, a source of the Kommersant newspaper, close to the board of directors of the company, said that “there was no financial component in the deal, because it is de- de facto exchange of assets: Timchenko sold 51% of Yamal LNG shares at a lower price than the market and thereby increased his share.” Yamal LNG holds a license for one of the largest gas condensate fields in Russia - Yuzhno-Tambeyskoye, control over which now belongs to the renewed NOVATEK.

// ADDED TIME

Mikhail Fridman became president for six months

Without a permanent president, Russia's third-largest oil company by production volume, TNK-BP, will operate until 2010. This was determined by the board of directors, which on May 27 decided who would head TNK-BP after June 1, when the powers of the... O. President Tim Summers. It was decided that the next interim president will be the co-owner of TNK-BP and the head of its board of directors, Mikhail Fridman. The new position will remain with him for six months. TNK-BP lost its president back in August 2008, when Robert Dudley, who held this post, left Russia. Formally, his powers expired on December 1. The premature departure of the top manager was the result of a conflict between shareholders, which was resolved only in the fall. Let us recall that the British oil company BP and the AAR consortium (including Alfa Group, Access Industries and Renova), which each own 50% of the shares of TNK-BP, were in a protracted conflict during 2008, caused by disagreements about the company’s development strategy and management structure. In September 2008, the parties signed an agreement in which they agreed, in particular, on new principles for forming the board of directors and electing top management. Now, under the leadership of Mikhail Fridman, two new top managers are scheduled to start working at TNK-BP - the former general director of Polyus Gold, Pavel Skitovich, and Maxim Barsky, who headed the small oil company West Siberian Resources. Skitovich and Barsky are candidates for the post of chief managing director of TNK-BP from British and Russian shareholders, respectively. It is expected that within a year one of them will emerge as the best candidate.

// NON-STANDARD POSITION

The Central Bank will pay for KIT Finance

On May 26, the Board of Directors of the Bank of Russia approved the reorganization plan for the KIT Finance bank. It may turn out to be the most expensive in the history of the Russian banking system - the state intends to spend a total of 130 billion to 140 billion rubles for these purposes. However, according to the Kommersant newspaper from sources close to the discussion of the plan, the Bank of Russia itself will allocate most of the funds for reorganization in the form of loans from the Deposit Insurance Agency (DIA), which will redistribute the funds received between the sanatoriums and KIT Finance. The funds allocated by the Central Bank for rehabilitation will amount to about 75 billion rubles. It is expected that only the redemption of two-thirds of the stake in Rostelecom on the bank's balance sheet (for approximately 45 billion rubles) will be paid for from the DIA funds. The reorganization of KIT Finance with the participation of the DIA, according to the law on reorganization, is repeated for the bank. Initially, the bank, which found itself on the verge of bankruptcy due to failure to fulfill obligations under repo transactions, was sanitized by a consortium of investors represented by OJSC Russian Railways and IG ALROSA. However, then the sanatoriums needed additional government support. To receive it from the DIA, a formal change of owners is necessary. Therefore, it was decided to change the scheme of the transaction: ALROSA should leave the bank’s shareholders, 45% of the shares will be registered as the property of JSC Russian Railways, and in addition to the already existing 10%, the Blagosostoyanie pension fund (one of its founders is also Russian Railways) will receive control of another over 45% of the bank's shares, which will be registered in the name of an affiliated structure. Until now, the record for the amount of financing allocated by the Central Bank for the rehabilitation of banks through the DIA belonged to the VEFK bank (40 billion rubles).

// ON YOUR FIELD

Sibir Energy is running out of minority shareholders

OJSC Gazprom Neft, which has already increased its stake in the oil company Sibir Energy (SE) to a blocking stake, acquired from it 10.6 million shares (2.7% of the authorized capital), offered for redemption to cover part of the debt of businessman Shalva Chigirinsky. The shares were sold at £5 each. The total amount of the transaction was £52.6 million ($83 million), while Chigirinsky's debt to SE is estimated at approximately $400 million. As a result of the transaction, Gazprom Neft's share in SE increased to 30%. As reported, Chigirinsky also transferred to SE the rights to his development assets in France and Britain in exchange for debt to the company. SE previously filed a lawsuit against businessman and former SE head Henry Cameron in the High Court in London to collect the debt, but the parties can agree to pay off the entire debt without trial. Gazprom Neft and SE last week entered into a framework agreement under which Gazprom Neft will issue an offer for all shares of the company, both already issued and those to be issued in the future, at a fixed price of 500 pence per share. The offer is sent only to owners of small packages. The structures of Ruslan Baysarov, Igor Kesaev (each owns 23.35% of Sibir Energy) and the Moscow government (18%) will not receive it, as well as the Bank of Moscow (according to unofficial data, owns 1.3% of shares), the largest shareholder of which is the capital authorities. Thus, under the offer, Gazprom Neft will be able to buy out all SE shares remaining on the market - about 7% of the shares, bringing its stake in the company to approximately 35%. In fact, SE will no longer have minority shareholders. If all minority shareholders accept the offer, Gazprom Neft will have to pay them about £118 million (about $187 million). SE's main assets are slightly less than half the shares of the Moscow Refinery, which it owns together with Gazprom Neft, as well as 50% in the joint venture with Shell - Salym Petroleum Development. SE owns 138 gas stations in Moscow.

// CHALLENGE CUP

Sberbank will deal with food

As it became known last week, Sberbank, together with member of the board of directors and co-owner of AFK Sistema Evgeny Novitsky, can create a new retail holding based on the assets of the federal grocery chain Mosmart and the Siberian Alpi. The scheme according to which Novitsky will receive ownership of a close to a controlling stake in Mosmart CJSC and Alpi premises (250 thousand sq. m) should be approved in the next few days. Former financial director of X5 Retail Group and Euroset Vitaly Podolsky has been invited to head the holding. Unofficially, Mosmart's debts are estimated at 3.6 billion rubles. (data as of the end of 2008), most of the loans are from Sberbank. Krasnoyarsk "Alpi" gave away real estate to pay off debts worth 2 billion rubles, and Sberbank took them as compensation from the retailer at the end of 2008. It is unclear whether Sberbank will receive a share in the new holding or retain its status as a creditor: at a minimum, the new owner will have an obligation to repay the retailers’ debts to the bank. Evgeny Novitsky has been working at Sistema since 1995 and, as of January 2008, owned 1.5% of AFK shares. Until now, his personal investments were known only in shares of cellular operators: in 2006, his company Bacarella bought 5.9% of the shares of the American operator Suncom Wireless, and a year later sold them to Deutsche Telekom with a yield of 60%, gaining $10 million. "Mosmart" includes 25 stores "Mosmart" and "Mosmart-express". According to the top manager of X5, Sberbank has already dubbed the new retail player the third, that is, potentially the third largest retailer after X5 Retail Group (revenue of $8.3 billion in 2008) and Magnit (revenue of $5.34 billion). So far, Mosmart is not even among the top ten largest Russian food retailers.

// FROM THE CENTER OF THE FIELD

Swedes are buying up Russians' debts

The Swedish investment fund Mint Capital is acquiring a large stake in the Capital Collection Agency. As a result, the investor will become the owner of a block of shares of at least a blocking one (25% plus one share), and a representative of the fund will join the agency’s board of directors. The transaction amount is estimated at $5-15 million. This is the first transaction in the collection services market with the participation of a foreign investor since the beginning of the crisis. Before the crisis, foreign shareholders periodically appeared at large Russian collectors - Sequoia Credit Consolidation (Goldman Sachs, October 2006), Pristav (Greater EuropeDeep Value, June 2007). The last to attract a foreign investor, the Swedish fund East Capital, was the collection agency Morgan & Stout in July 2008. Some independent analysts, however, view most of these deals solely as promotional events, arguing that foreign funds act as nominee shareholders for the collectors. Nevertheless, unofficially, Mint Capital says that, considering debt collection as a promising business in Russia, they intend to seriously invest in the Capital Collection Agency, whose branch network consists of 62 regional offices. The Mint Capital fund was founded in 2001 for direct investment in the equity capital of companies in Russia and the CIS countries. The fund's total investment is $150 million. The attractiveness of the collection business for investors is growing along with the volume of bad debts, market participants note.

Based on materials from the Interfax agency, Kommersant newspaper

The largest collectors in Russia
CompanyVolume
debt
portfolio
(retail
debts, billion
rub.)

Sequoia Credit Consolidation	42.5
Debt agency Bailiff	23.3
First collection agency	22.4*
FASP	19
Debt collection agency	19*
(Moscow)
USB Center	17
Capital collector	7
agency

*Data as of March 1, 2009.

Sources: company data as of May 1, 2009, “Debt Factor” newsletter.

NOVATEK has chosen a co-owner