After additional issues, the capital of MRSK Yuga increased by more than 40% / MRSK Yuga

Prosperity Capital, a minority shareholder of MRSK Yuga, has challenged two additional issues of the company in the Rostov Region Arbitration Court for 1.2 billion and 1.3 billion rubles to finance the construction of infrastructure for the 2018 FIFA World Cup. This is stated in the company's materials. Prosperity Capital structures demand that the additional issues be declared invalid.

After the additional issues, the capital of MRSK Yug increased by more than 40%. Prosperity Capital believes that the share issue was split into two parts so that the decision could be made by a simple majority, said the fund's director Roman Filkin. The additional issue was carried out by open subscription, the valuation for the placement was 2.5 and 3 times higher than the market. Prosperity Capital voted against. Minority shareholders had a preferential right to purchase shares; redemption from dissenters is not provided for in this case, says Saveliev, Batanov & partners lawyer Sergey Konovalov.

"MRSK Yuga"

Distribution grid company
The main shareholder is Rosseti (60.64%).
Capitalization – 2.2 billion rubles.
Revenue (IFRS, Q1 2017) – RUB 8.6 billion.
Net loss – 0.4 billion rubles.

After the placement, Rosseti's share increased from 51.66 to 60.64%. Prosperity Capital structures had about 25%, Filkin specified. Now - 17.79% of shares. Other minority shareholders also voted against, Filkin noted: if Rosseti had carried out the additional issue in one stage, it would not have taken place. MRSK Yuga carried out the additional issue in accordance with the law, a representative of Rosseti said.

Minority shareholders point out that the additional issues were interrelated, says DS Law partner Irina Medvedskaya, and since the issue size exceeds 25% of previously placed shares, three-quarters of the votes had to approve it. It is necessary to prove the connection between the issues and the intent of the majority shareholder to split the placement into two parts, she notes. But courts often refuse to evaluate the economic feasibility of management decisions, warns Konovalov.

The company is building infrastructure for the championship, but is doing so at the expense of minority shareholders, whose shares are diluted as a result, Filkin said. Such transactions can be financed through state subsidies or direct assistance from shareholders, he believes. In 2016, the subsidy for MRSK Yug was 1.8 billion rubles. The investment program for 2017 is 2.8 billion rubles. Many MRSKs require budget injections for urgent projects, says Renaissance Capital analyst Vladimir Sklyar. The lawsuit looks like an attempt to block the company's activities in order to receive an offer to buy out shares at a price above the market price, he believes.

Prosperity Capital is unhappy with the additional issue of MRSK Yuga