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Sibir’s bail-out of investor stuns market

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By Ed Crooks and Catherine Belton

Published: December 4 2008 02:00 | Last updated: December 4 2008 02:00

Sibir Energy, the London-listed Russian oil company, shocked the market by agreeing to buy a property portfolio from one of its largest shareholders for $340m (£221m) to help relieve his financial difficulties.

The news was the latest blow for a company that has lost 95 per cent of its value in five months, even though operationally it has been among the most successful independent oil groups in Russia in recent years.

The shares lost more than half their value yesterday, closing down 57p at 43p. They hit a peak of more than 830p in June, when Sibir was the largest company on Aim with a £2.5bn market value.

Sibir has shelved a move from Aim to London’s main market. Alexander Betsky, finance director, resigned on Tuesday.

Henry Cameron, chief executive, said yesterday: “Doing business in Russia has never been for the faint-hearted.” Sibir shareholders will have needed no reminder.

The company has agreed to buy a portfolio of 10 property projects from Chalva Tchigirinski, the Russian businessman who owns about 23 per cent of the company. Igor Kesaev, another Russian businessman, also has 23 per cent and the city of Moscow owns 18 per cent.

As explained by Sibir in a circular to shareholders yesterday, Mr Tchigirinski and the other Russian shareholders have played a “crucial role” in building the company. As the global financial crisis deepened this autumn, however, Mr Tchigirinski came under pressure from his lenders and faced “imminent” margin calls on his investment.

He had to pay off his debts or sell his shares, a move Sibir argued “would have devastated the share price and destroyed the existing shareholder structure, exposing the company . . . to ruthless predatory activity.”

The board was “not prepared to stand by and allow this to happen,” it said, and in October it agreed to buy two of his properties, including the Sovietsky Hotel in Moscow, for about $157m.

Unfortunately, that proved to be inadequate, as “the global financial crisis and consequential drop in share values have had a domino effect on Mr Tchigirinski’s financial position”.

In the end, the board concluded that “as the preservation of our shareholder structure has been the key factor behind our actions . . . we must take over the bulk of Mr Tchigirinski’s remaining real estate business”.

As Mr Cameron put it: “Difficult times call for uncomfortable decisions.”

Sibir described the assets it is acquiring as “arguably the best real estate portfolio in Russia”, but acknowledged “the company may have to take a medium-term view on realising profits”.

The Russian property market has been weakening, with many of the biggest developers putting projects on hold and cutting staff.

The jewels in the portfolio, the Norman Foster “Russia Tower”, planned to be the tallest building in Europe, and the prestigious Passage retail arcade off Nevsky Prospect in St Petersburg, are merely projects. Sibir said it planned to keep development of the Russia Tower on hold, and to “assess development opportunities” for the Passage.

The deal will be voted on by shareholders at an extraordinary meeting on December 18. Mr Tchigirinski will not vote, but analysts believe the support of the other Russian shareholders will mean it is approved.

Shareholders gave a mixed reaction yesterday. Some accepted the purchase could be the best way to keep Sibir afloat through financial turbulence in Russia.

However, James Fenkner, founder of Red Star Asset Management, a Moscow-based hedge fund, said: “This is insane. This is going back to ’98. This place hasn’t changed.” Some investors have started to fear Russian businessmen could revert to old practices honed in the 1998 crisis, when cash-strapped oligarchs stripped their companies’ assets.

Sibir has had a history of battles with other Russian businesses. It recently settled a dispute with Gazprom, the state-controlled gas company, over control of a Moscow refinery and an oil field, and tried to take Roman Abramovich, the owner of Chelsea football club, to court in London in October.

Behind all that, however, it has done well in its core business. The development of the Salym field in western Siberia, a joint venture with Royal Dutch Shell, has been a huge success, taking Sibir’s production to 76,700 barrels of oil per day last month, a very respectable amount for an independent. It has proved and tested reserves, under Russian definition, of 491m barrels of oil.

An often-rumoured deal with Shell has so far come to nothing. But the reserves remain a valuable asset and the best hope for shareholders is that some way can be found to realise that value.

Lombard, Page 20

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