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Russia/U.S.: New York Banker Crosses Russian Steel

  • John Helmer

Moscow, 12 February 1997 (RFE/RL) - Salomon Brothers, the well-known New York investment banker, has joined a fierce shareholders' battle for management control of one of Russia's most effective steelmakers, Novolipetsk Kombinat.

Cast in western accounts as a contest between reform-minded shareholders and entrenched Soviet-style management, local steelmen view the foreign shareholders as market speculators, who threaten one of the most viable steel producers in Russia, as well as the Lipetsk region, whose economy depends on it.

Salomon's Moscow representative, Vladimir Kuznetsov, says his firm took over last year from Deutsche Morgan Grenfell as advisor to Cambridge Capital Management, a Caribbean-registered investment fund which holds just over 17 percent of the Novolipetsk shares. Kuznetsov said "our client believes their interests are not served by the existing board of directors. Suggestions have not been accepted by the company management."

Salomon applied late last month for the steelmaker's nine-man board to place on the agenda for the next shareholders' meeting a bid for proportional representation on the board for the Cambridge investment-fund nominees. The shareholders' meeting has not been scheduled yet, but it is expected next month, or early April.

According to Kuznetsov, Salomon and Cambridge believe "there are ways to improve the company's performance." Their demands include: accountability of management to shareholders; transparent accounts; independent auditing of the company's financials; independent representation of shareholders on the board of directors; and a review of company contracts by expert consultants.

The drive to put new directors on the Novolipetsk board is also joined by Russia's leading commercial bank, Uneximbank, which holds 15 percent of the shares; and Sputnik, an investment fund managed by Renaissance Capital, which holds nine percent. Renaissance was created by American banker, Boris Jordan, who blamed a protracted delay last year in renewing his Russia visa, on the conflict at Novolipetsk.

Opposing these shareholders is the Novolipetsk management, and Intermetal, the Russian trading unit of London-based Trans World Metals. Vladimir Lisin, chief executive of Intermetal, is a member of the Novolipetsk board of directors.

Lisin accuses Cambridge and Renaissance of being speculative sharebuyers, who bought Novolipetsk stock in hope of profiting as share prices of the steelmaker rocketed from seven dollars in November 1994, to a peak of 41 dollars in November 1995. The share price fell back in 1996, and currently trades at 37 dollars.

Lisin said Cambridge is an unknown group of investors, with no commitment to the long-term recovery of Novolipetsk, or the ailing Russian steel industry. His view echoes apprehension in the Lipetsk region, where the steelmaker is a major employer and taxpayer, that if the shareholder challenge succeeds, there will be a liquidation of company assets, and widespread losses of jobs and pay. Elsewhere, Uneximbank, which has control of Norilsk Nickel, the world's largest nickel-and-platinum producer, is facing a worker revolt against pay delays and lack of investment.

Kuznetsov says he was not aware of a recent conclusion by steel examiners at the European Bank for Reconstruction and Development (EBRD) that praised the firm's new accounting and spending systems. But, he said, "The EBRD has different objectives as a lender than our client has as a shareholder."

Lisin and EBRD officials confirm they are negotiating a loan of more than 100-million dollars. He said the board had proposed the challengers accompany their bid for representation with a commitment to invest part of the 100-million dollars required to fund Novolipetsk's monthly production. This was turned down.

Renaissance Capital spokesman Ilya Protsenko said "we are ready to participate in any scheme of partnership on condition the investor should really participate in the management of the factory." Responding to the allegation that Cambridge, Renaissance, and Uneximbank bought into Novolipetsk for a quick return on the share-price, Protsenko said, "our investment is not speculative, but long-term."

According to a report prepared for the Novolipetsk board, the steelmaker's production has held realtively steady, defying the general trend of decline for Russian steelmaking as a whole. The key, according to the management report, which Lisin helped draft, is a set of management and accounting controls introduced last year.

Salomon's Kuznetsov refused to say what alternative management strategy Salomon and Cambridge may have.