Three international investment funds--Hermitage Capital Management, Firebird Management and Prosperity Capital Management--backed by the Association for the Defense of the Rights of Investors have filed suit in the Khanty-Mansiisk Arbitration Court against Surgutneftegaz, demanding that the latter cancel 62% of its shares on the ground that they are company treasury obligations. The plaintiffs are minority shareholders of Surgutneftegaz.
The complaint states: 'According to the reports of its management, Surgutneftegaz owns less than half of 1% of the shares of the company.' However, according to the complainants, the company controls no less than 62% of its voting shares through a network of subsidiary firms. 'Despite the fact that management owns an insignificant packet of company stock, it in fact makes use of the shares of companies that it controls to elect the board of directors and the general director of the firm, Vladimir Bogdanov,' the complaint asserts.
The complaint alleges that Surgutneftegaz is violating such basic rights of stockholders as the guarantee of equality in rights with all other stockholders, the right to take part in decisions on the distribution of profits, the right to appoint and remove company management and the right to receive dividends.
Under the law On Corporations companies are obliged to annul or sell shares of their own companies that they have on their books no later than one year after their acquisition. 'In that Surgutneftegaz controls its own stock through daughter companies, management is of the opinion that these shares are not owned by the company and that management thus may vote these shares and has no obligation to annul them,' the complaint states.
'Management has no right to vote shares that do not belong to it and appoint itself to leading positions in the company,' said William Browder, chief acting director of Hermitage Capital Management. The complainants allege that 62% of company shares are treasury stock.
Surgutneftegaz declined comment on the situation. Company press secretary Raisa Khodchenko told Rosbalt: 'Treasury shares are shares listed on the balance sheet, and Surgutneftegaz has no such shares.'
However, Matthias Westman, director of Prosperity Capital Management, one of the complainants, said: 'Owning only an insignificant portion of Surgutneftegaz shares, the management of the company, nonetheless, controls the controlling packet of company stock and can hold shareholder meetings and appoint itself to top management positions using completely controlled subsidiaries without the participation of legitimate shareholders.'
The complaint asserts that 'the reason for the suit in large measure is dissatisfaction with company results as compared with its Russian competitors. Unlike other Russian oil companies, Surgutneftegaz traditionally pays extremely low dividends, accumulating large cash reserves, which results in low company earnings. Moreover, Surgutneftegaz wasted significant resources on fruitless explorations and sold oil at lower than market prices through intermediaries,' the minority stockholders assert.
Investment company analysts told Rosbalt that satisfaction of these demands would lead to the replacement of Vladimir Bogdanov as Surgutneftegaz president and change in the ownership of Russia's fourth largest oil producer. Vadim Kleiner, director of corporate affairs for Hermitage Capital Management, openly stated that this is what the complainants are seeking. 'We believe the company should be controlled by the stockholders, not by managers. In the case of Surgutneftegaz, the rights of stockholders for a role on profits has been violated, in that 62% of dividends are under the control of the company, as has their right to a role in stockholder meetings,' the representative of Hermitage Capital Management said.
In 2003, Surgutneftegaz extracted 54 million tonnes of oil, an increase of 10% from 2002. It projects a total of 57 million tonnes for 2004.