Ilya Sherbovich — RBC: “We like assets that have some flaws”

Despite many claims to the management of Transneft group of companies UCP continued to buy its shares. According to the pipeline company, the share of the UCP has already exceeded 1 million shares, or 2/3 of the preferred shares. In an interview with RBC President and managing partner of UCP Ilya Sherbovich told RBC, how is he going to sue the company for almost 100 million rubles. and about the other claims.

— Why are you just now decided to challenge the changes in the Charter of Transneft?

— We have not contested Bylaw changes. Rights on all shares are not determined by the Charter, and the issue documents. We are talking about the fact that Transneft is still accountable to the privatization law, because the state is still more than 75% of the voting shares. In the framework of the privatisation law the right to increase the dividends on preferred shares (if accrued thereon less dividends than ordinary shares) was the inalienable right of shareholders of all companies that were privatized with the use of preferred shares type A. in addition to “Transneft” in the same way privatized “Surgutneftegas”, “Tatneft”, “Bashneft”, “Rostelecom” and other companies. All of them comply with this legislation.

The essence of the preference shares is in their name. Shareholders give up voting rights in exchange for privileges for dividends. A practice in which the voting shareholders exercise their votes to minimize profits and the disproportionate redistribution of dividends in their favor, obviously, raises serious legal questions.

— What are your claims to “Transneft”?

— We believe that Transneft lowers the profit of the parent company and leaves sometimes up to 90% of the profit on their “daughters”. Historically, suffer from it and the state, and other shareholders, as when low profits were paid low dividends. But the proportion of legitimate payments are always respected. They were either equal or in favor of preferred shares. At the end of 2013, there was a strange event, when all was done the opposite: dividend per ordinary share exceeds the dividend per one privileged share with the same value.

Then all shareholders “Transneft” — and we in particular — was outraged. Shareholders even sent a letter to [Prime Minister Dmitry] Medvedev with complaints about the incident. The reaction to this was that the results of the next, 2014, the justice was restored and returned legitimate payout ratio on preferred and common stock. Now, in the Wake of the discussion of dividends in 2015 we suddenly heard again that “Transneft” plans to repeat the “practice of the year 2013”. Then we decided that we must act in a legal way. We believe that, if the court will consider the legality of the distribution of dividends by results of 2013.

By the way, historically this paragraph [that the dividends on preference shares cannot be lower than the ordinary] existed in the Charter of Transneft. Him out illegally (without the necessary 2/3 votes of holders of preferred shares) removed at the shareholders meeting in 1999. And we get the feeling that there was an attempt by the former leadership of “Transneft” the story to hide, and to close. Please note: all public companies on the site you can find the original Charter and all amendments thereto. Try to find such information on the website of “Transneft”. It’s not there.

— And you have the feeling that by the end of 2015 payments on the preferred shares will be less than ordinary?

From public sources it is known that the decision has not been made yet. But a few days ago, the newspaper “Vedomosti” published an article citing unnamed sources that allegedly planned to send on dividends of 100% of net profit, the company, and of this amount, only 10% will go to owners of preferred shares. This means that in preference share payments can be less than ordinary. This is the wrong calculation, from our point of view.

But you filed the lawsuit in March.

— Yes. Already started the conversations on all sorts of conferences, and former employees of the Federal property Agency publicly said that by the end of 2015 can not be repeated, “the precedent of 2013”.

— And with a management “Transneft” have you discussed this issue?

— With the management we are in occasional contact. Frankly, one gets the feeling that they are not ready for a serious dialogue on this subject. Their basic position is that all issues are decided by the government as a major shareholder. But we don’t quite agree with that. In particular, the issue of profit generation for the parent company, from our point of view, is purely a question of management competency. How the profit is redistributed from the parent company to a subsidiary, is fully in the powers of the head of the company.

I will not deny that many of the statements of official representatives of “Transneft” caught our lawyers by surprise. Denial of the facts that “Transneft” is a public company, and the holders of the preference shares by the shareholders; the position that the shares purchased on the stock exchange, have rights different from the shares received as a result of the contribution to the authorized capital, is clearly from the realm of curiosities. There are associations with the hermit Lykov family, found in the Siberian taiga in the 1970s. To the yard in 2016, has long existed in Russia stock market, the “Transneft” more than 20 years, shares traded on the exchange, and we hear that. Becomes scary.

— Main shareholder of “Transneft”, the government, have you discussed the situation?

— We have sent a number of representatives of the government of the letter with a substantiation of our position — both legal and economic, with a detailed presentation. The question of dividends is decided usually at the last moment on the directives that are signed by the relevant Deputy Prime Minister. Usually the Directive is a compromise product between the needs of the budget and the investment program of the company. We are in a situation with “Transneft” it’s worrying that it’s too many years both the state and investors did not wait for a fair payout.

And a reply from the government yet?

— Not yet. Apparently, the issue is complicated and requires analysis.

Are you questioning the distribution of dividends for 2013, the Statute for a long time yet has not expired?

— The limitation period on such Affairs — three years, the decision was made in 2014. So we have time.

— Why you did not challenge the amount of the base dividend, you say that it is underestimated?

— I hope that this issue will now be decided centrally for all state controlled companies. If to shut eyes to practice of the conclusion arrived at “daughter”, then we have all state-owned companies will do the same.
Recently, the media were given the statements attributed to the representative of the Ministry of economic development, that not to pay large dividends to the state and other shareholders in 2015 Transneft “helps” rule of law “On joint-stock companies”. This rule States that dividends may not exceed 100% of the profits, the company. Imagine: “help”! Good signal we’re sending to all the state controlled companies: let’s all profit to leave on the “daughter”, and then do not have to pay dividends. Absurd. This problem is well known and is easily solved: and management, and the Board of Directors should work for the benefit of the company and its shareholders. To maximise, not minimise profits on their assigned companies. Then the state as the main shareholder will be the room for manoeuvre when deciding on dividends.

— You said that in 2013 the proportion of the UCP in “Transneft” was less than it is now. How much have you increased your pack and why, if you have so many claims against this company?

We are investors, we love the assets, which are undervalued, some flaws that can be improved or changed. “Transneft” we love it, we think this is a great company, great business. We support the policy of the President and the government for improving the investment climate and improving the efficiency of the corporate sector. As major shareholders concerned with what the analyzed the company’s activity, trying to find something that can be corrected and improved. In principle we are doing now that we realize the maximum potential value of “Transneft”.

— Your share can reveal?

— Not in our practice. At the moment we will refrain.

— At the beginning of the year, it was reported that “Transneft” can be included among the privatized companies. If its shares are offered for sale, will you participate?

— The question is how it will be privatized. As I understand it, it is a question not of this year, it was about the year 2017. Those plans the additional issue of preferred shares, which were announced [at the time the head of the Agency] Olga Dergunova, in fact, require the consent of 75% of the holders of the preference shares. This story has little relation to privatization to generate revenue to the budget. The state in “Transneft” owns only ordinary shares. If ordinary shares will be offered for sale, then we will seriously study the possibility. Of shares of “Transneft” continues to be significant growth potential. Worldwide similar companies pay to shareholders from 50 to 100% of consolidated profit in dividends each year. I believe that sooner or later, a reasonable approach will prevail and “Transneft” will do the same to the delight of the state and other shareholders.

The Answer Is “Transneft”

RBC asked the representative “Transneft” Igor Demin comment on the allegations by Ilya Sherbovich that Transneft lowers the profit of the parent company, and its Charter was changed in 1999 to “illegal”. “The financing of all construction projects is conducted through a subsidiary of the company, so naturally the profits are still there”, — said Demin. According to him, if changes to the Charter were adopted illegally, it would long ago have been challenged in court.