1. LETTERS TO THE EDITOR: Foreign investors must hope that new
Russian laws will protect them in assets 'endgame'
By Henri Bardon
Financial Times; Jul 13, 2004
From Mr Henri J. Bardon.
Sir, It always amazes what short-term memories we all have, and
certainly the article "A hard rain falls on the house that Yukos
built" (July 9) rings home quite strongly in terms of the legal
environment in which businesses and investors are still forced to operate
in Russia.
Despite the scope of the Yukos deal, there are some aspects to this
dispute in Russia that should alert us to the incredible remaining legal
issues surrounding bankruptcy laws, corporate governance/practices and
state intervention that foreign investors are still facing in Russia. Could
it be, this time, that the Russian government itself will fall victim to
some of the bad laws and enforcement practices that surround
bankruptcy and corporate governance in Russia?
Although our 2002 payment dispute was much smaller ("Not for the
faint-hearted foreign investors", FT August 15 2002), I can still recollect
that we were also offered additional shares in the company in lieu of
assets as collateral for payment. Unlike the Russian government with
Yukos, we accepted some of the shares as collateral although this
decision would not have changed the outcome. There is no question in
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2. my mind that the "endgame" for Yukos will also be bankruptcy when
real battles for assets will begin. The shareholders of Yukos have much
experience with such "asset-stripping" practices and I predict that private
interest will recover the assets of Yukos despite indications to the
contrary.
Our "endgame" was much simpler since we were foreigners. All the
assets of OJC Primorkhlebprodukt were sold off in a "big deal" by the
majority shareholders whose shares we held as collateral just before it
declared bankruptcy. The state expropriated some remaining assets
seized by bailiffs based on bogus taxes and state security interests. As
shareholders, we attempted to legally unwind the pre-bankruptcy
transactions and sales to parallel companies owned by other shareholders
and management of OJC Primorkhlebprodukt but failed.
We will always remember the letter from the Kremlin advising us to
fight our case in the courts (see Moscow Times August 8 2002). We
successfully won seven court cases but could not recover even one
kopek on any account, despite the sales of assets that should have
brought in large amounts of cash into the company. We, of course, wish
President Vladimir Putin much luck with Yukos!
I think BP and other investors should watch carefully this "endgame" for
Russia's foreign direct investments and hope that tomorrow's Russian
authorities will finally approve and enforce laws and regulations that
protect investors, whether they are Russian or Foreigner.
Henri J. Bardon, President, Euro Asian Investment Holding, Seattle, WA
98104, US
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