IBRC's Russian debt collector has a history of disputes with partners

The Alfa Group may be a match for the Quinn family asset-stripping scheme but will any wealth recovered be divvied up as agreed?

There is a mismatch between what the Irish Bank Resolution Corporation has said about its putative Russian partners in its plan to seize the property formerly owned by the Quinn family and what those who have done business with the Russians say of their experience.

The Alfa Group is Russia’s largest privately held conglomerate. It has investments in financial services, oil and gas, retail, telecommunications, water utilities and “special-situation” investments. It has assets in more than 30 countries, with a value at the end of 2011 of $64.8 billion.

IBRC executive Richard Woodhouse told the High Court recently that the bank opted to enter into a deal with Alfa’s asset recovery arm, A1, after coming to the conclusion that the Quinn family was not co-operating with the bank in its efforts to seize assets in Russia and the Ukraine.

The deal has been approved by the Minister for Finance, Michael Noonan, and the board of IBRC, with the latter being satisfied “with A1 and Alfa both reputationally and otherwise”, that there was an appropriate appointment process, and that A1 is an “appropriate partner for a State-owned entity”.

A1 was identified as the most suitable joint venture partner given its “experience, reputation and skills”, Woodhouse said.

“Alfa has previously entered into a number of partnerships with international blue-chip companies and companies in state ownership.”

He also said the Alfa Group had built up a reputation over the past 15 years as “formidable opponents in litigation”.

That comment is certainly one with which Norwegian state-owned telecoms group Telenor would agree.

It is an investor in Vimpelcom, one of the largest mobile phone companies in Russia, and the first Russian company to float on the New York Stock Exchange since the collapse of the Soviet Union.

In 1991, Telenor and Alfa Group were the two largest investors in Vimpelcom, with 25.1 per cent each. In 1996, slightly more than a quarter of the company’s shares were floated on the NYSE.

However, in 2004, when Vimpelcom began to consider a move into Ukraine by way of acquiring Ukrainian Radio Systems (URS), relations between the two shareholders took a nosedive, from which they have never recovered.

The move to purchase URS was initiated by Alfa; Telenor did not believe it made business sense. It believed the price being suggested was grossly inflated. Furthermore, it did not know who the sellers of the URS shares were.

The acquisition was resisted by Telenor, which had five directors on Vimpelcom’s nine director board. A supermajority of eight was needed for the acquisition to go ahead.

Then a man called Victor Makarenko, who owned two shares in Vimpelcom, took three successful cases against the company in courts in rural Russia in the months October 2004 to March 2005. Among the cases taken was one to force Vimpelcom to allow simple majority votes on acquisitions.

In June 2005, the Supreme Court of the Russian Federation overthrew the three lower court rulings.

A subsidiary of the Alfa Group, Eco Telecom, then took a case against Vimpelcom in a Moscow court, seeking to overturn a board decision rejecting the URS acquisition. These suits were subsequently withdrawn.

Nevertheless in September 2005, a Vimpelcom EGM was organised and a vote taken that approved the URS acquisition.

The purchase was completed a month later, for $231 million, although the whole process was disputed by Telenor. The row over the issue led to the Vimpelcom board not being able to agree a budget for 2006.

Telenor began suits in Moscow and New York as both sides began to increase their stakes in Vimpelcom.

In 2008, a British Virgin Islands (BVI) company called Farimex Products, which had a 0.00002 per cent stake in Vimpelcom, sought damages of $5.7 billion in a court in the Russian town Khanty-Mansiysk arising from the the delay in acquiring URS.

In August of that year, the court ordered Telenor to pay the BVI company $2.82 billion. Telenor appealed.

In its response to the case, Telenor alleged that Farimex was funded by a $4 billion offshore trust created by Alfa Group chairman Mikhail Fridman for the purpose of pursuing litigation and corporate raiding in circumstances where it is advantageous for the relevant entity to appear to be outside Alfa’s control.

Fridman, considered to be one of the richest, if not the richest man in Russia, is one of three multibillionaire oligarchs who control the Alfa Group.

The suit from Farimex was quietly withdrawn when Telenor agreed, in 2009, to merge its Russian and Ukrainian telecom assets with Alfa’s in a $23 billion deal.

Recently the Financial Times reported that Telenor had opened the door on selling its $6.4 billion stake in Vimpelcom to Altimo, the telecoms arm of the Alfa Group.

The pattern of disputes with its fellow shareholder is one that also marked Alfa’s relationship with BP.

Alfa was a shareholder in TNK BP, the oil enterprise that is now being sold to Russian group Rosneft in a deal that will see the Alfa Group in line for a payout of at least $11 billion.

The relationship between BP and Alfa was marked by years of bitter disputes and a whole raft of court cases. At one stage, a man called Andrey Prokhorov, who held a tiny stake in TNK-BP, was awarded $3.1 billion in damages in a case he brought against BP in a Siberian court.

“It’s all part of the rough and tumble of doing business in Russia,” a BP executive was quoted as saying at the time.

Likewise Alfa’s dealings with fellow shareholders in telecoms groups Kyivstar, MegaFon and Turkcell have been marked by acrimonious litigation between the supposed partners.

Sources say the group has a track record of litigation with partners and that this can often lead to the partners selling out their share to Alfa.

IBRC may well be correct in thinking that the mighty Alfa Group will be more than a match for any Quinn family asset stripping scheme. But that is not the same as saying that the State bank’s agreement with Alfa will see the end of its problems.