Stake building allegations portend interesting AGM (640 words)

Published: 5/9/2001

David Herne, the representative of foreign minority investors on the Aeroflot board, has let it be known that he does not wish to be reappointed to the nine-member board at the company's AGM, scheduled for 19th May 2001. In a letter to shareholders, Herne states that he feels that his presence on the board had been useful, coinciding with the company's GDR programme and improvements in both the “quality and quantity” of information coming from the flag carrier. Herne cites as his reasons for withdrawal as being “ in large part " owing to work commitments with his employer, Brunswick Capital Management. Herne's presence on the board has undoubtedly helped to improve transparency from Aeroflot. In fact, some analysts have recently suggested that the “good old days” of little information almost made it easier to understand the company, as they are now deluged with every conceivable statistic. Herne gained 11.6% of the votes cast in the last board election - primarily from foreign investors - and it seems likely that another foreign investment manager will take his seat. The precedent of a foreign representative on the board of major Russian companies has become more acceptable since Herne's election last year and, recently, Herne himself has joined the board of electricity holding, UES. It is unclear as to whether Brunswick has reduced its overall exposure to the airline and that this is the reason for his decision not to seek re-election but, according to the company's share register, the direct holdings of Brunswick Warburg have fallen from 2.8% to 0.6%. Whether or not these are the holdings of the fund manager is unknown. The new elections for board members may prove to be quite an interesting spectacle, as reports suggest stake building in excess of 20%+ by Roman Abramovich, through Russian Aluminium, jointly owned with Siberian Aluminium and Boris Berezovsky, who may provide additional candidates for election. The state, currently with a 52% stake in the airline, seems likely to retain six government representatives, including German Gref, Minister of Economic Development and Trade; Evgeny Shaposhnikov, Advisor to the President on aerospace issues; Sergey Frank, Minister of Transportation; Alexander Braverman, the first Deputy Minister of Property; Vladimir Goryachev, Head of one the departments with Ministry of Transportation; Sergey Molozhavy, Deputy Minister of Property; Vladimir Chernukhin, Deputy Minister of Finance and Alexander Borodin, the head of the department on property, transportation and communication issues with the Ministry of Property. The other three seats are filled by Aeroflot's Valery Okulov, General Director and Alexander Zurabov, Financial Director and it seems unlikely that this will change, but the ninth seat, held by Herne, may be more of an issue. According to sources within Aeroflot, the new shareholders are not expected to have an immediate impact on the board although, given the tumult surrounding the last year's election, it is difficult to predict what may happen. Russian daily, Vedomosti, in a report on 8th May, repeated the reports of Abramovich buying a substantial stake in the airline, but with little in the way of tangible evidence and reiterated Berezovsky's denial of reports that he has holdings of 2-7% in the company. This stance is in part supported by the disappearance of what were rumoured to be Berezovsky vehicles - closed JSC Firm Foster and Pruett Enterprises Ltd - from the share register. Vedomosti claims that Abramovich, by virtue of purchases through oil company, Sibneft and through Russian Aluminium (RA), has built up a holding of 29.3% at a cost of $120m at an average price of 37 cents. This is denied both by Sibneft and RA, although a considerable fall in employees' holdings in the airline - from 24% to 15% of late - does suggest considerable movements in ownership.

Article ID: 2522