Ilyushin Finance Company is contesting the equity/investment split and talks are being held to resolve outstanding issues (713 words)

Published: 11/28/2001

The much vaunted aircraft leasing scheme is experiencing a bit of a rough passage as the parties involved seek to resolve the issue of the government's shareholding in the leasing structures. According to sources, one of the participants, Ilyushin Finance Company (IFC), feels that the government's proposed $80m investment in its structure in return for a majority stake is unacceptable. Sources close to IFC say that, when the tender was originally negotiated, IFC understood that the government would gain a controlling stake in the leasing company through both its own holding - proposed as being 33% - and that of another investor, the state-owned Venesheconombank, so giving the government indirect control. However, it seems that, after the tender, the government decided that it should hold the controlling interest directly and therefore upped the holding for the $80m committed by 50%. IFC has expressed its unhappiness with the government's stance and even suggested that it may withdraw from the scheme. This, however, seems unlikely, given both the time committed and the fact that IFC's contribution to the deal - unfinished Il-96 airframes - are pretty well worthless if they are not completed. The completion of the aircraft, which is only really guaranteed by the current leasing scheme on the table would bring to closure a scheme that has taken literally years to bring to fruition. A number of meetings have taken place on the issue between the government and the leasing companies, the latest with German Gref, the Minister of Economic Development and Trade. Sources say that the talks are close to a conclusion and a settlement is expected in the next week, which will leave the government with a holding of between 38-40%. IFC General Director Alexander Rubtsov is more circumspect than this, saying only that he has proposed a price for the controlling interest in the IFC-led structure and awaits the government's response. Considerable efforts have been made to create the perception that, even on the basis of 40%, the government is getting a substantially better deal than existing shareholders and at a price significantly below the “independent” valuation of the company by Arthur Andersen. Sources maintain that Rubtsov's position on the holding only manifested itself in the last two weeks and was triggered by the possibility of slow payment of the monies committed by the government. IFC, however, says that if agreement on the state's holding is reached in the next week, it expects to get 25-30% of the money this year and the balance in the first quarter, but with the caveat that the funding for the budget is always subject to the vicissitudes of the oil price. For more cynical observers, the IFC tactics over the size of the state's holding smack a little of trying to renegotiate the terms after the deal was done. IFC denies such a charge, arguing that it had always negotiated in good faith on the issue of “state” control and that it was the “bureaucrats” that changed the understanding of what constituted that control. It is interesting to note, however, that during the process of the tender IFC did considerably reduce the level of direct state commitment required for the programme, from $172m to $80m, in what was interpreted as a move to bring it within the government parameters and allow it to win the tender. The government seems less concerned with the progress of the talks, merely commenting that the talks to date have been “constructive” with no disagreements and that it will fulfill its capital requirements agreed earlier, of $80m for IFC and $52.6m for FLK. Igor Garvadsky, head of the committee that chose the tender's winners, did, however, state that there was no question of “increasing these sums”. He said that the funding was approved by decree on 27th November and the companies should get the Rb1 billion in 2001 out of the Rb3 billion scheduled for 2001, with the balance paid in 2002. FLK has pronounced itself happy with the $52.2m in return for the 50%, according to Evgeny Zaritsky, General Director, but he would not elaborate on the arrangement.

Article ID: 2931