Midsize oil producer Sibir Energy has suspended its CEO while it investigates real estate dealings with shareholder Shalva Chigirinsky. The case has damaged the company's reputation on the London Stock Exchange and could further sour investor sentiment towards Russia.
The problems started brewing late last year, when the oil company announced plans to buy $360 million of real estate from the billionaire to prevent him having to sell his 23 per cent stake. After an outcry from investors and a plunge in Sibir's share price, the plans were dropped in January.
On February 19, Sibir's shares were frozen after the company said that Chigirinsky-linked interests owe $325 million to the company, rather than the $115 million it previously informed the LSE about.
The company suspended Henry Cameron as CEO, but he will still help recover what Chigirinsky owes. His deputy, Stuard Detmer, was named as acting CEO on Wednesday.
"Henry Cameron will continue (notwithstanding the suspension of other executive duties) to assist Sibir on an ongoing basis to recover all monies owed by any Chigirinsky interest to Sibir," the company said in a statement. Sibir said it does not know how the wrong figure was reported, but the mistake is likely to harm its reputation with international investors.
"It has been a somewhat comical development," said Carl Merling of Emeralt Investments, which invests in Russia and Eastern Europe but does not have a stake in Sibir. "For everyone who thought they invested in an oil company and ended up owning a real estate company, [the conflict of interest] is pretty plain to see."
The company refused to make any comment Thursday, citing the ongoing investigation. When asked whether this created a negative image of Sibir, a source close to the company said: "I don't think so. Everything will be OK."
"The recent events have showed that Chigirinsky is not an easy partner," said Ivan Mazalov, director of oil and gas at Prosperity Capital Management. "The second [key] shareholder, Kasayev, and the board will try to redeem the company in the eyes of investors."
London-based Sibir is listed on the London Stock Exchange's smaller AIM platform, and was considering joining the main FTSE 100 exchange in London last year. The affair has spurred a debate at the LSE about standards of corporate governance and minority shareholder rights, particularly in Russian companies.
"We've seen a number of cases in the past six months, during the latter part of 2008, where minority shareholders have not been dealt honestly with by the majorities," said Merling.
Two of the significant minority shareholders, M and G Investment Management and BlackRock Investment Management, declined to comment on the investigation.
The economic crisis will now force investors to be more prudent with their investments, due to declining revenues and many companies' heavy debt burden, Merling said.
"Russia used to be a simple case where you could invest in anything and make a huge profit," said Merling. "You obviously have to be a lot more selective these days."
The investigation will be conducted by the company's lawyers, Jones Day, and its accountants, Ernst & Young.
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