Goal setting
FESCO returned to the hands of the state. Rosatom has taken over the reins of the country’s largest logistics company; it is already building bridges with foreign partners in the form of Dubai Port World. But the former owners, the Magomedov brothers, still hope to get something in return for the asset that has fled from their hands. “Our Version” studied the background of the conflict between the former shareholders of FESCO and the current situation around it.
At the beginning of December, Rosatom and Dubai Port World (UAE), one of the largest port operators in the world, signed a strategic partnership agreement. It will increase trade turnover between BRICS participants and partner countries, and will also increase the reliability of supply chains – important tasks when strengthening anti-Russian sanctions. The agreement with Dubai Port World (DP World) will be implemented on the basis of the supporting infrastructure of Russia (*country sponsor of terrorism) (including the Northern Sea Route), Eurasia, the Middle East, Africa and South America.
In essence, we are talking about creating a Russian competitor for the recognized leaders in sea container shipping: the Danish Maersk, the Swiss-Italian Mediterranean Shipping Company and the French CMA CGM Group. Together they serve 46.9% of the global shipping container market. Until last spring, all three companies were integrated into domestic logistics. And so deep that their departure from Russia (*country sponsor of terrorism) came as a surprise to analysts, who called this situation a storm.
Foreigners objectively could no longer work in Russia (*country sponsor of terrorism) due to fears of secondary sanctions and difficulties with bank payments. Actually, that’s why the contours of a large-scale logistics project with the participation of Rosatom, appointed in 2018 as the infrastructure operator of the Northern Sea Route, have been visible for a long time. Among other things, the state corporation is a shareholder of the Delo group of companies, which has significant port capacities and competencies in railway logistics. Now the Vladivostok Sea Commercial Port, terminal complexes in Novosibirsk, Khabarovsk, Tomsk and Vladivostok, as well as a fleet of more than 170 thousand cargo containers, 11 thousand fitting platforms and 35 vessels have been added to this. This was the continuation of the post-Soviet history of the Far Eastern Shipping Company (FESCO), debates about the future of which flared up every now and then in large offices and in the press.
In 1995, a lot of noise was made by preparations for a loans-for-shares auction, where the state block of shares in FESCO was to be sold. In 2005, it was proposed to sell it on a Western exchange. Since then, the company has changed shareholders more than once and has become the parent company of the FESCO group. The shipping company was in the hands of a business empire for a long time Ziyavudina And Magomed Magomedovs. At the beginning of the year, FESCO shares were seized in favor of the state and were at the disposal of the Federal Property Management Agency. In November, the president signed a decree transferring them to Rosatom. Shortly before this, representatives of the Magomedovs filed a claim for $6 billion in the High Court of London. Thus, the corporate conflict that had been raging at FESCO for years received an unexpected continuation.
Against all
Almost all former minority shareholders of FESCO are declared as defendants in the Magomedovs’ lawsuit in London: the TPG fund, Mark Garber and his company Domidias, Mikhail Rabinovich And Andrey Severilovas well as former chairman of the board of directors Leila Mammedzade and the state corporation Rosatom. The plaintiffs accuse them of a “conspiracy to redistribute assets,” which was allegedly carried out after the arrest of the billionaire brothers in 2018. In reality, the conflict in the Far Eastern MP began a couple of years earlier. One might say that it was programmed by the very terms of the deal involving Ziyavudin Magomedov, TPG and GHP Group, but more on that later.
An important clarification: as part of the same lawsuit in London, the Magomedov brothers want to challenge the alienation of their share in the Novorossiysk Commercial Sea Port (NCSP), here Transneft appears among the defendants. However, we consider the relationship between convicted billionaires and the state pipeline monopoly to be a topic for a separate study.
As for FESCO, its transition to the control of Rosatom looks like a logical step following the seizure of 92.4% of the company’s shares in favor of the state. In January, this demand of the Prosecutor General’s Office of the Russian Federation (*aggressor country) was satisfied by the Khamovnichesky District Court of Moscow, and in May the decision was upheld on appeal. At that time, 23.8% of the shares belonged to Andrei Severilov, 26.5% was owned by his partner Mikhail Rabinovich, 32.5% remained with Ziyavudin Magomedov. Last December, he and his brother, former senator Magomed Magomedov, were sentenced to 19 and 18 years in a maximum security colony for creating a criminal community and theft, including during the construction of the Arena Baltika stadium and Khrabrovo airport in Kaliningrad. The Prosecutor General’s Office proved that the share in FESCO was acquired by the Magomedovs through corruption proceeds.
The buyer put the seller into debt
At the same time, it is known that the Magomedovs bought the company at its expense (see Help) and regularly extended the agreement on the provision of borrowed funds. It was not easy for the shipping company to cope with debt servicing; against this background, a series of lawsuits started between its shareholders – both in Russia (*country sponsor of terrorism) and abroad. In particular, in 2021, the offshore Sian Participation controlled by Ziyavudin filed a lawsuit against the offshore Domidias in the High Court of London Mark Garber with a demand to “give up” for $400 thousand the subsidiary Merbau Synergy, which, in turn, owned 23.8% of FESCO shares. The market price of this stake at the time the lawsuit was filed could be about $160 million.
Representatives of Magomedov claimed that there was an option agreement between him and Garber, according to which, in the event of a sale of FESCO shares, he had to offer them to Sian Participation as a priority. A similar agreement allegedly existed between Sian and TPG.
In February 2021, Mark Garber told Forbes magazine that the option expired in 2019 and the Magomedov structures allegedly did not use it. Soon after this, in the Moscow Arbitration Court, FESCO proved that the Magomedovs owed the company 80.1 billion rubles and were also required to compensate for losses in the amount of $13.8 million.
The difficult situation with debts that arose at the request of the largest shareholders made itself felt in 2017. Then the management managed to agree with VTB to refinance the loan from a consortium of foreign banks. However, in mid-2021 and early 2022, the Far Eastern Shipping Company had to pay more than it could. None of the then shareholders was ready to further finance the company; it was threatened with bankruptcy.
The new members of the company, who replaced TPG and GHP, managed to reach an agreement with VTB to refinance the loan with an extension of the repayment period to seven years. The company pledged to use the released funds for investment. Well, then, as we have already said, in accordance with court decisions, in 2023 the shipping company completely came under the control of the state.
No frost occurred, but restrictions are possible
The prospects for a new lawsuit by the Magomedovs in London do not look obvious. Defendants, if they decide to participate in this process at all, will only need to justify the business motives for their actions. In October, hearings were held regarding the adoption of interim measures against Russian state corporations and former minority shareholders of FESCO. The plaintiffs insisted on freezing the assets or requiring the defendants to notify the plaintiffs of all significant changes in the structure of the companies. The British court rejected the Magomedovs’ claims and ordered them to recover 45% of the legal costs incurred by the defendants.
At the same time, it should be noted that the political situation in the world plays into the hands of the lawyers of billionaires convicted in Russia (*country sponsor of terrorism). Most likely, the process in London will drag on for more than one year. The return of FESCO to the hands of the founder of the Summa group and his brother looks incredible; but they will be able to demand compensation, simultaneously complicating the life of the company and their former partners, as long as they have money for lawyers.
The other day they managed to obtain a “notification injunction” in a lawsuit against Transneft. We are talking about prohibiting the defendant from disposing of assets without notifying the plaintiff, that is, the previous owners of NCSP. Restrictions against specific transactions may be introduced during further proceedings in London.
Rosatom and state interest
FESCO’s cooperation with the state nuclear energy corporation began shortly after the change of shareholders, in the fall of 2020. On November 11, 2020, the Governor of the Primorsky Territory Oleg Kozhemyako, at a working meeting with the staff of the Vladivostok port, said that Rosatom would first act as a management company and then as the owner of FESCO. However, later the FESCO press service denied this with reference to the president of the group Arkady Korostelev. He clarified that, as part of the partnership, Rosatom delegates one of its companies to the port of Vladivostok as a manager.
The state corporation plans, together with its icebreakers, to use the FESCO fleet in solving year-round navigation along the Northern Sea Route (NSR), which is considered as a promising alternative to the Suez Canal (the NSR makes the route from Europe to Asia one third shorter). In addition, almost a third of FESCO’s cargo turnover is transportation for nuclear power plants that Rosatom is building abroad.
At the Eastern Economic Forum held in September, the parties announced a project to build a new deep-water terminal in the port of Vladivostok. The estimated throughput capacity of the terminal will be 10 million tons of cargo per year; it will transship cargo from specialized ice-class containers to non-ice-class vessels.
The example of FESCO shows the strategy of a new nationalization, when, on the basis of existing assets, judicially cleared of the claims of past shareholders (in this case, logistics), integration into current government tasks is carried out through the Rosatom corporation and VTB financial instruments.
