- Court ruled on legality of FC Otkritie transaction converting secured loan to O1 to unsecured bond.
- Otkritie now under administration of Central Bank of Russia.
- Court decision places CBR in box seat over O1 actions.
- O1 controlling stakeholder, #Mints, former Otkritie President, under pressure over private pension fund losses, in part on exposure to Otkritie.
The Moscow Arbitration Court has halted trading in, and taken control of, shares of the parent company of O1 Properties – the Cyprus registered “01 Properties Limited” – and the ‘Nevis’ business center, owned by O1 Properties, following a court ruling on November 1, 2017. The action was brought by FC Otkritie which is currently under administration by the Central Bank of Russia.
The court action stems from a transaction between FC Otkritie and O1 Properties which occurred shortly before the nationalisation of Otkritie and was executed by Otkritie’s former managers. The Central Bank of Russia maintains the deal involved the conversion of a secured loan provided by FC Otkritie to O1 into an unsecured bond. As a result, the collateral for the loan, which included shares in O1 Properties, was released, with the CBR now seeking to reverse the transaction and take control of the collateral.
Mints is a former President and board member of Otkritie, who later went on to control Budushchee, one of Russia’s largest private pension funds, which posted a 2.6 bn RUB loss for 9M2017.
Vedomosti reports that that the original loan amount was RUB 30bn which compares with O1 Properties’ IFRS equity capital of circa RUB 60bn. Lawyers surveyed by Vedomosti believe the court decision is very unusual, with one Moscow based solicitor observing “In the overwhelming majority of cases courts refuse to arrest assets under such circumstances,” and adding, “The judicial argument does not stand up to criticism”. He further added “The court, when taking such measures was only guided by the fact that the bank is under rehabilitation”, (run by the CBR’s temporary administration), and “the State should not have receive preferential treatment in the court in this matter”. Legal commentary also noted that the Russian court could not issue orders on the control of shares in a Cypriot company – although this company belongs to Mints and he effectively owns arrested shares.
The unfolding details leave little doubt this is far more than just a legal dispute between a borrower and a bank, with potential for related party lending by a financial institution going into administration, where it would be managed by the CBR, affecting pensions of 4.4 million people. Outside observers can conclude that the CBR has pushed Boris Mints’ to lay claim to assets he controls for reasons made all too obvious in a previous post. The action by the Central Bank of Russia can only lead to the view it views Boris Mints, and associates in FC Otkritie, as personally responsible for the losses.
An eye for an eye
Our thinking is that the CBR’s ultimate goal is to get compensation out of Mints by any means, which means holders of O1 Properties Eurobonds should prepare for a wild ride. The current court decision does not concern the company itself, but the pressure on its controlling interests (Mints) points to the well-travelled path of a forced default, bankruptcy and foreclosure on his assets (O1).