Sovcomflot Vanishes -- Russian Government Cancels IPO, Internal Reorganization To Start

By John Helmer, Moscow

The Russian government has issued a new order listing the state shareholdings to be privatized this year and next. Order No. № 513-p, signed on March 24, omits Sovcomflot from the privatization list, thus barring the sale of the shipping company’s shares: (Order No. 513p).

For more than a year now, senior government ministers have been emphatic that Sovcomflot is on the privatization list. Sovcomflot board chairman, Sergei Naryshkin, had announced in 2009 that “the Board considers it possible for Sovcomflot to tap the capital markets through a public offering of its shares towards the end of 2010 or the beginning of 2011 with the proceeds of such an issue to be used to fund the Group’s investment programme.” In mid-2010, the privatization of Sovcomflot was reported to have been scheduled for the third quarter of 2011. In November, the federal Ministry of Economic Development, which supervises privatization of state-owned assets like Sovcomflot, disclosed that the first share sale was planned for 2011 and would be for a 25% stake plus 1 share; this was planned to be followed a year later by the sale of 25% less 1 share. This scheme was reported by government news service RIA-Novosti as having been approved by Deputy Prime Minister Sergei Ivanov at the end of December.

This year, investment bankers in Moscow say Sovcomflot was on a list of privatizations and state share sales sent to their banks by the government, for which they were invited to bid for advisory and underwriting mandates.

The order to drop Sovcomflot from the active privatization list is the first public signal from the Kremlin that it has ordered a reorganization of Sovcomflot in the wake of last month’s rulings by the UK High Court. In that judgement, Justice Andrew Smith ruled that the company’s chief executive Sergei Frank was dishonest, and that he had pursued a litigation campaign against his predecessor, Dmitry Skarga, and Novoship head Tagir Izmailov on the basis of false evidence corruptly procured.

Moscow sources report that several candidates are being considered to succeed Frank, and that the Federal Security Service (FSB) is taking a close interest in plans for future control of Russia’s most important shipping company. Frank’s London spokesman Bill Spears declined to confirm or deny speculation about Frank’s future.

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