RUSSIA!: Bulgaria’s Vivacom Shareholder Sues VTB for Alleged Fraud

Originally Published by Russia! magazine on March 28, 2016

Attorneys representing core Viacom shareholder Dmitry Kosarev filed a lawsuit against VTB Capital, a UK-based subsidiary of Russia’s government-controlled bank VTB over an allegedly illegal seizure of a 100% equity stake in Vivacom.

The lawsuit was filed in the UK last week. As RUSSIA! reported, VTB Capital prevented Vivacom shareholders from refinancing a loan secured by Vivacom shares, blocked their attempts to recover the equity stake and sold it off at fire sale prices (some EUR 250 million below fair market value) to an affiliated party. And now the story continues.

Last month, Mr. Kosarev’s law firm filed a lawsuit with the London High Court of Justice against VTB Capital, asking for over EUR250m in damages. In a separate action, lawyers representing Mr. Kosarev also filed a complaint with the Serious Fraud Office, accusing VTB Capital of dishonestly seizing LICT’s shareholding in InterV Investment Sarl (InterV), a parent company of Vivacom, by conspiring with a third party to block the owners’ access to the company.  After effectively taking control of the company, VTB quickly started the process of selling it to an affiliated party at a grossly undervalued price, causing substantial financial detriment to the Vivacom shareholders.

As the lawsuit is getting closer to hearing (defendant is likely to file answer by May 7, 2016), RUSSIA! sits down with Mr. Kosarev to ask some questions about the case as well as about the experience of taking on VTB, one of the largest Russian banks.

How exactly do you determine the amount of damages caused by VTB to Empreno?

- The damage is calculated as a difference between the price offered by Rusev (individual who claims to have bought shares from VTB and who, according to Kosarev’s statement, has close ties to VTB management) and the fair market value of the company.

Who effectively controls your equity stake in the company? Who actually owns it at this time?

I am the only legitimate owner of 76% of Vivacom shares. I control a 43% stake via LICT, a wholly-owned subsidiary of Empreno Ventures Limited. The remaining 33% are held by VTB’s subsidiary Crusher under a total return swap agreement (TRS). At this point in time, VTB retains the 33% stake in Vivacom illegally, since these shares were fully paid in the TRS and therefore must be transferred to me.

What is the current status of legal action against VTB?

The lawsuit is being served on the defendants. VTB Capital plc has been already served and is to respond by 7 April. Last week, VTB Capital admitted the jurisdiction of the English court and asked for an extension until 6 May 2016 to provide a response.

Separately, Empreno and LICT filed their complaints with Serious Fraud Office in London, the Prudential Regulation Authority and Financial Conduct Authority and the European Commission. Lawyers are continuously evaluate the case and we are looking forward to bringing it to court.

Is the headquarters of VTB aware of this legal action?

We do not know. You should address this question to VTB.  I am not aware of the role of the head of VTB Moscow headquarters.  However, I am certain that the management of VTB Capital must be aware, especially given that its 3 top-manages are indicated in our complaint to the Serious Fraud Office: Yuri Soloviev, Chairman of the Board of VTB Capital, Alexei Yakovitsky, Global CEO of VTB Capital, and Nick Hutt, CEO of VTB Capital plc in London.  The Serious Fraud Office in the middle of its investigation as far as I am concerned.  
The reason we are asking about the VTB headquarters connection is to try to determine whether this legal effort, which, according to you was illegal, was not orchestrated or authorized by the head of VTB.

The case seems quite important and big and covered by the media so I believe VTB is aware of his.

What other options will you explore to gain control of the company?

I am suing VTB in London, Luxemburg and ICC arbitration.

Context

Circumstances of the case, according to the High Court filing:

VTB Capital specifically and persistently refused to provide Empreno and LICT with information to enable it to refinance their loans with VTB Capital and to participate in a bid for the InterV shares.

No proper or sufficient period of notice was allowed before the purported auction to enable interested bidders to prepare and carry out reasonable due diligence.

No proper or sufficient attempts were made to publicise the purported auction so as to attract a reasonable number of interested bidders - The winning bidder, Spas Rusev, is a connected party and a long-standing associate of VTB Capital.
The ultimate sale price of €330 million agreed for the InterV shares grossly undervalued the hares and was €143 million lower than the competing bid by CVC Capital Partners Limited.
VTBC obstructed Vivacom shareholder’s efforts to investigate its misconduct by persistently refusing to disclose relevant information and documents.

Authorities in Russia are reportedly also looking into starting a criminal investigation against unidentified subjects in connection with the sale of Vivacom. However, as VTB Capital Plc is a UK regulated bank, Vivacom shareholders Empreno and LICT intend to use all remedies available to them.

Vivacom is the largest telecommunications company in Bulgaria and a former stateowned monopoly. It employs over 3,500 people and offers various telecommunication services, including fixed-line, mobile, internet, radio and TV broadcasting, and data transmission services. It serves 2.6 million fixed phones and provides broadband Internet access to 400,000 households and free Internet access at more than 3,000 public locations in Bulgaria. VIVACOM’s 3G network covers 99.41% of the country’s population and 99.95% of the territory of Bulgaria. The company is headquartered in Sofia, Bulgaria.

VTB Capital Plc, together with its subsidiaries, is a full-service financial services company providing integrated investment banking services worldwide. The company offers global fixed income products and global equities products comprising cash equities, equity derivatives, equity repo and structured finance, infrastructure capital and project finance, as well as private equity and special situations services. It also provides a range of financial services including strategic advisory, mergers and acquisitions, domestic and international debt capital markets, equity capital market, and more.