VTB has serious problems: Bank is suspected of raiding

Originally Posted by Tsargrad.TV, September 11, 2019

Tsargrad publishes an interview with businessman Dmitry Kosarev, from whom VTB Bank has taken away a large foreign asset. Whether it was legal or not, international courts will determine.

Tsargrad is not a business publication; we rarely write about the internal affairs of private companies. But, when it is about a state-owned commercial bank, whose resources are used by top managers for their personal purposes, this can no longer be a private matter. VTB, as well as Sberbank, Gazprom, Rosneft, Aeroflot, are the face of our nation, and this face should be clean.

The conflict around the Bulgarian telecommunications company Vivacom doesn’t look like a clean one.

A victory that didn't exist.

Tsargrad: Dmitry Ivanovich, the press has reported that the process of selling the Bulgarian company Vivacom, owned by you, has begun. Did you really lose in all courts?

Dmitry Kosarev: Unfortunately, from the PR point of view, the bank's resources are fantastic, we had to put forth a tremendous effort just to get the Western press to mention the mere existence of lawsuits, and leading Russian business publications, apparently, are not ready to publish truthful materials which incriminate the state bank.   

The real situation is completely different. We have not lost any claims, because no court has yet considered the case on the merits, it only has just begun to be done. In the original lawsuit filed by my company Empreno Ventures Ltd., as early as February 2016, a preliminary hearing to discuss the schedule of the case on the merits (including the provision of documents, information, correspondence, etc.) is scheduled only for March 2020.

In early July 2019, an English court in fact denied the suit, as well as another one, that had been filed the year beforeby two ourdirectors, on behalf of V2 Investment Sarl. This refusal was decided for purely formal reasons: the filing of the claim was not duly approved (by the V2 board of directors, including two directors representing VTB who blocked all attempts of the company to judge them). We made some conclusions, took into account all the nuances, and on 10 July 2019 approved, in a new way, the filing of a similar lawsuit on behalf of V2. VTB directors did not participate in the vote count and quorum due to a conflict of interest, which was also recognized by the English court. This new lawsuit, aimed to challenge the deal concerning the sale of Vivacom based on the auction procedure, was filed in late July 2019 in a court in Luxembourg. Thus, the title for Vivacom shares is still under dispute.

We have also filed an application for a criminal investigation in Luxembourg - and it was accepted. We also initiated a process in the United States to obtain information and documents from minority shareholders who facilitated the holding of an auction on Vivacom by VTB managers in 2015. We are also conducting other processes, which we might tell you about when the time comes.

Thus, I repeat, no court has yet to consider the issue concerning the Vivacom auction, in essence! It will only begin in March 2020, and I think it will be very interesting then.

Investors are warned.

Ts.: And what will happen if the current owners of the Vivacom shares, the Bulgarian investors, resell the company before that moment?

D.K.: We know that the Lazard consulting firm was hired as a sales consultant for Vivacom. But a huge pool of potential buyers have already refused the deal due to the fact that the ownership of the shares is in dispute. You can understand, bona fide market investors do not want to buy an asset without proper title for the shares. We know that two potential buyers remained in the transaction: the British BC Partners (acting together with the United Group) and the American Providence Equity Partners. As far as we know, they plan to conduct due diligence (a procedure aiming to form a clear idea of the object of investee - Note of Trsargrad) and to make offers by the end of October. Of course, we have already notified them of how the auction was held, about all the current processes, and explained why they would not be bona fide purchasers.

We made it clear to everyone that even if the transaction can be somehow completed, we will seek to challenge it, presenting demands to new shareholders.

Credit as a form of raiding.

C.: Your conflict with VTB has been going on for several years. You think that the Bulgarian telecom operator Vivacom belongs to you, but due to the intervention of VTB, in fact, it is now controlled by Viva Telecom (Luxembourg) SA. VTB's position is different - there was a loan under the collateral of shares, the loan was not returned, the collateral was realized. What is the catch?

D.K.: There is no catch.   This is anexampleof sophisticated highly-organized corruption. VTB sold the pledged shares of the parent operator company in a way to ensure it was won by a specific participant - Luxembourg company Viva Telecom (Luxembourg) SA. This company bought shares at a rate approximately three times cheaper than the fair market price. Why is it necessary for the bank? Maybe the bank and its managers (understandable motivation?) are the hidden shareholders of the winner of this auction - the buyer Vivacom? Especially because the purchase of the shares was financed by VTB itself. That is, the "final purchaser" was VTB and its managers, despite the bank's active attempts to hide this fact. The transaction was carried out using VTB’s own funds and at the cost of creating legal and financial risks for the bank. What is it if not corruption?

Ts.: Where did the VTB loan of 150 million euros originally come from? Why wasn't there an agreement with the bank for refinancing or restructuring?

D.K.: No one disputes the existence of this loan. In 2013, VTB Capital and the Bulgarian Corporate Trade Bank (KTB) issued a loan of 150 million euros in favor of InterV Investment Sarl (one of the parent companies in the Vivacom ownership chain) with an initial repayment term of November 2014, which was then extended. The collateral for the loan was the KTB shares, as well as shares of the borrower itself, that is InterV. But then, the bank behaved very unusually when we tried to refinance this loan and when selling the pledged shares of InterV. We allege that VTB Capital raided Vivacom and overvalued the asset to Viva Telecom (Luxembourg) SA, which is affiliated with itself and its managers. The directors from VTB first blocked all attempts to refinance the loan (this happened before to me too, back in late 2014, my offer in autumn 2015 was also blocked) and then the “auction” was held.

Ts.: So, you were ready to refinance with your own money, but the bank refused?

D.K.: Yes. As soon as I learned in autumn 2015 that VTB Capital was going to sell the pledge, I immediately contacted VTB Capital with a proposal to refinance the loan or to participate in an auction. I also wrote an open letter to the management of VTB Bank, pointing to a clearly pre-planned auction scenario. All these papers will be examined by the courts, but the bank ignored them. There is only one explanation for this: the goal of VTB top managers was not to make money on a credit transaction, but to pick up the company almost for nothing, so that later they could sell it to a market buyer at the market price.

Why else was the company sold for a penny.

Ts.: That is, the 330 million that the current majority shareholder Spas Rusev paid for the company, regardless of whose money this is, is an inadequate assessment of the market leader of a fairly large country? You say that the company is worth three times more, what is this assessment based on?

D.K.: That's right: the real price is more than three times higher. This information was published in the English Financial Times - there the price was quoted at 1.2 billion euros. Judging by the preliminary proposals of potential buyers, who, however, have not yet assessed the legal risks in our claims, their figured are all close to this amount.

But even without this information, based only on the indicators published by Vivacom, it can be concluded that the business really costs more. The usual multiplier for similar deals in the Balkans is 6, if not higher. Multiply Vivacom's current EBITDA by 6, and here you have an estimate above a billion euros

And the company Viva Telecom (Luxembourg) SA paid 330 million, but this amount doesn't include the payment of the loan (150 million plus interest, that is about 180 million euros). Thus, the Luxembourg company Viva Telecom (Luxembourg) SA acquired Vivacom shares for only 150 million euros (330 - 180 = 150)!

Based on today's assessment of Vivacom's business, these shares are valued at about 550-600 million euros (company value minus debt burden). That is, the intermediate buyer is going to pocket at least 400-450 million euros. And when Dmitry Ivanovich and Empreno stands between the money and the seller, you can understand why the bank is doing everything to make sure that the media doesn't hear us.

What do the witnesses say?

Ts.: Your claims are built around the illegality of the auction. What is the evidence that they attempted to make the auction as closed as possible, focused on a single, pre-determined buyer? What prevented market giants, such as Orange for example, from coming and acquiring the Bulgarian company at auction?

D.K.: I'll repeat it again, if you set a goal, as VTB did, and you have practically unlimited cash resources, you can do a lot, even if it concerns the largest national business. 

In addition to us, an independent participant, Mr. Mark Schneider, together with the American investment fund CVC, also wanted to participate in the auction. He immediately offered almost twice the amount bid by the winner of the "auction", but VTB bankers simply squeezed him out of the game. Mark said that it was uncomfortable for him to participate in the process, which was conducted at a price significantly lower than the market one, and it was rather strange that one part of VTB was selling an asset to another part of VTB. In February 2016, Mark Schneider gave an interview to the Bulgarian press (Capital Weekly) and characterized the auction very clearly. I don’t think that Orange would have liked to participate in such an auction - considering the reputation costs more. And, without a doubt, VTB would have acted similarly with anyone who would have stood in its way.

In the case file at the High Court of Justice in London, besides document evidence, there are striking testimonies of Mrs. Jocelyn Bennett, who for a long time worked as the director of the trustee in relation to the family trust of the Spas Rusev family. She confirmed our claim a hundred percent with the following statements: the auction was rigged and held only for appearance's sake; the buyer was known in advance; Spas Rusev did not have money, VTB stood behind him, and Spas “stood in front of everyone”.

Ts.: Ms. Bennett made detailed and unequivocal statements against VTB and its managers in her testimony, but VTB declared its victory shortly after the testimony was presented to the court. Was the testimony not accepted by the court or was it “killed” by other evidence?

D.K.: I repeat once again, contrary to VTB 's official statements, no trial has yet been devoted to the consideration of the case file on the merits. The judicial acts adopted, referred to by the bankers, deal only with certain interim procedural issues and are not final. In other words, talking about a victory for VTB in the proceedings is simply incorrect. This is a lie that VTB is trying to present as the truth in Russia.

Secondly, you need to understand that the full effect of the testimony of Mrs. Joslyn Bennett, who, in fact, said that VTB was actually behind all these actions, has not yet been realized, because the court has yet to understand every aspect of her statements, and that is most importantly, to get explanations from the representatives of the bank. The statements also contain copies of electronic communications and legal documents confirming Ms. Bennett's statements. This is very important direct evidence.

Thirdly, Mrs. Bennett promised and plans to give more detailed testimony, which we will definitely use in the legal process.

Ts.: What do you plan to do next?

D.K.: As I said, in addition to the lawsuit in the High Court of Justice of London, which will be considered next year, we have launched new legal proceedings and look forward to their development. 

Ts.: Even if you manage to defeat VTB in London, you understand that a Russian bank, which is under sanctions (including British ones), will look for how to make it difficult for you to execute a court decision?

D.K.: The defendant is not the Russian bank itself, but its English subsidiary, VTB Capital Plc, so the sanctions against the Russian company do not directly affect our case. We are confident that we will be able to enforce the decision if it will be rendered in our favor.

* * *


This ugly situation throws a shadow on the entirety of business in Russian and, moreover, on Russia as a nation. After all, about 60% of VTB is still owned, not by private individuals, but by our country, and it will be quite difficult to explain to foreign partners that the state does not control its property, but instead leaves it to the care of rogue "managers".

In this regard, no matter what the courts decide, it seems that any decision is “worse” for the country. The only worthy solution would be to reach a voluntary settlement agreement between the parties before the commencement of legal proceedings and the washing of dirty laundry. After all, in case if VNB loss, it will not be the bank 's managers to respond to property claims against it, but all of us, the citizens of Russia.

We invite also the management of VTB Bank to express its views on Tsargrad 's pages.

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