Dmitry Magonya commented on the decision of A1 to sell shares in Eurodon to VEB
On the evening of Friday, 26 February, the investment arm of Alpha groups, the company A1, announced the sale of its stake in Eurodon, Russia’s largest turkey producer, to VEB, the Vnesheconombank. The transaction is complex, since A1reported that it sold its 40 percent of the shares of Eurodon and its 49 percent of the shares in three companies of the Eurodon group–LLC Ursdon, LLC Metal-Don, and LLC Irdon. A representative of VEB confirmed that the deal was “a monetary transaction, [and] the amount is close to the market value.” Earlier, the BCS analyst, Marat Ibragimov, estimated that the cost of Eurodon, excluding debt, was RUB 13-15 billion, respectively, so 40 percent could cost RUB 5.2-6 billion.
A1 only recently had become a co-owner of Eurodon on 2 February 2016, A1 confirmed. RBC previously had reported that A1 had become the beneficiary of the company Brimstone Investments Limited, which owns 40 percent of Eurodon, when it bought the company from a member of the board of directors of Gazprom, the former minister of property relations of the Russian Federation, Farit Gazizullin. On Friday, the representative of A1 said that, with these shares, the company also acquired 49 percent of the shares of Ursdon, Metal-Don, Irdon. A1 responded that “the previous beneficial owner of these packages had been the same person.”
Vadim Benaiah, the founder of Eurodon and owner of 45 percent of the company, refused to comment. A representative of Eurodon said that he did not know about any deal, regarding the sale of the shares that A1 owned, which was why he could not provide any comment. However, he confirmed that Ursdon, Metal-Don, and Irdon are included in the Eurodon group of companies. The representative of the artistic director and director of the Mariinsky Theatre, who owns another 15 percent of Eurodon could not comment on the situation.
A1 stated: “We considered Eurodon a long term project, but, as an investment company, in the preparation of competitive bids within the framework of a project, we can withdraw from being shareholders in an investment at any point.” According to this report, VEB initiated the current deal.
On 9 February, when A1 became a co-owner of Eurodon, Brimstone Investments Limited filed two lawsuits against Eurodon and one lawsuit against Veneev. A representative of A1 explained RBC that Vadim Vaneev previously had taken loans for Eurodon-South, Donstar, and Rosselkhozbank, companies that he owned. VEB gave Eurodon-South a line of credit, in the amount of RUB 17 billion rubles. Meanwhile, the Russian Agricultural Bank issued a RUB 7 billion loan for Donstar. In both cases, Eurodon acted as a guarantor. With these lawsuits, a company representative explained, A1 wanted the court to recognize the contracts of guarantee, regarding these loans, to be invalid because they were issued in favor of Vaneev, with numerous violations in the corporate procedures for approving such transactions. Benaiah filed the lawsuit personally, in order to exclude it from the participants of the LLC. A spokesman for VEB earlier told RBC that the transactions the bank had with Eurodon and Eurodon-South were made “in compliance with regulations and approved by the bank, in accordance with applicable law.” In the deal with VEB, the parties have settled the claims of A1, Benaiah, and Eurodon, explained the representative of A1.
The managing partner of the ART DE LEX law, firm Dmitry Magonya, thinks that, by buying and selling shares in Eurodon companies, A1 is performing the function of clearing the companies of corporate conflict and handing them over to the main creditor. “VEB is a state-owned bank, and the existence of such a conflict could create additional problems for the lender and has a negative impact on the reputation of the bank,” Magonya noted. “Most likely, VEB, as the largest creditor of the company, did not want to take on additional risks associated with the loosening of the operational business of the borrower, as a result of a corporate conflict. In contrast to the classic funds of direct investment, the investment horizon of A1 is much shorter. A1 operates more as a litigation fund, taking the legal and other risks tired to a particular problematic situation in a company.”
Timur Unarokov, the managing partner of BGP Litigation, which is engaged in dispute resolution and business restructuring, stated that, “in such a business, it is especially important to relate the time and costs with a possible profit. Perhaps A1 now decided to get smaller.”
VEB Money
The founder of Eurodon, Vaneev, planned a project related to the production of turkeys in the early 2000s, when Russia had no large-scale industrial production of turkey meat. Then, Vaneev appealed to the director of the Mariinsky Theatre, Valery Gergiev, for help. According to Vaneev, in 2003, Gergiev introduced him to Andrey Kostin, the chairman of the board of the VTB bank. He redirected Vaneev to the deputy chairman of the bank, Vladimir Dmitriev, who liked Vaneev’s proposed project. A year later, VTB issued Eurodon a loan of EUR 20 million, with the total project cost EUR 31 million. In 2004, Dmitriev joined VEB, which later supplied Vaneev with credit. “As gratitude,” Gergiev received a 15 percent share in the company, Vaneev told Vedomosti in 2013. Gergiev confirmed in Forbes, in 2013, that he owns 15 percent of the company, but he denied that he had received the shares as the gift. “No, he did not give me a gift. I do not need gifts. I’m much too well known, [and] I do not accept such gifts,” he said.
The Eurodon group of companies
Eurodon is Russia’s largest turkey producer, and in 2015, the company had 47 thousand tones in live weight of turkey. According to SPARK, in 2014 (more recent data are not available), the proceeds of Eurodon, which is registered in the Rostov Region, compared with the previous year, increased by 14.2 percent to RUB 4.75 billion, while the net profit amounted to RUB 333 million. Eurodon-South, which belongs to the group, is implementing a new project on the industrial production of turkey in the Rostov Region, with a design capacity of 60 tons. According to SPARC, Vaneev owns 100 percent of Eurodon-South, and the company’s revenue, in 2014, amounted to RUB 209 thousand, with a net loss of RUB 15.8 million.
Ursdon, which specializes in the hatching of turkey eggs, was founded in 2010, as it reports on its website. Its revenue in 2014 (more recent data are unavailable), according to SPARC, amounted to RUB 486.8 million, with a net profit of RUB 125 thousand. In 2015, its egg production amounted to about 7 million eggs per year.
Irdon, a construction company, has been building houses since 2012. In early 2011, VEB provided Irdon with RUB 4 billion for the construction of a house-building factory (DSC), with a capacity of 100 thousand square meters of housing per year, according to a report by Vedomosti. The company’s revenue, in 2014, amounted to RUB 242.7 million, with a net loss of RUB 527,500,000. Metal-Don specializes in the production of steel structures. Its revenue, in 2014, was RUB 2 billion, with a net loss of RUB 333 million.
