Failure to pass bill on joint-stock companies leaves minority shareholders powerless
Ukrainian companies sometimes undergo strange metamorphoses. For example, Ukrainian Aluminum Ltd. (UkrAl), a partner of Russian Aluminum Holding, has all of a sudden changed its name to Aluminum of Ukraine Ltd. (AlUkr). The man in the street finds it difficult to understand the purpose of this makeover. Really, what’s the difference between these two names? Is it worthwhile wasting big money — particularly from the viewpoint of a small shareholder — on such an obviously meaningless name change?
Whereas the first question seems rhetorical, the second one is worth pondering. In this connection a flagship Ukrainian company with Russian roots comes to mind. Created in 1999 to participate in the privatization of the Mykolayiv Aluminum Plant (MAP) — the biggest producer of aluminum in the CIS — this company has a charter capital of $120 million. A 25% stake in this limited liability company belongs to Ukrainian residents, among others the Ukrainian Metallurgical Company and Kyiv-based UkrSybbank. The remaining shareholders are participants in a project of Russia’s Siberian Aluminum on Ukrainian territory. A year after it was created, UkrAl bought a 30% stake in MAP for $100 million, ousting the Ukrainian state from this enterprise once and for all.
Early this year the lineup of key owners was as follows: Foreshore Ventures Limited — 22.143%, DILCOR International Ltd. (both registered in the British Virgin Islands) — 20.253%, Prance Industries Limited (Cyprus) — 11.999%, and Ukrainian Aluminum Ltd. (Kyiv) — 14.999%. The depositories of shares — ING Bank Ukraine and HFB Bank Ukraine — keep 53.979% and 28.809% of MAP stock, respectively. At the same time, no one is interested anymore in the number or percentage of minority shareholders — both former owners of privatization certificates and plant employees who used their preferential subscription rights to buy shares.
These people are standing in the way because the Mykolayiv Aluminum Plant Joint-Stock Company is completing the consolidation of its previously sold ordinary registered shares with a face value of UAH 0.25 each by converting them into eighty ordinary registered shares with a face value of UAH 9,456,584 each, without changing the size of the charter capital and the rights that come with the shares.
According to the company’s official notice, shareholders who didn’t have enough UAH 0.25 shares to convert them into whole shares with the new face value or didn’t pool their shares to receive shares with the new face value have received monetary compensation for their shares. The notice further explains that “the company has paid monetary compensation to those shareholders who did not submit applications for monetary compensation by depositing it with a notary,” who should pay out compensation within three years by transferring money to shareholders’ bank accounts.
This is Russian Aluminum’s second assault against small shareholders. In 2002 it used a proven scheme of additional share issues to rob MAP shareholders. As The Day learned from the MAP Committee for the Social Protection of Pensioners, “After the additional emission, neither the number of shareholders’ shares nor their face value was increased. For the duration of the privatization shareholders didn’t receive dividends, neither have they received anything from the sale of plant facilities. Meanwhile, the management has sold everything that could be sold (the Perlyna and Berkut resort centers, an outpatient clinic, and greenhouses) and closed everything that could be closed (limestone paste and gallium plants, the cauldrons division, and public catering outlets).”
So, lest small shareholders get in the way or start demanding dividends, the management has reduced the number of shares from three billion to eighty. Now they can easily distribute them among the above-mentioned companies, some of which are obviously registered offshore, and thus take possession of the property of small shareholders on the cheap or completely for free. The committee further wrote: “We consider it outright and blatant racketeering by Russian Aluminum against the shareholders. We feel bad not only for the plant and ourselves but also for Ukraine. The law has no clause that would protect rank-and-file shareholders.”
This is the unvarnished truth. The Day asked State Property Fund Chairman Mykhailo Chechetov to comment on the situation in this joint-stock company. Unfortunately, all we can give small shareholders of MAP is our moral support, Chechetov said. In his view, the plant owners have not broken the law. He added that if parliament had moved faster to pass the bill on joint-stock companies, the problem of protecting small shareholders would have been solved. However, he didn’t sound too optimistic when he said this because, as he put it, the lawmakers have in fact split into two camps: one camp is concerned with the problems of open joint-stock companies and the other, with the problems of closed joint-stock companies. So far they have been unable to find a middle ground. In the meantime, rank-and-file shareholders who believed in privatization are gradually losing their status of shareholders and becoming a burden to joint-stock companies. Such companies would rather change their name a dozen times than pay even once the dividends that their shareholders are entitled to.
