RUXX Alert: Russian Ammonia Giant ToAZ Sues Minority Shareholder in Cyprus for Disruptive Attacks

NEW YORK, May 6, 2013 /PRNewswire/ -- Russian ammonia giant and a major global ammonia producer Togliattiazot (ToAZ) based in the Russian Samara Region on the Volga River has filed a lawsuit with a Nicosia court against its minority shareholder Uralchem (the world's fifth largest nitrogen producer), its affiliates and executives, including its CEO Dmitry Mazepin, accusing them of entering into a false transaction to defraud ToAZ of more than US$ 200 mln and orchestrating a series of costly, disruptive attacks against ToAZ in 2011 – 2013. Cyprus court's decision can seriously affect the valuation of Togliattiazot and global ammonia market, according to the analytical report by RUXX index that tracks Russian market. 

Uralchem is currently pursuing several civil and criminal lawsuits against ToAZ in Russia. The minority shareholder is claiming that ToAZ management prevented access to the ammonia producer's share register, undermining a deal between Uralchem and Belport Investments Limited, a Cyprus shell company, which cost Uralchem more than US$ 200 million in fines and lost revenue. However, according to the documents filed in Cyprus, ToAZ attorneys discovered that Belport and Uralchem were affiliated companies sharing a Director, Cypriot Androula Сharilaou, who acted on behalf of both parties to the purported transaction. Moreover, Belport had neither business operations nor assets at the time, which would enable it to afford paying for a deal of that size. Finally, Togliattiazot was able to prove that it had not prevented access to its share register. These facts, once established, caused the Samara Arbitration Court to dismiss Uralchem's claims with prejudice.

However, Uralchem re-filed its case as a criminal suit in Samara, triggering an ongoing investigation by the Russian Prosecutor's Office. The case has since snowballed with claims of fraud against ToAZ over allegedly selling ammonia and urea to a friendly Swiss commodities trader Nitrochem Distribution AG at severely reduced prices, and then allegedly taking part of the trader's excess profits without sharing them with ToAZ shareholders and evading Russian taxes. This criminal case has recently come to a head when ToAZ CEO Evgeny Korolev was placed on the Russian nationwide wanted list.

"Opening a criminal case in a civil matter, a device often used by raiders, is a sign that Uralchem and its owner Dmitry Mazepin want to put additional pressure on ToAZ," says Michael Thompson, senior analyst for RUXX Index.

Togliattiazot has denied these allegations, providing evidence to the Samara Regional Investigative Committee of the Russian Prosecutor's Office. Yet, the investigation goes on. "Unfortunately, investigators are repeatedly refusing to look at any evidence the defendant [ToAZ] provides, without giving any reasons for this selective attention to evidence," Sergey Zamoshkin, a ToAZ attorney, told Russian business daily Kommersant in an early April interview.

Togliattiazot's new lawsuit seeks to establish a plot among the defendants for the purpose of causing disruption and financial losses to ToAZ as a result of a criminal investigation without merit. In addition, the ToAZ suit claims that the "false transaction between Uralchem and its affiliated company Belport Investments Limited has resulted in damages for Togliattiazot rather than Uralchem," and is asking the Nicosia court to recover the damages from the defendants. The plaintiff is also asking for compensation for disruptive disinformation and slander spread about ToAZ, its operations, core shareholders and management over the past two years. The suit names Uralchem Holding PLC (Uralchem's Cyprus-based parent company), Uralchem top executives Dmitry Mazepin and Dmitry Konyaev, as well as Ireland-registered offshore company Eurotoaz Limited among the defendants.

"In this case we have a minority shareholder using law enforcement agencies to undermine and potentially take over a major Russian commodities producer," says Michael Thompson of RUXX Index. "While in general these methods have been used many times before in this country, the extent to which this persecution is taken is egregious even by Russian standards. The new lawsuit should help stop this persecution assuming the Nicosia court rules for the defendant," Thompson added.

RUXX is an index that tracks Russian stocks traded on Western Exchanges. RUXX analysts cover commodities, metals and mining, agriculture, IT and other industries.

RUXX Index 
Michael Thomspon 
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SOURCE RUXX Index