By John Helmer, Moscow
Moscow commercial court documents, filed on December 29 and 30, reveal that Franco-Swiss bank BNP Paribas is suing leading Russian grain trader RosInterAgroservis (RIAS) for $20.1 million. The claim, formally lodged against the RIAS subsidiary ZAO Kubankhleboprodukt, as well as its parent OOO RosAgroInterservis, refers to loans made earlier which remain unpaid.
In the first of the documents released on the court website, Judge N.M. Strizhova of the Moscow Arbitration Court ruled that the initial bank claim, filed a week earlier, should be accepted for proceeding, and fixed a preliminary hearing date on March 14 to review the claim particulars. In the second document, the judge ruled against the bank’s application for a freeze order against RIAS’s cash and assets to secure the claim.
Separately from these proceedings, RIAS is now reported to owe the Swiss banks a total of 100 million Swiss francs (US$106 million). Of this amount, BNP is owed SF80 million ($85 million), according to the reports appearing in the Swiss press last month. The Banque Cantonale de Geneve is owed SF8 million ($8.5 million). The remainder is owed to UBS and Banque Cantonale Vaudoise. According to a report of Le Temps, Geneva, published on December 14, a BNP spokesman told reporter Pierre-Alexandre Sallier that there had been no loss. Two weeks later, the bank gave the lie to the claim by filing suit in the Moscow Arbitration Court.
The despatches by Sallier in Le Temps also report speculation in Geneva that the bank credits were issued in relation to seven vessel shipments totaling 350,000 tonnes of Russian wheat, bound for buyers in Egypt and Tunisia. The cargo should have been inspected and verified at loading by a Dutch company, Peterson Control Union, but according to Le Temps and Sallier, it refuses to confirm whether this was carried out or not.
At issue behind the apparent loan default is whether RIAS has been paid by Egyptian and Tunisian wheat buyers for the 350,000 tonnes, pocketed the money, but failed to deliver the cargoes, according to the contracts. Another possibility is that the cargoes were not delivered at all, and because they remain unpaid for, RIAS opted to default on its domestic and foreign bank loans, as it waits for the Kremlin to sort out the mess. At stake is more than a few relatively small loan exposures of foreign banks – Russia has been the world’s third largest grain exporter, with ambition to catapult the state-owned grain enterprise, United Grain Company (OZK) to a position in which it can challenge the international preeminence of the Canadian and Australian wheat marketing organizations .
In Moscow, a Russian bank source has been reported as claiming that RIAS’s problems were triggered by the Kremlin-ordered ban on grain exports last August. The embargo was announced by Prime Minister Vladimir Putin on August 5, in order to conserve domestic grain stocks after severe drought and wildfires cut the incoming harvest by up to a third in volume. That in turn triggered politically sensitive bread price inflation .
In practice, the embargo did not take effect until August 15. In the 9-day interval, Russian traders and shippers scrambled to dispatch as much grain as they could.
Russian Customs figures show that from August 1 to 31, 14 1.6 million tonnes of grain (mostly wheat) was loaded and shipped; this volume compared to just 749,000 tonnes shipped in the same period of 2009. Altogether, from July 1, 2010, when the new Russian shipment season commenced, until the ban took effect, Russia exported 3.6 million tonnes — that is 1.5 million tonnes more than the previous year.
According to the Federal Customs Service, in the past two trading seasons, RIAS ranked second largest in volume of Russian grain exports, with 2.6 million tonnes and 2.3 million tonnes, respectively. So, did RIAS dispatch the 350,000 tonnes now in question or not? The company refuses to say anything.
Alexander Korbut, vice president of the Russian Grain Union, an association of grain producers and exporters, told Fairplay: “I have no idea how a company could simply lose such a big shipment”. He means the wheat hasn’t been lost. So, were the contracts for shipment broken or voided by the embargo, leaving the grain undelivered, unpaid for, but in stock in Russia? Is RIAS still trying to negotiate permission from the Kremlin to honour the contracts, ship the grain, and earn its money, despite the embargo which has been continued officially until July 1, 2011, when the new harvest tonnage can be more reliably counted, and the bread price forecast more accurately for the period of national parliamentary elections, scheduled for December.
Investigation by Sallier and published by Le Temps this week reveals that the problem for the Swiss banks turns out to be that even if the grain did not disappear, the terms of the SF100 million in loans provide for security, not over the grain cargoes, but over RIAS’s physical assets in the Krasnodar region, such as silos, warehouses, and other physical plant, and possibly company shares. If RIAS refuses to pay, the Swiss banks face the complicated legal problem of having to go into the Russian courts for seizure orders against key elements of the grain stocking and distribution system in the southwest.
Bloomberg reports differently, claiming that RIAS grain stored in warehouses is a guarantee for repayment of the loans,. This is according to Robert Danvers, managing director of Geneva-based Control Union International Commodity Services SA. Control Union auditors were denied access to RIAS storehouses in December through mid-January, Danvers reportedly claims.
Reports in the Moscow press indicate that the state savings bank Sberbank has calculated that RIAS’s loans outstanding to domestic lenders, including Sberbank itself, amount to Rb5.6 billion ($187 million). When asked to confirm the loan figures, Sberbank in Moscow referred to its southwestern branch at Rostov. The branch said it had received the query, but has not answered it.
Krasnodar region court papers filed this week confirm that RIAS owes Sberbank’s Rostov branch Rb4 billion ($133 million), and another Rb2.5 billion ($83.3 million) is owed to other state banks. RIAS is claiming insolvency and seeking a protective court order. The case, no. A32-1195/2011, before Judge A.S. Shevtsov, appears to be a move by RIAS to protect its assets, including its grain stocks, from seizure by creditors, both domestic and foreign.
Trade reports also reveal that a number of Russian grain producers, distributors and traders are under pressure from Sberbank to hand over assets to the expanding state company OZK at distress prices, effectively nationalizing much of their business. If that’s the intention for RIAS’s business, transferring its profit-making to a new set of local beneficiaries, then RIAS is fighting for its survival.
Details of the ownership of RIAS are scarce. First established in 2002, the RIAS group of companies reportedly own a grain elevator, 8 grain enterprises, 3 mills, 5 bakeries, 2 farm complexes, and plants for production of soybean and vegetable oils. Reported sale revenues in 2009 amounted to almost Rb16 billion (more than $500 million). The controlling shareholder of the group is a Cyprus-registered company called Glingrow Holding Ltd. Its owner is reported to be Anatoly Haak.
Dmitry Teibash, the OZK spokesman, acknowledges there is a squeeze play for RIAS assets, and that OZK may want them: “Assets of RIAS pledged to Rosselkhozbank, Vnesheconombank and Sberbank can be transferred to OZK. There have been talks on this at the presidential level. The Agriculture Ministry and the Ministry of Economic Development have been working on the asset transfer mechanisms and options, and will lay the final variants before the president, who will make the decision. However it would be incorrect to describe this as an OZK initiative to expropriate assets of RIAS.”
The Swiss bankers are calculating that if they cut RIAS plenty of slack, and keep silent, the Russian trading company will be able to work out a deal with the state banks to cover the defaulted debts with grain sales outside the embargo; or perhaps get new loans extended until the embargo is lifted, and export revenues resume.
In this political context, Sallier reports the Swiss as believing that their banks don’t want to be isolated by an unenforceable claim on the grain trading structures, or left out of the eventual deal to realize more cash, and clear the debts. It is for this reason that no court cases have been launched against RIAS, which is headquartered in Lausanne, despite Moscow newspaper reports to the contrary.
But if RIAS is in OZK’s gunsights, nothing the Swiss do, or don’t do, will be availing. Especially so if this is a case of the hostile takeover tactics President Dmitry Medvedev has repeatedly claimed in public to be against. Again according to Teibash, an OZK asset raid against RIAS “is nothing but speculation. It was the President’s initiative to order the ministries to elaborate a model of transferring the assets of several troubled agricultural holdings to OZK. Those problems did not occur spontaneously. There was a series of negative events which brought the companies to a bad financial condition. In 2009 grain prices went down. In 2010, there was a serious drought that damaged crops and some other unfortunate events. The President doesn’t want the agricultural assets to be simply lost. The preference is for benefit over mismanagement.”