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MOSCOW (Mineweb.com) — In football parlance, a ghost goal is usually understood to be the one that scores without the goalkeeper seeing where it came from, or who booted it.

Roman Abramovich, the Russian oligarch who now lives in England, might be considered an expert on the matter since he owns the Chelsea Football Club, and spends a good deal of money on buying players to score goals. But no one has ever imagined that Abramovich himself might be the kicker of a goal on what used to be his playing field, Russia. Notwithstanding, on the front page, with a prominence that often costs dearly, a Moscow newspaper has reported that Abramovich is currently negotiating to pay about $2 billion to buy a minority ! shareholding in the steel, vanadium and coal-mining group, called Evraz. Russia’s largest steelmaker, Evraz is controlled by a man with a similar surname, Alexander Abramov. According to the newspaper report, Abramov is proposing to sell Abramovich 25% plus one share. But after collecting his cash, he is intending to retain his current level of control over the Evraz group.

If the newspaper report is to be believed, Abramovich has kicked a ghost goal, spending money for the first time in years to buy a Russian asset in a sector he is never invested in before, for a reason he has yet to admit to, and without gaining a notable advantage over the seller, except to make him even richer than he already is, and relieve him of his liabilities. Since Abramovich and his UK-domiciled Millhouse group have been selling their Russian assets, and have spent no money in Russia for at least three years, no one can say that they saw Abramovich booting the goal that Abramov leaked to the newspaper. Also, it is unheard of for Abramovich to buy a passive minority stake in a Russian company, let alone accept another Russian’s hidden liabilities. Abramov is thus in the improbable position of being the goalkeeper who says the ball has scored, although there is no other witness to the shot.

Abramov has always exaggerated his goal-keeping credentials; that is to say, the extent to which he controlled the majority of shares in the Evraz group.

In the prospectus for investors which Evraz issued for its initial public offering in London last June, it is claimed that “Evraz was founded in 1992 as the limited liability company Evrazmetal. Evrazmetal was established by a group of Russian scientists and engineers led by Alexander Abramov.” The “original group” was good at mathematics, and the sums they did led them to supply raw materials like iron-ore, coking coal, and electricity to steelmills, and take steel products for sale in return. “As a result”, comments Morgan Stanley and Geary Gottleib, financial and legal advisors to Evraz, “these traders became the largest creditors of the mills.” They then put the owners of the bankrupt plants out of their misery, swapping debts for equity. Not long after helping to compose this account, there was a falling-out between Morgan Stanley and Abramov – but more of that in a moment.

At IPO listing, twelve years after Abramov, 45, had started, he claimed to own 65.26% of Crosland Global Limited, which in turn owned 100% of Mastercroft of Cyprus. Mastercroft in turn owned varying percentages of the assets in the group, until it was reorganized, and absorbed by Evraz of Luxembourg. Subsequent share sales by Abramov have left him with between 51% and 59% of the controlling shares.

In fact, Abramov was an administrator, put in charge of the steel, iron-ore and coal assets after Iskander Makhmudov, a much more potent figure, had grabbed them Another of the real shareholders was Oleg Boiko, who graduated from running a defunct Russian institution called the National Credit Bank to a betting empire called Ritzio, How Boiko acquired his “beneficial interest” in the Evraz assets is less important now than the fact that, as late as 2001, he held one-third of the stakes, and although he wanted to sell out, his partners would not agree to his price.

In the 1990s, Makhmudov had been one of the original founders of all the Russian base metal groups, including aluminium, steel, copper, and their raw materials — iron-ore and coking coal. He has admitted agreeing to leave the aluminium business to Oleg Deripaska, and to specializing for himself in copper and coal. In copper, he controls the Ural Mining and Metallurgical Company, which is the second producer of copper in Russia, after Norilsk Nickel. More recently, Makhmudov had a falling-out with a young protege named Igor Altushkin, who now controls the third copper producing group, Russian Copper Company.

Makhmudov has admitted that through 2001 he was still Evraz’s “partner”, albeit an almost silent one. In 2001 and 2002 he was intent on expanding his steel business by acquiring control of the biggest of the steel mills, Magnitogorsk. He failed at that, and claims he sold his stake to Abramov’s group. At least, Makhmudov says he sold his steel-making interest. In its IPO prospectus, Evraz’s account of its coal assets leaves very unclear how the most important of mines are owned, and by whom. When asked to clarify their ownership, and the nature of their equity and trading relationships with Evraz, the coalmine managements refuse to say.

Difficult as it is to penetrate this murk, it is clear from court claims in the US and Europe that Abramov exercised much of the control he claimed for himself from trustee arrangements with the real shareowners. A claim filed in the UK High Court last December accused Abramov of violating one of these arrangements, and seizing control of a stake of at least 10% in the Evraz group. The claimant in that case was the widow of Aidyn Kurbanov, who died in November 2003, a little more than a year after signing a trust deed under UK law with Abramov. That “settled [the shares] on the Defendant [Abramov] on trust for himself as beneficiary by written trust deed.” According to the Moscow lawyer for this claim, the shares were in a Panama-registered entity called Venturi, which was a “mirror company”, holding effective ownership over the Evraz group. Venturi’s existence had been concealed from investors in the IPO, and from Morgan Stanley, which had drafted the IPO prospectus. The Kurbanov estate lawyer claimed that, in fact, Kurbanov held an even larger shareholding in the Evraz group, but that the 10%-stake was the only one subject to English court jurisdiction.

The Kurbanov claim was the first to intimate publicly that Abramov may not have been the controlling shareholder he claimed. Since the December filing, the lawyers involved in the Kurbanov case have been negotiating with him for weeks, but they no longer return calls to discuss the case.

Before they fell silent, one of them told Mineweb that she believed Abramov’s purported control shareholding in Evraz included other trusts. One which had come under Russian media scrutiny was the estate of a senior executive of the group, Andrei Sevenyuk, who was killed in an aircraft crash in September 2004. Before his death, Sevenyuk had hinted to Mineweb that he was in control of a sizeable stake in the company. Subsequently, uncorroborated reports suggest that his survivors accepted Abramov’s payment of $124 million for a shareholding of 4.17%, leaving what Morgan Stanley estimated as a residual 0.8% bloc of shares still in the Sevenyuk estate’s control. Moscow newspaper reports have speculated, however, that when he was alive, Sevenyuk controlled at least 15%. If true, then together, Sevenyuk and Kurbanov may have been controlled approximately half the shares Abramov claimed for his own.

Until and unless he settled with them, or with their heirs, Abramov ran the risk of trying to sell what was not his.

Other court claims dispute the ownership which Evraz claims in its prime assets. A claim filed in federal and local courts last November in the US state of Delaware four companies representing an Israeli and US investors had once controlled about 72% of the shares of the Kachkanarsky ore-processing combine (GOK), an iron-ore and vanadium mine that is today Evraz’s most important source of the raw material. The claimants say that between 1999 and 2001, they were forcibly deprived of their asset. According to the plaintiffs’ complaint in Delaware’s Chancery Court, Evraz, one of the eleven listed defendants, is described as having been “owned, directly or indirectly, by [Mikhail] Chernoi, [Oleg] Deripaska, [Iskander] Makhmudov, and [Mikhail] Nekrich, and operated and managed by them, or under their direction and control.”

The Delaware court has been told that “in late 2000 the Conspirators arranged for Plaintiffs’ shares in [Kachkanarsky] GOK to be transferred to the Delaware corporate defendants, utilizing, inter alia, fraud or corrupted court proceedings in which Plaintiffs were not even named as parties; the Delaware companies ultimately transferred these shares to UGMC [Ural Mining and Metallurgical Company, owned by Makhmudov] and then to Evraz, which is controlled by Chernoi, Deripaska, Makhmudov, and Nekrich.”

In the Evraz prospectus, these claims are referred to in four paragraphs set 84 pages apart. The legal defence will concentrate first, Cleary Gottleib says, on challenging US jurisdiction for the claims, and arguing that a dismissal on jurisdictional grounds in a related New York case precludes a fresh court adjudication in Delaware.
To the substantive claims raised by the former owners of Kachkanarsky, Evraz says, twice: “Evraz acquired its shares in KGOK through transactions mediated by an experienced market intermediary, and received from the sellers the limited representations and warranties that are customary in the Russian market in respect of the shares it acquired.” If the words drafted by experienced lawyers have meaning, these ones appear to be consistent with the factual basis of the Delaware court claim. They do not deny what has been alleged, inter alia, by the one-time CEO of Kachkanarsky and financial advisor to Makhmudov, who is the principal witness for the claimants. But Evraz goes on to persuade potential investors that “the risks that the ultimate resolution of the suit case will have a significant impact on the financial position of the Group is remote.”

When the former owners of Kachkanarsky filed suit in Luxembourg, following Evraz’s IPO, the Evraz lawyers told the judge that the Luxembourg registered company, Evraz SA, didn’t own the mine. It was owned, instead, they said, by two Russian companies. Although the admission repudiated the IPO prospectus, contradicted the undertakings which Evraz SA had made to investors, and made a liar out of Morgan Stanley, the judge ruled that Luxembourg had no jurisdiction. “Evraz is either lying to the market or to the Luxembourg court”, Bruce Marks, US attorney for the Kachkanarsky claimants, declared, and further litigation is pending.

The legal claims against Abramov and against Evraz have so far had little impact on investor confidence or the Evraz share price. After listing at $14.50, the share price is now almost $23.50, a gain of 62%. More experienced Russian investors have been more wary. A bid by Alexei Mordashov’s Severstal group to merge with or acquire Evraz is known by Moscow bankers to have been discussed, and halted. Other sources have told Mineweb they expected Vladimir Lisin’s Novolipetsk Steel group to try a takeover. Russians of their caliber know how to find, and also to hide beneficial ownership. They also know how not to buy a pig in a poke.

It is for this reason that few serious Russian bankers believe the report that Abramovich is negotiating to pay Abramov $2 billion for a minority stake of Evraz. One of the results of the falling-out between Abramov and Morgan Stanley during last year’s IPO is that not many bankers outside Moscow know Evraz particularly well. Morgan Stanley thought it did, but Abramov reproved them for lack of enthusiasm in the marketing of his securities at the listing. It is still unclear why Morgan Stanley behaved as it did.

If there is a negotiation between Abramov and Abramovich, then Russian banking sources think that Abramovich must be acting for others; possibly state interests who have shared in the proceeds of Abramovich’s sale of his Sibneft oil company to Gazprom. And if Abramovich is doing that, then Abramov’s room for bargaining over what stake to sell, and at what price, may be limited to the newspapers. In practice, if he is now the target of a takeover, he will not be able to dictate either. . Certainly not if the state marshals what it knows about how Abramov came by his shareholding in the first place.

Evraz’s head of investor relations, Irina Kibina, initially responded to questions about the ghost goal by pretending Evraz was not watching. The company is “closed” for a 60-day period until April 27, she said, at which time the company’s 2005 financial results will be announced. Under pressure of the press leaks, she was obliged to issue this statement, acknowledging that as a publicly listed company, Evraz knows what is doing when it stays silent. “Evraz Group S.A.is aware of certain rumours circulating in the market relating to potential transactions in its shares,” the company release said on Tuesday, “and does not propose to comment on this market speculation or rumour. Evraz Group confirms it is aware of its disclosure obligations as a listed company.”

This is hardly a convincing display of transparency by the management of a publicly listed shareholding company. What it concedes is that Abramov runs Evraz out of his back pocket. That is the pocket where he does not keep his wallet.

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