Sibir Departure From Core Business Sees Stock Value Halved

Sibir had already outraged minority shareholders when it said in October it would buy some $157 million worth of real estate from its key owner, Russian businessman Shalva Chigirinsky, in a clear departure from its core oil business. The new deal foresees the purchase of various real estate assets including Russia Tower, a 6OO-metre (1,970 foot) steel-and-glass symbol of new Russian wealth designed by Norman Foster to be Europe's tallest building, which was halted last month due to a lack of funding.

"This is a corporate scandal of the first class," said Carl Merling, CEO of Swedish hedge fund Emeralt Investments, which has a big exposure to Russia but holds no Sibir shares. "It is difficult in such a situation not to be negative towards Russian small caps with majority owners like Chigirinsky. When such things happen there is no mechanism for minority shareholders to protect their rights," he said.

Sibir asked the shareholders to approve the purchase of additional real estate assets from Chigirinsky at a general meeting on Nov 18. "Difficult times call for uncomfortable decisions to be made," Sibir Chief Executive Henry Cameron said in a statement. "Doing business in Russia has never been for the faint-hearted and sometimes requires difficult calls in the boardroom," he added.

The company said the global financial crisis and consequential drop in share values have had "a domino effect" on Chigirinsky's financial position. Chigirinsky and his partner Igor Kesayev control 47 percent of Sibir and the government of Moscow owns another 18 percent.

The company produces oil in West Siberia and has a refinery and a petrol station network in Moscow. Most of the projects that Sibir will acquire from Chigirinsky have been put on ice like many other real estate developments in Russia. Heavily indebted developers have been among the worst hit by the global liquidity squeeze.

 The company said it will nevertheless have to spend $128 million on limited development and studies of some of the projects, including New Holland and Passage in St Petersburg, thus taking the sum of Sibir's support to $625 million. Sibir had a net profit of $238.5 million in the first half of 2008.  Sibir said in a separate statement its finance director and member of the board, Alexander Betsky, resigned on Tuesday.

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