Russian cement maker faces lawsuit

Russian cement maker faces lawsuit
Published: 21 March 2006

Eurocement Group, is being sued for US$100m in damages by US-registered equity fund Russia Partners, according to a statement issued jointly by Russia Partners and A1, a unit of Alfa Group.  Russia Partners, which owns a 44 per cent stake in Eurocement, claims that the majority owners of the company created the Eurocement Group holding with the aim of diverting profits away from Russia Partners, the statement said. A1 is acting on behalf of Russia Partners. The parties signed a deal in November to fight the case against Eurocement Group.
 
The US$100m suit has been filed in the Moscow Arbitration Court for profit losses that Russia Partners says it incurred in 2004. A further suit for 2005 damages is likely, A1 managing director Igor Baranovsky said by telephone Monday.  The size of the claim makes the case the most significant corporate battle in Russia, experts said.   "We want to show the market that international investments are defended by Russian legal practice," Baranovsky said. "The situation in Eurocement has no precedent in the size of swindling to which law-abiding foreign investors have been subjected," he said. 
 
 Russia Partners says profits from four cement factories owned by Eurocement were diverted to Eurocement Group, a newly created holding.  Eurocement Group benefited from an internal pricing arrangement, leaving the four plants owned jointly by the Group and Russia Partners with minimum profits, the statement said. While net profit at Eurocement’s factories dropped in 2004 by 68 per cent to US$31.3m, the group turned a profit that year of US$148m after a loss in 2003, the statement said. Eurocement Group comprises 13 cement factories, including the four held by Eurocement. 
 
The clash between the two parties started when Eurocement’s majority shareholders tried to issue new shares in spring 2004. The US fund blocked that move and was subsequently cut off from receiving financial information, the statement said. 

Eurocement Group representatives say they have not acted illegally and will fight the case in court. "The company has not committed anything that contradicts current legislation. We are ready to defend ourselves," Eurocement Group spokesman Sergei Meshcheryakov said Monday.  Eurocement Group is already fending off a US$70m fine from the Federal Anti-Monopoly Service, which levied the fine last year over alleged price hikes. The service won the case to enforce the fine in January, but Eurocement Group has lodged an appeal, which is scheduled to be heard on March 23. 
 
Experts said the case could be strengthened by the anti-monopoly watchdog’s recent triumph. The decision in the antitrust case can be used as circumstantial evidence in this latest case, said Albert Yeganyan, managing partner at law firm Vegas Lex, which specializes in corporate conflicts. "Such processes have no dead-set logic. A lot depends on circumstantial evidence," he said.