Negotiations have begun for the first time between the warring parties in a criminal case brought against Russia-based investment fund Baring Vostok and its former Russian partners to end the dispute, bne IntelliNews can report on October 15.
“Negotiations are currently taking place to resolve the shareholder conflict around Vostochny Bank, which is in the interests of the bank itself and its depositors,” a Baring Vostok spokesperson told bne IntelliNews in an emailed statement. “In light of this, using the Bank to launch bogus claims and freeze the fund's shares is destructive. Baring Vostok invested hundreds of millions of dollars into Vostochny Bank with the aim of turning it into a successful project, similar to Tinkoff and Kaspi.kz. However, the new management of Vostochny, which was installed by Finvision after their illegitimate seizure of control of the bank, obviously have other plans.”
The criminal case is the result of a conflict between Baring’s shareholders and Artem Avetisyan, an executive at a state-owned investment agency and a shareholder in the bank, who is very well connected to the Russian security services. Finvision is a bank that was under Avetisyan and was used to take control of Vostochny via regional court decisions last year.
Arguably the most successful fund working in Russia, Baring Vostok has brought billions of dollars into Russia and made its investors handsome returns.
However, things went wrong with its investment into Vostochny Bank, a regional specialist bank, after the fund fell out with its partners, the Russian investors in the bank. The dispute ended up in a London arbitration court, but the corporate conflict significantly escalated after the Russian partners used their government connections that resulted in a criminal case against Baring Vostok and the arrest of US fund manager Michael Calvey on February 14, 2019.
Baring Vostok business has been ticking over since the dispute started, but its investments continue to bear fruit. The statement refers to three extremely successful investments Baring Vostok has made in the past that have recently ended in very lucrative exit possibilities.
Baring Vostok was an investor into the Kazakh banking and fintech firm Kaspi.kz that has just announced a successful IPO on the London Stock Exchange (LSE), closing the deal at a starting share price of $33.75, which values the company at $6.5bn, the company said in an announcement of the successful conclusion of the flotation.
Likewise, Baring Vostok was an early investor into Tinkoff Bank, Russia’s only pure online bank, and made money when the bank IPO’d at a price of some $18 per share and more recently was sold to Russian internet giant Yandex at a price of $27 per share. Baring Vostok made a killing on both deals.
With the new economy booming in Russia, even if the real economy isn’t, Baring Vostok is keen to get back to work and would be happy to see the dispute with Avetisyan brought to an end and Calvey and his colleagues released from house arrest, where they have been for more than a year.
US citizen Calvey started his career in Russia in 1994 with the European Bank for Reconstruction and Development (EBRD) and then moved on to set up Barings. His fund has returned huge profits for its investors with a string of “home runs,” as Calvey has described them to bne IntelliNews over the years in a succession of interviews.
Prosecutors have accused the defendants of embezzling RUB2.5bn ($37.5mn) by persuading Vostochny Bank shareholders to approve a share sale at an unrealistically low price.
Avetisyan is reportedly to be a close personal friend of fellow banker Dmitry Patrushev, who is the son of the former head of the FSB and now secretary of Russia’s Security Council, Nikolai Patrushev.
Baring Vostok and Avetisyan became partners in early 2017 when Avetisyan merged his struggling Uniastrum bank with Vostochny Bank. Avetisyan offered to use his position in the state investment agency to merge Vostochny Bank with state-owned MSP bank, which was created for SME lending, and suggested the idea personally to Putin. However, the idea was rejected. Without a rescue plan Vostochny Bank faced losing its licence as part of the Central Bank of Russia (CBR) clean-up of the banking sector, where the CBR has been steadily closing one bank every three days since the campaign was launched in 2013.
Vostochny Bank issued RUB5bn worth of additional shares in early 2018, but Avetisyan didn’t have the money to buy the share issue, and Baring didn’t want to invest any more money in a bank it had been trying to get rid of for years. In January 2019, the bank’s shareholders promised the central bank they would buy the additional shares by April, reports The Bell.
The dispute between the two sides has come down to how much each side should contribute to the recapitalisation, a question that was due to be settled by the arbitration court in London.