How Renova saved its Swiss asset from US sanctions

The company of Viktor Vekselberg sold a part of the shares, but will not get money for them.
24.04.2018
Vedomosti
Origin source
The CEO of the Swiss Sulzer (manufactures industrial machinery and equipment) Greg Pu-Guillaom told the FT how Viktor Vekselberg's Renova, against which US sanctions were imposed, decided to sell 14.59% of Sulzer's own shares for 546 million Swiss francs ($ 561.7 million). Two weeks ago, Renova reduced its stake in the company from 63.42 to 48.83%.

"From our communication with the employees of the Office for Control over Foreign Assets (OFAC, a division of the US Treasury Department - Vedomosti), it was absolutely clear that we were not targets of sanctions. They did their job as expected, but they realized that the speed of solving the issue is very important for us, "said Pu-Guillaume. In order to meet OFAC's requirements, Sulzer's management spent the weekend negotiating with Renova and persuaded her to reduce the stake in Sulzer below 50%, says Pu-Guillaume. Sulzer suspended any payments to Renova, including payment for received shares and dividends in the amount of 76 million Swiss francs ($ 77.7 million), which were due on April 17. While sanctions have not been lifted, dividends "will be a cheap source of funding for Sulzer," says Pu-Guillaume. For Renova, such an arrangement was "painful," he admits, but "they were pragmatic enough to realize that they do not have so many options, unless we want to inflict long-term damage to Sulzer."

Last week, Sulzer reported that the financial effect of sanctions on its business, including payments to lawyers and losses from idle time, would not exceed 10 million francs ($ 10.2 million). Pu-Guillaume is sure that the arrangement with OFAC protects the company from other negative consequences of sanctions. He said that the deal to sell 14.59% of Sulzer was agreed late on Sunday, this allowed the release of a message about the sale before the markets open on Monday. And OFAC promptly approved the transaction.

The deal was closed, Sulzer representative Rainer Vijhofer said. He specified that the shares bought from Renova will be on a quasi-treasury account, dividends will not be accrued on them, management can not vote them at annual meetings of shareholders. The money from this transaction will be transferred within 180 days to a special escrow account, where the company will also transfer dividends for 2017, as well as for future periods, says Vaihofer. He claims that Renova itself will have to request permission from OFAC to receive money from the escrow account. In which bank the account was opened, the representative of Sulzer did not specify. Whether OFAC received such a request from Renova, the representative of the department did not speak, just the representative of Renova did the same.

Over the past year, Sulzer has decided to pay $ 121.1 million as dividends, of which Renova would have had $ 76.8 million. Another Swiss asset, Renova, Oerlikon, paid $ 120.7 million, of which Vekselberg it would have been $ 51.9 million. The representative of the latter did not answer the question of Vedomosti, whether the company transferred money to Renova or to an escrow account. If, after all, the money turned out to be in a special account, then in Vekselberg Switzerland totaled $ 690.4 million.

Escrow accounts are, in fact, a banking cell where money is received, which can be opened only when certain conditions come, says Andrey Tretelnikov, investment director of TKC Partners. In this case, the lifting of sanctions. Sanctions against specific companies are introduced and canceled by the US Treasury. If Sulzer and Oerlikon continue to pay dividends to the same extent, then on escrow-account "Renova" in the next five years will be stuck about $ 800 million, Tretelnikov estimated.

"If the Swiss bank, in which an escrow account is open, does not want to get sanctioned, then it must wait for the OFAC's authorization," says Ilya Rachkov, partner of Nektorov, Saveliev & Partners. This can take time, as management is overloaded with requests, there are not so many employees in it that it can promptly rework all incoming questions. In addition, OFAC does not have established forms of documents that must be presented in the form of evidence. In any case, whether to allow Renova to receive dividends from the escrow account, OFAC should decide, and its decision is difficult to predict, Rachkov said.

If OFAC does not allow Renova to withdraw money from the escrow account, this money can be made to work - the bank itself is unprofitable, so that money is lying on the accounts with dead weight, Tretelnikov said. According to him, it is quite possible to organize a scheme in which any affiliate affiliated with Renova could receive an equivalent loan amount from the bank on the security of funds in a special account. Most likely, to do this the company will be quiet, without attracting attention, he says.

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