TIDMUEN
RNS Number : 9688D
Urals Energy Public Company Limited
15 October 2018
Dissemination of a Regulatory Announcement that contains inside
information according to REGULATION (EU) No 596/2014 (MAR).
15 October 2018
Urals Energy Public Company Limited
("Urals Energy", the "Company" or the "Group")
Group update
Further to the announcement made on 10 October 2018, Urals
Energy (AIM:UEN), the independent exploration and production
company with operations in Russia, provides the following update on
the actions that were previously carried out by Mr S Kononov,
without the knowledge or approval of the Board. Mr Kononov is the
president of JSC Petrosakh, the Company's 98.56% owned subsidiary
("JSC Petrosakh"). JSC Petrosakh owns, inter alia, the Company's
oil and gas interests at Petrosakh and its shares in the Kholmsk
commercial seaport (the "Kholmsk Port").
On 10 October 2018, the Company announced that the Board of
Urals Energy (the "Board") had become aware of an unauthorised loan
of the Group's funds of approximately US$1.5 million to a third
party. The principal terms of this loan (the "Loan"), which was
authorised by Mr Kononov, are as follows:
-- Lender: JSC Petrosakh.
-- Borrower: An individual, Mr Y L Freidis, an employee of JSC Petrosakh.
-- Purpose: To acquire a 19.9% voting interest in the Kholmsk
Port from the relevant Russian State organization, which acquired
the voting interest at the time of the bankruptcy of the previous
holder.
-- Amount: Approximately 87 million Russian Roubles, equivalent
to approximately US$1.3 million at current exchange rates.
-- Interest: 7.5% per annum, rolled up to maturity.
-- Repayment date: 22 December 2022.
-- Security: None.
The Board considers that this Loan is wholly inappropriate and
unacceptable. The Board is investigating whether the documentation
relating to the Loan, and the granting of the Loan, is valid.
On 10 October 2018, the Company also announced that the Board
believed that Mr Kononov had made an unapproved disposal of part of
the Group's shareholding in the Kholmsk Port to a third party, on
deferred payment terms. Following further investigation, it has
become clear to the Board that the shares in the Kholmsk Port sold
under this transaction were not part of the Group's original
shareholding in the Kholmsk Port (as announced on 6 August 2018),
but instead represented additional shares in the Kholmsk Port,
equivalent to approximately 11.9% of the voting rights of the
Kholmsk Port (the "Additional Shares"), which were acquired by JSC
Petrosakh and then subsequently sold to a third party (being the
JSC Lipetsk Distillery Company) on deferred settlement terms.
The terms of the deferred payment agreement for the sale of the
Additional Shares are as follows:
-- Seller: JSC Petrosakh.
-- Buyer: JSC Lipetsk Distillery Company ("LDC").
-- Shares sold: equivalent to approximately 11.9% of the voting rights of the Kholmsk Port.
-- Sale value: approximately 22 million Russian Roubles,
equivalent to approximately US$0.3 million at current exchange
rates.
-- Payment details: payment in respect of approximately 40% has
been received by the Group, while the balance is callable on demand
with seven days' notice.
Following further investigation, the Board believes that the
Additional Shares were acquired by JSC Petrosakh during the period
from July to September 2018, on the instruction of Mr Kononov, at a
range of prices, broadly equivalent to the average prices at which
the Additional Share were sold to LDC. As this unapproved
acquisition of the Additional Shares took place in addition to the
original 23% voting interest held by the Group, the Board
understands that Mr Kononov decided to sell the Additional Shares
to LDC.
.
Accordingly, the effective voting interest in the Kholmsk Port
held by the Group remains as 23%, with the Group being owed
approximately 13.2 million Russian Roubles (approximately US$0.2
million at current exchange rates) by LDC as the outstanding
balance net of repayments that have already been received by the
Group.
The Board believes that the making of the Loan, and the amounts
outstanding from the purchase and subsequent disposal of the
Additional Shares (on the deferred payment terms) has led to a
combined current working capital deficit of approximately US$1.6
million. In addition, the Group has made working capital advances
to the Kholmsk Port totalling approximately 100 million Russian
Roubles (approximately US$ 1.5 million at current exchange
rates).
Under Russian Federal law, the Group, as a majority owned
foreign company, would require preliminary approval of the
Anti-Monopoly Commission before obtaining control of a Russian
port. Mr Kononov has represented to the Board that Mr Freidis is an
independent person and that neither Mr Kononov nor Mr Freidis have
an economic or control interest in LDC. Nevertheless, the Board
believes that the amount that remains owed by LDC should be paid to
the Group as soon practical, as the Board views the above
transactions involving the Additional Shares as being unacceptable
arrangements. The Board is also investigating whether the
documentation relating to the transactions involving the Additional
Shares is valid.
Meetings between the Company's legal advisers and Mr Kononov to
discuss these matters took place on 12 October 2018 and there will
be further meetings in the coming days.
The Board's position, which has been represented to Mr Kononov,
is that:
-- The Group should be repaid the funds associated with the Loan
in full and the Loan should be novated to Mr Kononov or a third
party, as soon as practicable.
-- The outstanding deferred payments from LDC should be demanded
immediately, and if not paid by LDC, then Mr Kononov should make
these payments himself to the Group and seek repayment from
LDC.
-- Any working capital loans from the Group to the Kholmsk Port
that are greater than JSC Petrosakh's interest in the Kholmsk Port
should be repaid.
-- An agreement should be reached between the Group and the
Kholmsk Port to secure JSC Petrosakh as a direct supplier of fuel
oil to the Kholmsk Port, as originally intended.
The Board believes that the completion of the above measures
will restore the Group's significantly constrained current working
capital position, as described in the Company's announcement of 10
October 2018. However, the Board is also seeking additional
alternative interim working capital solutions, although at present,
discussions regarding such solutions are at an early stage of
development. Potential solutions to the Group's working capital
needs could involve short-term loan finance being provided to the
Group. The Board is also seeking to expedite the process for the
planned tanker shipment from Arcticneft, as described in the
Company's announcement of 10 October 2018.
Subject to the successful completion of the above measures, the
restoration of the Group's working capital position, and no other
relevant adverse factors arising, the Board would re-consider the
payment of a dividend for the year to 31 December 2017.
However, the Board cautions that there can be no guarantee of
success in respect of the remedial actions described above. The
Board remains of the opinion that if none of the potential
solutions to the Group's current working capital deficit can be put
in place by the end of this month, then the Board will have to take
steps to protect the interests of the Group's creditors. Further
announcements will be made in due course.
In addition, the Group has significantly augmented its control
framework to seek to avoid future breaches of the Group's systems,
procedures and controls. Under Russian Law, the President or
General Director of a joint stock company, which is the legal
incorporation status of JSC Petrosakh, has authority to approve any
action, including contracts, loans and asset sales within a limit
of 25% of the capital employed of that company, and in this case
the employed capital of JSC Petrosakh is approximately US$30
million. However, it has been the rule and practice of the Group
that these powers will only be used with the approval of the Board,
and prior to the advent of the events described above, Mr Kononov
has followed this practice.
All senior employees have been made aware of the need for the
Group's rules and practices to be adhered to and the consequences
of non-compliance. On the basis that the Board has had confidence
in Mr Kononov over the last few years, and that he has recognised
that the transactions described above must be reversed, the Board
has decided to allow Mr Kononov to continue in his position for the
time being, provided that he adheres to the Group's rules and
practices and its control and supervision framework.
Further announcements will be made as appropriate.
- Ends -
For further information, please contact:
Urals Energy Public Company Limited
Andrew Shrager, Chairman Tel: +7 495 795 0300
Leonid Dyachenko, Chief Executive
Officer
Allenby Capital Limited
Nominated Adviser and Broker
Nick Naylor / Alex Brearley Tel: +44 (0) 20 3328
5656
www.allenbycapital.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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