vlad.tribnet.com / Issue #167 / Business / Reading article...

Springtime in Primorye means blooming bird cherry trees, sowing the year’s vegetable crop, and… annual shareholders’ meetings for the region’s joint stock companies.

Some of Primorye’s largest and best-known publicly-traded corporations, such as FESCO, Dalmoreproduct, Spassk Cement, and the Vladivostok Commercial Port are holding annual meetings at this time of year, under much scrutiny and speculation.

“There has been progress recently in protecting shareholders’ rights, but there is still much turmoil in the securities market,” says Nikolai Fokin, an economics professor with the Institute of Oriental Studies at Far Eastern State University. “When the water is dirty, you can catch a big fish, as they say.”

Rules governing the securities market and shareholder societies are still relatively immature and violations of the law are commonplace, both locally and nationally, says Fokin. High-profile cases involving oil giants Sidanco and Tomskneft attracted national press recently, while local enterprises, Spassk Cement and Primorsk Shipping Corporation were cited by the FSC on April 14 for various “gross violations of [Ministry of Finance] legislation,” related to the issuing of stock.

At the vanguard of reforming the securities market and protecting shareholders rights sits FSC chairman Dmitry Vasiliyev. Vasiliyev expressed his concern about the Primorye securities situation in a March 16 letter to Governor Yevgeny Nazdratenko, in which he placed blame on the market’s shortcomings squarely on the krai administration. He also called on Nazdratenko to personally tackle the problems inhibiting the influx of capital and investors to the local securities market.

Violations of shareholders’ rights are routine among many publicly-traded corporations, the result of incomplete and imperfect legislation, according to deputy chairman of the Primorsky branch of the FSC, Viktor Poloshin. Suspect closed share subscriptions, new issues that dilute some shareholdings, and asset transfers between subsidiaries over shareholders’ objections are among the violations regularly encountered by investors. New rules announced by the FSC the week of April 23, addressing the initial placement of shares, seek to strengthen the rights of shareholders’ by making such placements more transparent and impartial, says Poloshin.

Sergei Pavlenko, president of the Pacific Association of Securities Dealers and board member of several local enterprises, cites the need for legislation regulating the relationship between management and shareholders as paramount for shareholders’ rights and for attracting outside investors. However, as most observers agree, for all the FSC’s aspirations, there is much that goes on beyond its scope.

“Attitudes are certainly changing towards shareholders. But the rules haven’t fundamentally changed,” says Tiger Securities’ Andrew Fox, whose brokerage firm represents foreign investors on a dozen boards of directors of local enterprises.

Difficulties in obtaining accurate information about a company’s finances or management practices hamper efforts by minority shareholders to exercise their full rights, says Fox. Also, an undeveloped infrastructure for buying and selling shares on the open market, makes shares less liquid, further decreasing an investor’s ability to make and affect decisions.

Strengthening the hand of shareholders’, particularly those with small stakes, is a system of cumulative voting for representation and policy-making on boards of directors, says Nikolai Fokin. Many shareholders don’t always realize this, he says, and those that do, aren’t always able to or willing to express their opinions.

Progress is being made in bringing transparency and legality to the securities market, says Fox.

“Vasiliyev and the FSC have a big job to do, and they’re up against some big people.”