On November 13, 2007 a subsidiary of the UniCredit Group – Bank Austria Creditanstalt AG – purchased a majority shareholding in ATFBank on the Kazakhstan Stock Exchange.
QVT Fund LP (“QVT Fund”) is the owner of more than one million preferred shares in ATFBank. QVT Fund is seeking step by step to protect its rights and the rights of other minority shareholders of ATFBank. The actions of QVT Fund and the filing of a lawsuit by QVT Fund prevented the conversion of preferred shares, which was planned by the new bank owners to the detriment of minority shareholders, and blocked the illegal formation of a new Board of Directors of ATFBank.
Being a one of the minority shareholders whose rights are being prejudiced by the actions of the Unicredit Group, QVT Fund wishes to inform the public about the violations of law by the UniCredit Group and about new potential problems for both former and current shareholders.
Certain shareholders, expecting additional compensation which was promised by the UniCredit Group, sold their shares at a value less than what those shares were worth. Those shareholders did not suspect that the proposed additional compensation was a time bomb.
Share transactions on the stock exchange are not subject to taxation and are closed when the final value of the shares traded appears in accounting records. However, a two-stage settlement involving additional compensation is not considered to be a share transaction on the stock exchange and therefore is subject to taxation.
According to experts, the so-called “additional compensation” due to these certain former shareholders of ATFBank may amount to KZT 100–200 per share. Let us consider, as an example, the possible consequences of the receipt of KZT 100 per share by a shareholder who sold his or her shares to Bank Austria Creditanstalt.
On November 13, 2007 a shareholder sold common shares at KZT 10,180.93 per share. Let us assume that on March 1, 2008 the shareholder receives “additional compensation” of KZT 100. The total price of the share sold then amounts to KZT 10,280.93. However, if the shareholder received only KZT 10,180.93, this income of the shareholder is not subject to taxation. The same shareholder receiving additional compensation falls into a trap – because the tax on income of KZT 10,280.93 per share (at 30% tax rate) may reach KZT 3,084.27 per share.
In other words, having received an extra KZT 100, the shareholder loses more than three thousand Tenge. The actual price at which each share was sold was KZT 7,196.66.
For those shareholders who have not yet consented to receiving “additional compensation”, there is still a way out – by not agreeing to the terms and conditions of Bank Austria Creditanstalt and refusing the additional compensation.
Probably, that is exactly what the new owners planned when buying ATFBank shares – to push shareholders into selling their shares without discussion of the cut price, in reliance on a future payment, and then presenting them with a fait accompli –either receiving an insignificant amount and losing one third to tax, or refusing the payment and just agreeing to a low price for the shares. The humble agreement of these shareholders has saved UniCredit Group in total more than $30 million – and it is clear at whose expense the saving is being made. As they say – “beware of Greeks bearing gifts,” even bearing additional compensation...
The squeezing-out of minority shareholders by UniCredit, accompanied by controversy, is typical not only for Kazakhstan, but seems to have become the norm for UniCredit on the pan-European level as well: controversies and litigation for around 17 billion Euro against UniCredit and its management in connection with the takeover of Hypovereinsbank in Germany have become one of the best-known scandals in Europe in recent years.
UniCredit is undertaking an aggressive advertising campaign in Kazakhstan, changing the logo of ATFBank. and misinforming existing and potential clients, thereby conducting illegal and unfair advertising.
The new Chairman of the Management Board of ATFBank, Mr. A. A. Piker, who is obligated to achieve maximum returns for all ATFBank shareholders, is also engaged in the promotion of UniCredit Group services of the, which formally is not even a shareholder of ATFBank.
Representatives of the minority shareholders believe that numerous violations of Kazakhstan law require the serious attention of state bodies.
These matters go beyond a single economic dispute and affect the stability of the national financial market as a whole. “Ambiguous” approaches, from the viewpoint of Kazakhstan law and European practice, which have been employed by UniCredit in the Kazakhstan market, undermine both international and local investors’ confidence in Kazakhstan capital markets, as well as in the ability of authorities to deal with an aggressive “strategic investor.” What is the value of all talk about UniCredit’s banking experience, if the first step taken by this Italian bank in Kazakhstan is to unlawfully take advantage of minority shareholders, who form the basis of any capital market? Despite the recent message of the President of the Republic of Kazakhstan, Nursultan Nazarbayev, concerning the need to strengthen the financial supervision bodies by employing more competent specialists and the need for the Agency for the Regulation and Supervision of the Financial Market and Financial Organizations to take a more principled approach to ensuring financial stability in Kazakhstan, the position of the regulatory bodies has been quite passive in relation the protection of the legal rights of minority shareholders. Even the body that is directly responsible for regulating and supervising the financial markets and financial organizations confined itself to a formal response to correspondence from QVT, and advised that QVT file a lawsuit.
The rights of minority shareholders could have been protected by fair, objective and impartial courts, but here we face underlying difficulties as well, and no final decisions have yet been made on a significant number of pending disputes.
“Transparency Kazakhstan”, an anti-corruption civil society organization, believes that the violation of principal rights of shareholders may have a negative impact not only on Kazakhstan’s image, but also on its investment attractiveness, and that is especially dangerous in the current situation of financial instability. The attitude of the new owners of the bank to their partners undermines the principles of corporate governance, and the question arises: what will be the bank’s attitude to its clients? The interests of investment funds and of ordinary citizens alike may be affected.
Transparency Kazakhstan believes that operations in the securities market should be legal, absolutely transparent and free of any such underlying potential problems. The actions of the new owners of ATFBank in dealing with disputes with minority shareholders, and particularly with QVT Fund, should be inspected by law enforcement bodies. The existing lack of transparency of the system creates a potential opportunity for the new owners to secretly put pressure on state bodies for the purpose of delaying legal action or avoiding it altogether.
QVT Fund hopes that this dispute will be resolved fairly in accordance with Kazakhstan law. QVT Fund will continue to keep Kazakhstan and the international community informed of all progress made.
About QVT Fund:
QVT Fund LP, a leading global hedge fund with offices in New York, London and Taipei, has funds under management of more than US$11 billion. QVT Fund’s investments in Kazakhstan total more than US$200 million, making QVT a major foreign investor in Kazakhstan.
About Transparency Kazakhstan:
Transparency Kazakhstan is a non-governmental, non-commercial organization, whose operations are aimed at the elimination of corruption. We concentrate our efforts on research and the development of recommendations for systemic elimination of corruption. Transparency Kazakhstan is a national chapter of Transparency International, an international civil society organization working against corruption, established in 1993. Today Transparency International is represented by 100 chapters worldwide. The activities of the movement are coordinated by the International Secretariat, located in Berlin, Germany.
18 February, 2008, Almaty
