Michael Cherney Lawsuit Jeopardizes Oleg Deripaska RusAl IPO Flotation

2008-01-28T13:38:00.000-08:00

Michael Cherney Lawsuit Jeopardizes Oleg Deripaska RusAl IPO Flotation

Deripaska's refusal to uphold contracts and pay
Cherney 6 billion dollars may eventually destroy RusAl

By Israel News Agency Staff

Jerusalem, Israel ----- January 28, 2008 ....... On January 23, 2008 The Financial Times published an investigative report shedding light on the murky past of the wealthiest man in Russia, billionaire Oleg Deripaska.

When Oleg Deripaska's UC Rusal floated plans for a $9bn-plus listing last year, the share issue from the outset was a test case for whether a company in Russia forged out of an industry once saturated with crime could win a London listing.

The London stock exchange IPO flotation had already been delayed from last September when RusAl shareholders - including Oleg Deripaska, who owns 66 per cent of UC Rusal via his vast Basic Element industrial conglomerate - cited poor market conditions for the postponement.

Now, as Rusal moves to expand via a merger with Norilsk Nickel, the suggestion by a senior executive at Basic Element that the company could seek a listing in Hong Kong over London because of tightening regulatory requirements suggests that deeper-seated problems are to blame.

The float of what is one of the world's largest aluminium producers has been dogged by legal claims from the start.

But by far the biggest shadow has been cast by Michael Cherney (Mikhail Chernoy), a founding father of Russia's aluminium industry, who has documented claim to a 20 per cent stake in UC Rusal, the holding he claims is owed from what he describes as a 50-50 partnership with Deripaska for most of the 1990s.

In an article titled "Web of Mystery surrounds Rusal Listing", FT's Moscow correspondent Catherine Belton reports that last month that Cherney (Chernoy) filed an amended claim in the London High Court for the stake and filed for permission for the suit to be served on Oleg Deripaska outside the UK, or on his London lawyers. In addition, legal documents set to be filed as part of the claim, and seen by the FT, provide a partial view for the first time of what Michael Cherney claims was their mutual fifty percent ownership of aluminium holdings via a Liechtenstein foundation, Radom.

For Oleg Deripaska, keen to shake off his past rise through an industry scarred with 1990s-era gangland mafia wars and reposition himself as a leading, respected Russian industrial titan, any investigation of this era in court could open up a lethal can of worms.

Deripaska has denied in an interview with the FT that he ever worked in partnership with Cherney. "This person has nothing to do with my business," he said.

Cherney could also face problems in court: the March 2001 agreement on which Cherney rests his claim, seen by the FT, is laid out on two pages only.

It sets out a deal in which Cherney first of all agrees to sell 17.5 per cent of Sibirsky Aluminium, or Sibal, to Deripaska for $100m, while Deripaska is also bound to pay off $150m in debt owed to a trading company owned by Cherney. The second part of the agreement binds Oleg Deripaska to pay Michael Cherney (Michal Chernoy) for a 20 per cent stake in Rusal, the company that Sibal was merged into, within five years of the date of the agreement.

The agreement does not even lay out important details such as whether it is to be governed by English law. Nor does it specify in which currency the monies are to be paid, although the court document refers to US dollars.

The claim filed in the London High Court, seen by the FT, asserts the legal and written agreement maps out a deal in which "Deripaska would hold 20 per cent of the shares in Rusal for Cherney" and in which "Deripaska was to pay a first instalment of some $250m as an advance payment."

Documents seen by the FT, map out Cherney's and Deripaska's joint holdings in Sibal, via Radom, a Liechtenstein Foundation. It is not clear what happened to Radom after 1999.

FT reports that a letter to Radom's directors in Liechtenstein signed by Deripaska maps out how a vast web of offshore companies that gathered aluminium trading profits was held by a Luxembourg - based parent company, Alincor SA.

In the letter, dated April 26 1999, Deripaska's legal attache', Stalbeck Mishakov, instructed the Liechtenstein directors that the Alincor "shares will be later transferred to the shareholders of the Radom Foundation after we decide in what way they can hold directly the registered shares of Alincor SA".

Deripaska held fifty per cent of Radom through his Cole Foundation, while Cherney held the remaining half through his Galenit Foundation, according to Radom's founding declaration dated October 31, 1997.

A memo on details of a meeting between Deripaska and his partners with the Liechtenstein directors at Syndikus Treuhandanstalt on December 14 1998 states: "Mr. Deripaska signs the contract for a mandate for Cole Foundation ... with him being placed as first beneficiary, his mother as second beneficiary and Pavel Ezoubov - as the third".

It further states that Deripaska was signing all payment orders for the Radom group. The partnership - which Cherney says began in 1994 - hit problems when Russia anti-trust authorities began to examine a deal in which Deripaska sought to merge Sibal with Roman Abramovich's Russian Aluminium, Cherney said.

Cherney said Deripaska had told him that Russian authorities would not approve the deal if Cherney was involved. Cherney says there was a campaign by his business enemies to blacken and discredit his name.

Deripaska's spokesperson told FT that he would not be commenting on the detail of the case because there was an ongoing legal process.

Following his repatriation to Israel, Michael Cherney has maintained business interests in Russia and post-Soviet states, while developing and investing in new business between Russia, Europe, Israel, and the US. In Israel, Michael Cherney spends much effort on charity and humanitarian projects that reinforce cooperation between Israel and Russia in fighting terrorism.

Michael Cherney established a Website for his Foundation on June 1, 2001, the night of the terrorist bombing outside the Dolphinarium Disco in Tel Aviv. When Michael Cherney learned the number of victims - 21 dead and over 150 wounded - he realized that rendering assistance required a systematic organized effort.

Prior to 2001, Cherney was engaged in charity work in Russia, Ukraine, Central Asia, Bulgaria, the US - wherever he did business. He made valuable contributions into Jewish philanthropy in Russia. Following the Dolphinarium terrorist tragedy, the Cherney Fund became the helping hand for all its victims. In a misfortune like this, emigres from the former Soviet countries are even worse off than those born in Israel: they don't have a support system or savings.

The Cherney Fund, therefore, renders help mostly to the new arrivals, victims of catastrophes and terrorist acts that continue to bleed Israel, as well as to the low-income victims of terror in other countries. Another equally important task assumed by the Cherney Foundation is the media effort in war on terror. Shortly after the Dolphinarium attack, the Foundation published a book called Dolphinarium: Terror Targets the Young.

The Michael Cherney Foundation has established grants for students from the former Soviet Union in all major Israel universities with an annual endowment of one million shekels.

Michael Cherney has decided to donate $600 million dollars to charity when he wins his court case against Oleg Deripaska of RUSAL - the Russia aluminium giant.

Mr. Cherney and his family live in a suburb of Tel Aviv.