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ENRC subsidiary sold secretly to nephew of co-founder ENRC subsidiary sold secretly to nephew of co-founder
(7 months later)
Eurasian Natural Resources Corporation (ENRC), the FTSE 100 mining company that has been stung by a succession of corporate governance crises, has secretly sold a subsidiary to the nephew of one of the group's founders and major shareholders.Eurasian Natural Resources Corporation (ENRC), the FTSE 100 mining company that has been stung by a succession of corporate governance crises, has secretly sold a subsidiary to the nephew of one of the group's founders and major shareholders.
Arif Shadiev, who was formerly part of ENRC's senior management team and whose uncle Patokh Chodiev is one of the group's controversial founding trio, acquired ENRC's railway maintenance business Zhol Zhondeushi for an undisclosed sum in May 2012.Arif Shadiev, who was formerly part of ENRC's senior management team and whose uncle Patokh Chodiev is one of the group's controversial founding trio, acquired ENRC's railway maintenance business Zhol Zhondeushi for an undisclosed sum in May 2012.
The mining company briefly referred to the deal in its first half results released in August, but chose not to disclose the identity of the buyer.The mining company briefly referred to the deal in its first half results released in August, but chose not to disclose the identity of the buyer.
The real nature of the transaction has now emerged and follows an infamous criticism of ENRC being "more Soviet than City" after Alexander Machkevitch, Chodiev and Alijan Ibragimov – the three founders who collectively own about 44% of the shares – backed a 2011 boardroom coup that ousted two independent directors.The real nature of the transaction has now emerged and follows an infamous criticism of ENRC being "more Soviet than City" after Alexander Machkevitch, Chodiev and Alijan Ibragimov – the three founders who collectively own about 44% of the shares – backed a 2011 boardroom coup that ousted two independent directors.
The Guardian understands that the railway maintenance business was sold nine months ago to a UK-registered limited liability partnership called Prime Residential County, which was classed as a dormant company when it filed accounts with Companies House in April.The Guardian understands that the railway maintenance business was sold nine months ago to a UK-registered limited liability partnership called Prime Residential County, which was classed as a dormant company when it filed accounts with Companies House in April.
In the following month Prime Residential acquired the ENRC subsidiary and, in early June, Shadiev became one of its two members – a position in effect equivalent to that of a company director.In the following month Prime Residential acquired the ENRC subsidiary and, in early June, Shadiev became one of its two members – a position in effect equivalent to that of a company director.
A spokeswoman for ENRC said: "The sale of Zhol Zhondeushi is in line with our strategy, led by ENRC's chairman Mehmet Dalman, of disposing of the group's unprofitable and non-core assets.A spokeswoman for ENRC said: "The sale of Zhol Zhondeushi is in line with our strategy, led by ENRC's chairman Mehmet Dalman, of disposing of the group's unprofitable and non-core assets.
"This company primarily repaired and maintained internal railroads connecting various operations and was a small business within our logistics division. The transaction valuation was provided by an independent audit firm.""This company primarily repaired and maintained internal railroads connecting various operations and was a small business within our logistics division. The transaction valuation was provided by an independent audit firm."
She refused to divulge how much the business was sold for and added that the company had not identified the buyer because the business was small enough to be exempt under stock exchange disclosure rules.She refused to divulge how much the business was sold for and added that the company had not identified the buyer because the business was small enough to be exempt under stock exchange disclosure rules.
ENRC plans to state in its annual report this year that the subsidiary was sold to a related party.ENRC plans to state in its annual report this year that the subsidiary was sold to a related party.
However, the sale was significant enough to be cited in ENRC's half year results to the end of June 2012 as a cause for a drop in revenues. The company reported a $2m (£1.3m) decline in the logistics division's earnings and a $15m decrease in its "third party revenue". The reduction included the loss of up to two months' sales and profits from Zhol Zhondeushi after it was sold.However, the sale was significant enough to be cited in ENRC's half year results to the end of June 2012 as a cause for a drop in revenues. The company reported a $2m (£1.3m) decline in the logistics division's earnings and a $15m decrease in its "third party revenue". The reduction included the loss of up to two months' sales and profits from Zhol Zhondeushi after it was sold.
The incident is not the first time that the company has attracted attention regarding related party transactions.The incident is not the first time that the company has attracted attention regarding related party transactions.
According to an ENRC filing to shareholders last year: "On 25 April 2012 the company was contacted by the Financial Services Authority in its capacity as the UK Listing Authority.According to an ENRC filing to shareholders last year: "On 25 April 2012 the company was contacted by the Financial Services Authority in its capacity as the UK Listing Authority.
"The letter stated that the UKLA was conducting a preliminary review of the company's compliance with the listing rules on a group-wide basis and, in particular, LR10 and LR11.""The letter stated that the UKLA was conducting a preliminary review of the company's compliance with the listing rules on a group-wide basis and, in particular, LR10 and LR11."
Listing rule 11 concerns related party transactions, while rule 10 deals with significant transactions.Listing rule 11 concerns related party transactions, while rule 10 deals with significant transactions.
The announcement concerning the FSA's interest in ENRC comes on top of the company's continuing efforts to report its findings to the Serious Fraud Office following internal investigations into allegations relating to its Kazakhstan and Africa businesses.The announcement concerning the FSA's interest in ENRC comes on top of the company's continuing efforts to report its findings to the Serious Fraud Office following internal investigations into allegations relating to its Kazakhstan and Africa businesses.
The list of negative publicity has coincided with a terrible run for the company's shares, which more than halved in 2012. However, they have had a stellar start to 2013 on the back of decent production numbers and rumours that the company might be a takeover target.The list of negative publicity has coincided with a terrible run for the company's shares, which more than halved in 2012. However, they have had a stellar start to 2013 on the back of decent production numbers and rumours that the company might be a takeover target.
Since becoming chairman a year ago, Dalman has repeatedly pledged to make the company more open.Since becoming chairman a year ago, Dalman has repeatedly pledged to make the company more open.
In June he said: "We need to make our company much more transparent and simplistic. I can't get there overnight … [but] it will be transparent and it will be simpler."In June he said: "We need to make our company much more transparent and simplistic. I can't get there overnight … [but] it will be transparent and it will be simpler."
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