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By John Helmer, Moscow

Novolipetsk Metallurgical Combine (NLMK) and its owner Vladimir Lisin have won a suppression order against Nikolai Maximov, former owner of the Maxi group of minimills and scrap processors, from the Higher Regional Court of Hamburg. A three-judge panel has imposed a permanent injunction against publication in the press of claims by Maximov against Lisin, ruling that Maximov has made them up and despite dozens of court cases has failed to substantiate them.

Maximov was on the verge of bankruptcy in October of 2007, with debts of $1.4 billion, when his steelmaking and scrap processing enterprises were rescued in a buy-out by NLMK. Since then the two sides have disputed the valuations of the assets by Maximov and the monies paid by Lisin. Their mutual recriminations and claims for recovery of debts and for compensation for alleged valuation fraud have been among the most acrimoniously ever litigated in Russian steel sector history. To date, NLMK has litigated through 82 separate trials for collection of about Rb11.3 billion ($404 million) in debts from about 30 Maximov companies. Another 15 trials have been held on charges by NLMK of illegal transactions, fraudulent accounting, concealment of debt, and cash-stripping by Maximov from the operations he had sold to NLMK. Maximov and his associates and companies have retaliated with 37 cases against the NLMK group, with a total sum in claim of Rb1.4 billion ($50 million). The tale was first told here. The courts hearing the claims and counter-claims have included Russia, Cyprus, the Netherlands, and Luxembourg.

According to documentation submitted to the Russian courts, the valuation of the steelmaking assets Maximov sold to NLMK in 2007, assessed by American Appraisal, was no more than Rb6.6 billion (about $268 million). That, NLMK has testified in court, was a multiple of seven below the valuation supporting Maximov’s selling price. For the 50% stake in the assets which Lisin originally agreed to buy from Maximov, he ought not to have paid more than $134 million, according to NLMK.

Maximov claims to have invested at least $300 million of Lisin’s down payment and deal proceeds and bought a 1.4% stake in the state savings bank, Sberbank. It is unclear whether Maximov started buying immediately after the NLMK payoff in early 2008, when Sberbank was at a peak price above $4.40 per share; or during the second half of 2008, when it crashed to just 39 cents. At today’s price of $10.15, Maximov’s stake in Sberbank, if he still has it, is worth about $765 million. That’s rich enough for Lisin to try sue for disgorgement of profit; and for Maximov to wage a media campaign promising to invest his wealth in new Russian steelmills.

The latest court case was brought by NLMK after Maximov had attacked Lisin in a press interview published by a German website, www.wiwo.de, and the German business weekly Wirtschaftswoche. In the ruling issued in March, but not released by NLMK until last week, the court found there was no evidence to substantiate Maximov’s assertions, warned him not to air them, and banned publications in Germany from repeating them.

A release from NLMK summarizes eight of the claims from Maximov now under injunction. The 10-page text of the court ruling says “the piece in the current case is not a classical interview, but rather a report published as an article, which includes direct and indirect quotes. The quote in question has been integrated into the line of thoughts of the article so that it appears to be own statement of the author.” The court ruling also condemned as unsubstantiated Maximov’s claim that the debts of the Maxi Group had been exaggerated by NLMK at the takeover, and his claim that NLMK had “raided” his assets and did not subsequently “invest any kopek”.

The German decision casts doubt on the veracity of press announcements Maximov made last year of multi-million dollar plans through a company called Trabikum to build new mills to turn out construction steel products in Ryazan and Vladimir regions. Trabikum does not respond to requests for clarification of the details. Instead, Olga Nazarova, the press secretary of the Ryazan Regional Ministry of Industry, where Trabikum has reportedly made agreements on one of the proposed new mills, says: “I cannot provide the contact details, because they are a commercial secret.”

Maximov is not the only the Russian steelmaker to go to the wall in the past five years. Vadim Varshavsky’s Estar group went under in 2009, owing an estimated $3 billion; that’s more than double the $1.4 billion in obligations reported for Maximov in the second half of 2007. Igor Makushin, whose MAIR was a leading steel scrap processor and exporter, also disappeared in 2009, but no financial details have been disclosed. Igor Konovalov, chief executive and owner of the Inprom group, a steel distributor and reprocessor, managed to carry about $175 million in defaulted debt but avoid insolvency, before selling out to the Evraz group in 2010.

The very big debtors – Evraz, Severstal, Mechel, Magnitogorsk, and NLMK – have been saved by state-funded bailouts. This favouritism, shown by the state banks and the officials who supervised the bailouts, led by Deputy Prime Minister Igor Shuvalov, is no surprise, and not news. Varshavsky, Makushin, and Konovalov have opted to cover their exit with silence. But Maximov has sought to make publicity of what he claims to be the victimization of his business and himself by the Kremlin.

In an interview arranged with the New York Times last December, he described himself as the target of a conspiracy between Lisin, Moscow city prosecutors, and police, designed to compel him into dropping his claims against NLMK, and settling the financial litigation. “I was on the Forbes list”, Maximov is quoted by the Times as saying. “ ‘Now I’m going to jail,’ he says. ‘It’s normal. It’s Russia’.”

Maximov omitted to provide financial evidence to support his side of his case against NLMK. The Times reporter didn’t analyse the balance-sheet evidence of either side, the runup of debt before Maximov met Lisin, or the contested valuations. Instead, Maximov emerges in the Times as a dissident with a business case against the Russian state.

The Hamburg court ruling attempts to address whether Maximov has more than his say-so to substantiate his allegations. At the first level, Maximov’s claims were found to have lacked substantiation. At the appeal level, the publication and Maximov were ordered to stop publishing the claims. See link.

According to Times reporter, Andrew Kramer, the German ruling is irrelevant. “Why do Maximov’s allegations deserve to be aired at all? Because they are credible. Because Russian courts are in fact deeply flawed, which is the real issue, of which his case is just an example. We know this because of extensive evidence from other cases; it is found in multiple courtrooms, on the surface, and in hundreds of instances. So the burden of proof, for the purposes of describing what is going on in Russia, is really on the court system to convince people — including those taking money out of the country at an even faster clip — that they are in fact unbiased. Getting a German court to rule on the placement of quotation marks, which is a technical issue related to the proper framing of Maximov’s allegations, is not going to reverse capital flight.”

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