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By John Helmer in Moscow

Morgan Stanley has taken the plunge for its first-ever public investor offer of loan notes on behalf of a Russian maritime business — the Novorossiysk Commercial Sea Port. The bank is also touting for business as financial advisor to a possible initial public offering of shares for Russia’s two state owned shipping fleets, Sovcomflot and Novoship.

In the highly secretive world of Russian maritime business, public prospectuses, drafted to meet the disclosure standards of European or North American market regulators, have rarely been issued, and even less often disclosed. Volgotanker, the largest Russian tanker group until it was attacked by the Samara regional government in 2004 and ultimately destroyed, issued the first credit-linked notes for $120 million in financing, managed by Raffeisen Bank of Vienna. Security for that issue in July 2004 comprised Russian-flag vessels and shore assets — a first in a sector in which foreign banks have always insisted on foreign flagging for loan security. The Volgotanker prospectus was not made public, however.

The Novorossiysk port company prospectus runs to 199 pages, drafted by Morgan Stanley, and issued on May 7. Legal advisors are Orrick Herrington and Sutcliffe of London, and Linklaters. Investors are being offered participation in a $300 million loan at 7% annual interest. The notes are to be issued by a Luxembourg registered affiliate of the port company, and the notes lodged for trade on the Irish Stock Exchange. They are unsecured.

The port company is big in cargo terms, accounting for 20% of all of Russia’s exports, but relatively modest financially. Last year, it gathered revcenues of $277 million, and after-tax profit of just $44 million. The new money is being raised to clear most of a $450 million loan, due in 2009, and issued by the state savings bank, Sberbank, at an variable interest rate of between 8.8% and 11%.

Securing the Sberbank financing are sizeable blocs of shares — 50% plus 1 share in the port company, which is also a holding for several unit companies operating at the port, control of which Sberbank has also taken to secure its repayment. The new financing allows these shares to go back to the two men who control Novorossiysk port. Note buyers will wish them fair sailing.

The port company is controlled by Alexander Ponomarenko, but management control is being sought by the state owned Russian Railways Company (RZD), headed by Vladimir Yakunin.

The complex shareholding structure of the port company is disclosed publicly for the first time. Ponomarenko and partner Alexander Skorobogatko control 63.36% of the shares through a family trust, which in turn controls Kadina, a British Virgin Islands company, which has vested shares through a depositary arrangement with Sberbank.

The shares are also controlled by another trust, which owns a company called Investenergo, which in turn has benefited from a $21.3 million interest-free loan from the port company last year.

RZD is seeking to take over management of the state’s 20% shareholding in the port company, but this is opposed by the federal Transport Ministry which doesn’t want the railways to get too big for its boots, at least not in the maritime sector.

But already, RZD has been granted a voting proxy enabling it to cast 16% of Ponomarenko’s shares. The prospectus describes the proxy as for one year, but renewable. “Russian Railways will be able to elect at least one candidate to the Company’s Board of Directors”, the document reports. Sources close to the port company say that RZD’s control of the spur lines running in and out of the port give Yakunin a throttle-hold over the future expansion plans of Novorossiysk as a port, and as an enterprise.

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