The FINANCIAL -- Salford Georgia denies the accusation that Standard Bank had liquidity problems at the time when NBG appointed temporary administration at the bank.
“Standard Bank appeared to be strong enough to resist the problems and even since 25% of the bank’s deposits were turned into cash, Standard Bank had no liquidity problems at the time NBG officials entered the bank,” stated Irakli Rukhadze, chief executive of Salford Georgia.
Salford Georgia is an umbrella management company for the tycoon Badri Patarkatsishvili’s interests and assets in Georgia. Patarkatsishvili recently announced that he will be running for Presidency during the January 5 elections.
Founded in 2001, Salford Capital Partners Inc. (Salford) is a private equity firm investing primarily in developing markets (mainly the former Soviet Union and Central & Eastern Europe). Salford is 100% employee owned and manages USD 450 million in investment capital, via general and limited partnership structures, on behalf of high net worth individuals and family offices.
On November 24, 2007, National bank of Georgia (NBG) Supervisory Commission made the decision to appoint temporary administration at Standard Bank.
According to the statement disseminated by NBG, the reason for the appointment of temporary administration in Standard Bank is connected to the official liquidation of the bank. The bank was conditioned to face the problem as a result of the intensified deposits loss since the beginning of the current month. That’s the reason why Standard Bank has been under the supervision of NBG over the last few days.
Under the instructions of NBG, Giorgi Kadagidze, head of the Financial Monitoring Service, was appointed head of the temporary administration. Since the start of the work of the interim administration, the authority of all bodies of Standard Bank has been suspended including that of the general meeting of shareholders. The functions of the latter are within the authority of the interim administration.
Under the instructions, the temporary administration will operate for the next two months till 24 January 2007.
As Kadagidze declared at a briefing on November 27, the flight of capital from Standard Bank totalled GEL 40 million over the last fortnight. “The owners and investors of the bank will have the opportunity to attract funds for the restoration of liquidity of the bank over the next two months,” head of the Financial Monitoring Service declared.
Salford Georgia considers that the actions carried out by NBG are illegal, violating both national and international legal norms. The company states that the current developments have a political background.
“Since November 7, illegal attacks have been continuing on Salford Georgia owned companies starting with the Mtatsminda Park and Imedi TV raids, and followed by Borjomi and Telenet cases. Members of the government have embarked on a systematic campaign to target the assets in Georgia of Mr Badri Patarkatsishvili, a businessman who expressed opposition to the current Administration. Part of that campaign focused on Standard Bank,” said Rukhadze.
According to him, the acting President of NBG stated in meetings that the bank was targeted because Mr Patarkatsishvili was believed to be a shareholder (which he is not, the Salford director being the sole shareholder of the bank’s parent company, although Mr Patarkatsishvili does hold an indirect interest).
“I’m regarded a suspect in some illegal sales and they claim to have video tapes of my meetings with suspicious partners,” declared Rukhadze.
“We guess some threats were made against Rukhadze. We’re extremely experienced in international legal actions and we’ll take every possible step to secure the company’s interests in Georgia and internationally, no matter how long it takes,” declared Paul Blyvmkin, Managing Director of Salford.
On November 26, 2007 senior Salford executives based in London and Georgia met with the Prime Minister of Georgia Lado Gurgenidze along with other government officials. The purpose of the meeting was to seek an amicable resolution to the recent seizure of Standard Bank that would benefit the bank, its employees, clients and the overall reputation of the Georgian financial system.
“Our efforts to seek resolution fell on deaf ears. This further reinforces our concern that this action was politically motivated in order to expropriate Standard Bank from its owners. Our shareholders’ rights both under Georgian and international law have been grossly violated. Accordingly, we have put the Georgian government and all other individuals and entities involved on formal notice of potential legal claims,” states the company.
The international law firm Debevoise and Plimpton, with a team headed by former UK Attorney General Lord Goldsmith, has been retained by Salford’s investors to help protect the interests of shareholders and clients and to document the actions of the Georgian government in legal filings with domestic and international institutions.
Article III (1) of the Treaty prohibits the expropriation or nationalization of a covered investment except for a public purpose, in a non-discriminatory manner, upon payment on prompt, adequate and effective compensation and in accordance with the due process of law. Because the director of Salford is a United States citizen, Standard Bank is a covered investment within the definition of Article I (e) of the Treaty. There can be no dispute that the Republic of Georgia has taken Standard Bank and has paid no compensation whatsoever to the Salford director.
“As for Standard Bank, Georgia has violated the Georgian-United States Treaty Concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington on March 1994 (the Treaty). As a result, if the bank is taken away from us the losses will be some USD 150-200 million to us. We’re ready to provide a legal answer to anyone who participates in the acquisition of Standard Bank’s assets,” said Blyvmkin.
As Salford Georgia officials claim, since November 8 employees and people linked to the company have been under pressure from various governmental bodies. Clients of Standard Bank have been under pressure as well; they have been made to seize relations and cooperation with the aforementioned bank, correspondingly some clients and organizations have closed their accounts.
Standard bank started operation under the above name in June 2005. It was previously named Agrobusinessbank. The latter was established by The European Commission in 1999 for funding of the agricultural sector of the economy of Georgia.
In 2005, The European Commission held a competition on privatization of the bank. The British finance company Salford won. It paid GEL 7,4 million for 100% of shares of the bank. The funds were entered in the State Budget of Georgia. Salford took the obligation, besides, of a transfer to the Budget of GEL 3 million released as credit of The European Commission to the bank.
According to NBG, aggregate assets of Agrobusinessbank - Standard Bank totalled GEL 10,6 million as of 1 May 2005, total liabilities - GEL 3,4 million and joint stock - GEL 7,2 million.
Aggregate assets of Standard Bank totalled GEL 166,90 million as of 1 November 2007, total liabilities - GEL 133,7 million and joint stock - GEL 33,2 million. Net income of the bank totalled GEL 2,7 million during the three quarters of 2007.
The company Salford has been actively cooperating with Georgia for several years. It owns shares of some Georgian companies such as Georgian Glass & Mineral Water, TeleNet, and “Iveria.” The popular Georgian businessman Badri Patarkatsishvili is one of the clients of Salford.
It is worth mentioning that in July 2007 Salford, in cooperation with Compound Capital (an investment company located in the Bermudas), acquired 100% of shares of Metromedia. The latter is controlling the Georgian cellular communication operator Magti.
The Revenue Service at the Finance Ministry of Georgia withdrew two weeks ago the financial documents of the Georgian Glass & Mineral Water Co. N.V. Salford owns 50% of the shares of the Georgian Glass & Mineral Water company.
Lynx Ltd, a company wholly owned by business tycoon Badri Patarkatsishvili, will challenge the Tbilisi municipality’s decision to cancel a 49-year leasing contract with the company on the operation of the Mtatsminda amusement park in Tbilisi.
“While the lease agreement between the company and Tbilisi city government (TCG) calls for the investment of USD 5 million, in reality close to USD 25 million has been invested by the company to date with additional investments planned for the near future. In fact, the company has already paid over GEL 5 million in VAT to the Georgian government in connection with the rehabilitation of the park,” says the company.
The company strongly denies the claim - that only “small” investments were made to date.
Giorgi Akhvlediani, vice-mayor of the capital, said on November 7 that the company had “violated numerous times” the terms of the contract and had also failed to pay a rental fee. He also said that the municipality would reimburse “the small amount” invested by the company.
The park on Mt. Mtatsminda, overlooking Tbilisi, had a good opening this September and, according to Lynx Ltd, had hosted up to 80 000 visitors before November 7, when it was closed down after, as Lynx Ltd said, “armed and masked units” took possession of the park.
Lynx Ltd has complained that the decision by the Tbilisi municipality to cancel the leasing contract had been made by bypassing the Georgian court system.
“Mtatsminda Park is a gift for the people of Tbilisi and it’s not an excuse that somebody in the government got angry. Foreign investment flow to Georgia has stopped, conferences are cancelled and all this has already had unfortunate results for the country. It’s not only Salford Georgia businesses that are concerned. The government’s budget is in deficit and there’s inflation in the country. The banking system is a delicate thing, it relies on trust and cutting something out of this field all of a sudden ruins the mechanism. Metromedia is committed to Georgia, we’ve contributed millions of dollars to the country’s economy as our interest is beyond profit making,” Mark Hauf, Metromedia International Group Chairman of the Board of Directors, President and Chief Executive Officer, told The FINANCIAL.
In July 2007 Salford Georgia, the local office of Salford Capital Partners Inc., and Compound Capital entered into an agreement with Metromedia International Group (“MIG”) to acquire up to 100% of the common stock of MIG via a United States Securities and Exchange Commission registered tender offer. The principal asset of MIG is MagtiCom the number one Georgian mobile telecommunications operator. The transaction was recommended by the MIG Board of Directors.