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Petropavlovsk founder criticises probe into past deals as a ‘smokescreen’

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The co-founder and former chief executive of Petropavlovsk has criticised an investigation launched by the London-listed Russian gold miner into past deals as a “smokescreen”.

Pavel Maslovskiy said he viewed the examination of related party transactions undertaken during his tenure as an attempt to distract attention from its biggest shareholder, Russian rival UGC.

Mr Maslovskiy has accused UGC of trying to take control of the company without paying a takeover premium. He has asked regulators in the UK and Russia to investigate.

“Everything else around this is a smokescreen to cover up in reality what is really going on,” Mr Maslovskiy told the Financial Times.

UGC has always denied Mr Maslovskiy’s claims and Konstantin Strukov, its billionaire owner, has said he has no interest in acquiring the company.

Petropavlovsk, a FTSE 250 company with a market value of £1.2bn, was founded in 1994 with Peter Hambro, a scion of the London banking dynasty.

Pavel Maslovskiy

The company’s shares have risen 135 per cent this year as it began to reap the rewards of a new processing plant that allows it to produce gold from refractory ore, which is hard to process.

At the start of the year UGC bought a 24 per cent stake in Petropavlovsk, plunging the company, which has been rocked by a series of corporate feuds in recent years, into fresh boardroom turmoil. It voted in June along with three other shareholders to oust Mr Maslovskiy and half of Petropavlovsk’s board. 

It then voted against an attempt to reinstate Mr Maslovskiy in August and supported a resolution put forward by Nikolai Lioustiger, a Russian businessman, calling for an independent investigation of related-party transactions carried out by the company over the past three years.

Last month Petropavlovsk appointed KPMG to oversee the investigation, which covers a three-year period to August 2020. Its new chairman James Cameron told shareholders he would expose any “historic instances of failed corporate governance” and recover “any misappropriated funds or assets”.

Mr Maslovskiy said he had nothing to fear. “From the previous management point of view and the current management on the ground we are absolutely comfortable with this,” he said. 

One deal that has come under scrutiny — a plan to buy out the shares that Petropavlovsk did not already own in the Temi gold project in Russia’s far east — had already been investigated, he added. 

“There was a rumour that I was connected to, or a beneficiary of, the deal,” Mr Maslovskiy said. “That matter was specifically investigated . . . and it was confirmed there was absolutely no truth.”

Mr Maslovskiy also noted that Mr Cameron had joined Petropavlovsk’s board in October 2018 and was a member of its audit committee.

“If there are so-called dodgy deals . . . they were in the presence of Mr Cameron who is now chairman,” he said.

Mr Maslovskiy also hit back at claims that he had orchestrated a campaign of disobedience by Petropavlovsk staff in Russia. 

The company says it has encountered a lack of co-operation from some employees and ex-employees in a number of its Russian subsidiaries, leading to delays in receiving cash.

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Mr Maslovskiy said employees in Russia were “very unhappy” about the recent boardroom turmoil and some managers were looking to “pack their bags and leave” if the UK Takeover Panel or Russia’s antitrust regulators did not take action.

“There are actions that can be taken [by regulators] . . . to force the concert party to sell its stake or make an offer,” he said, adding: “If you want control, pay for the control at a fair price.”

UGC has always denied working with other Petropavlovsk shareholders, including Mr Lioustiger, to remove directors.

Mr Maslovskiy confirmed he had discussed the idea of merging Petropavlovsk and UGC with Mr Strukov shortly after the billionaire purchased his stake in February.

However, it quickly became apparent that a deal would not work because UGC was a “private company and not very transparent”, according to Mr Maslovskiy.

He said he was now worried Mr Strukov would put pressure on Petropavlovsk to increase borrowing either to fund acquisitions or return cash to shareholders.

UGC declined to comment.

Petropavlovsk said the investigation into related-party transactions was the result of an instruction passed by 84 per cent of shareholders at a general meeting and was entirely consistent with the drive for improved transparency. 

“As previously announced, the company has encountered a lack of co-operation from certain employees as well as legal action, in which Pavel Maslovskiy and his son Alexey are directly involved,” it said. “This legal action is without merit and disruptive to the business.” 



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European stocks stabilise ahead of US inflation data

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European equities stabilised on Wednesday after a US central banker soothed concerns about inflation and an eventual tightening of monetary policy that had driven global stock markets lower in the previous session.

The Stoxx 600 index gained 0.4 per cent and the UK’s FTSE 100 rose 0.6 per cent. Asian bourses mostly dropped, with Japan’s Nikkei 225 and South Korea’s Kospi 200 each losing more than 1.5 per cent for the second consecutive session.

The yield on the 10-year US Treasury bond, which has dropped in price this year as traders anticipated higher inflation that erodes the returns from the fixed interest securities, added 0.01 percentage points to 1.613 per cent.

Global markets had ended Tuesday in the red as concerns mounted that US inflation data released later on Wednesday could pressure the Federal Reserve to start reducing its $120bn of monthly bond purchases that have boosted asset prices throughout the Covid-19 pandemic.

Analysts expect headline consumer prices in the US to have risen 3.6 per cent in April over the same month last year, which would be the biggest increase since 2011. Core CPI is expected to advance 2.3 per cent. Data on Tuesday also showed Chinese factory gate prices rose at their strongest level in three years last month.

Late on Tuesday, however, Fed governor Lael Brainard stepped in to urge a “patient” approach that looks through price rises as economies emerge from lockdown restrictions.

The world’s most powerful central bank has regularly repeated that it will wait for several months or more of persistent inflation before withdrawing its monetary support programmes, which have been followed by most other major global rate setters since last March. Investors are increasingly speculating about when the Fed will step on the brake pedal.

“Markets are intensely focused on inflation because if it really does accelerate into this time near year, that will force central banks into removing accommodation,” said David Stubbs, global head of market strategy at JPMorgan Private Bank.

Stubbs added that investors should look more closely at the month-by-month inflation figure instead of the comparison with April last year, which was “distorted” by pandemic effects such as the price of international oil benchmark Brent crude falling briefly below zero. Brent on Wednesday gained 0.5 per cent to $69.06 a barrel.

“If you get two or three back-to-back inflation reports that are very high and above expectations” that would show “we are later into the economic recovery cycle,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

He added that the pandemic had sped up deflationary forces that would moderate cost pressures over time, such as the growth of online shopping that economists believe constrains retailers’ abilities to raise prices. Widespread working from home would also encourage more parents and carers into full-time work, he said, “increasing the labour supply” and keeping a lid on wage growth.

In currency markets on Wednesday, sterling was flat against the dollar, purchasing $1.141. The euro was also steady at $1.214. The dollar index, which measures the greenback against a group of trading partners’ currencies, dipped 0.1 per cent to stay around its lowest since late February.



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Potash/grains: prices out of sync with fundamentals

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The rising tide of commodity prices is lifting the ricketiest of boats. High prices for fertiliser mean that heavily indebted potash producer K+S was able to report an unusually strong first quarter on Tuesday. Some €60m has been added to the German group’s full year ebitda expectations to reach €600m. Its share price has gone back above pre-pandemic levels.

Demand for agricultural commodities has pushed prices for corn and soyabeans from decade lows to near decade highs in less than a year. Chinese grain consumption is at a record as the country rebuilds its pork herd. Meanwhile, the slowest Brazilian soyabean harvest in a decade, according to S&P Global, has led to supply disruptions. Fertiliser prices have risen sharply as a result.

But commodity traders have positioned themselves for the rally to continue for some time to come. Record speculative positions in agricultural commodities appear out of sync even with a bullish supply and demand outlook. US commodity traders have not held so much corn since at least 1994. There are $48bn worth of net speculative long positions in agricultural commodities, according to Saxo Bank.

Agricultural suppliers may continue to benefit in the short term but fundamentals for fertiliser producers suggest high product prices cannot last long. The debt overhang at K+S, almost eight times forward ebitda, has swelled in recent years after hefty capacity additions in 2017. Meanwhile, utilisation rates for potash producers are expected to fall towards 75 per cent over the next five years as new supply arrives, partly from Russia. 

Yet K+S’s debt swollen enterprise value is still nine times the most bullish analyst’s ebitda estimate, and 12 times consensus, this year. Both are a substantial premium to its North American rivals Mosaic and Nutrien, and OCI of the Netherlands, even after their own share prices have rallied.

Any further price rises in agricultural commodities will depend on the success of harvests being planted in the US and Europe. Beyond restocking there is little that supports sustained demand.

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Amazon sets records in $18.5bn bond issue

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Amazon set a record in the corporate bond market on Monday, getting closer to the level of interest paid by the US government than any US company has previously managed in a fundraising. 

The ecommerce group raised $18.5bn of debt across bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $1bn two-year bond, it paid just 0.1 percentage points more than the yield on equivalent US Treasury debt, a record according to data from Refinitiv.

The additional yield above Treasuries paid by companies, or spread, is an indication of investors’ perception of the risk of lending to a company versus the supposedly risk-free rate on US government debt.

Amazon, one of the pandemic’s runaway winners, last week posted its second consecutive quarter of $100bn-plus revenue and said its net income tripled in the first quarter from the same period a year ago, to $8.1bn.

The company had $33.8bn in cash and cash equivalents on hand at the end of March, according to a recent filing, a high for the period.

“They don’t need the cash but money is cheap,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.

Spreads have fallen dramatically since the Federal Reserve stepped in to shore up the corporate bond market in the face of a severe sell-off caused by the pandemic, and now average levels below those from before coronavirus struck.

That means it is a very attractive time for companies to borrow cash from investors, even if they do not have an urgent need to.

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds.

Highly rated US corporate bonds still offer interest rates above much of the rest of the world.

Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

It listed a number of other potential uses for the rest of the debt including buying back stock, acquisitions and capital expenditure. 

In a recent investor call, Brian Olsavsky, chief financial officer, said the company would be “investing heavily” in the “middle mile” of delivery, which includes air cargo and road haulage, on top of expanding its “last mile” network of vans and home delivery drivers.



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