German Investor Doesn’t Regard Armenia as Safe Investment Bet Right Now; But He Hasn’t Lost Hope in Future
by Kristine Aghalaryan
October 19, 2009
The German company “Ostinvestor” purchased 1,520 shares of the “Yerevan Ararat Brandy-Wine-Vodka Factory” (YABWV). This amounts to 3.2% of Ararat’s outstanding shares. In June, 2008, the German firm received a note from the principal shareholder of YABWV, demanding that it sell all its shares since “MultiGroup” wasn’t prepared to recognize the “Ostinvestor” holdings.
In the end, at a special October 12, 2008, stockholders’ meeting it was decided to consolidate the shares of YABWV by issuing one new share for each 2363.5 held at a valuation of 18,908,000 Armenian drams* (approximately 45.212 Euros.)
Given that “Ostinvestor” only held 1,520 shares and one new share was to be the equivalent of 2,363.5 shares, the German firm wasn’t able to secure even one share of the new stock issue. As a result of the share consolidation, “Ostinvestor” and the other minor shareholders wound up with fractional shares. This means that these shares were to be sold back to the major holders. “Ostinvestor” is no longer listed as a shareholder and since it has refused to sell back its shares according to the formula reached, a value of 18 Euros has been set for each share to be closed out. (See: German Firm Loses Shares in Armenian Company Owned by Gagik Tsarukyan)
“Ostinvestor” CEO Stefan Laxhuber recently visited Armenia and answered a few questions posed by «Hetq».
Mr. Laxhuber, what is the goal of your visit?
This trip to Armenia, as is the case with most, is 90 % related to the Cognac Plant issue. I am here to discuss and see if there is a solution; anything we can do and how we can go on. That is the main reason. In addition, I am taking care of other investments in Armenia. We are a portfolio holding firm and have some interests in Armenian small businesses. We are invested in an Armenian bank, the Armenian stone processing sector, etc. It’s up to me to monitor these concerns and see how they are faring, especially after the financial crisis.
Why have you waited till now to go to the courts and raise the problem associated with the Cognac Plant and not immediately after the questionable consolidation of shares?
At the beginning we tried to resolve the matter in the normal manner and later started looking for legal representation. It has been a pretty complicated affair and took us a very long time to find a lawyer willing to take our case, to defend us against the actions of MultiGroup. I have been here, knocking at the door of 12 law firms and received the standard reply that “We can offer legal advice, but are afraid to go up against the likes of MultiGroup”. It wasn’t because there was a conflict of interest. They simply were afraid. At the beginning we were unable to take legal steps but, in the meantime, we had to move forward and found a few very brave lawyers. Quite surprisingly, most of them were women willing to take our case who aren’t intimidated by the task that lies ahead.
It would seem that you feel that Armenia hasn’t done right by you. What has been the most painful part of this entire process for you?
Of course, we have a problem with your, I call them oligarchs. But also I think that the most terrible thing is so far is that we have not received any reaction from the government, the political arena; nowhere. They were all fully aware of the situation due to the many letters we’ve either personally delivered or forwarded. We’ve also discussed the matter with many of the officials involved as well. What I and my investors were keen to understand, and which ended up as the biggest disappointment, was why no one replied in kind. The only support we received was from the German Embassy. But they too were powerless to do anything since they hadn’t been supplied with precise information
It is really not very encouraging. We have been doing a lot in Armenia. We have invested a lot during the past 6 years. About 2 years ago we organized a tour of Armenia with around 40 potential investors. Today, many of them have given up on Armenia. I still haven’t given up on Armenia, and I have to say I still believe in this country; I believe in Armenia. You have very well educated professionals. In general, when we deal with Armenians, they come across as good business types and hard-working people. It really is a shame that this is happening and giving such a bad image to the country.
I have said many times that Armenia has a bright future. But what has happened to us here and especially the way they approached this problem is just awful. Once again, let me say this is a problem that we must be capable of resolving. Otherwise, we must a solution in the courts.
So how to you propose to pursue the issue and go forward?
For example, two years ago when we organized our investment tour quite a number of those participating were ready to invest in Armenia. But yesterday I related the example about the owner of textile exporting firm now manufacturing in Vietnam and China. The firm had sent a delegation to Armenia and was ready to close a deal on the purchase of a plant here when they heard what had happened to us at the hands of Gagik Tsarukyan. They realized there is no one here capable of defending their interests and they immediately ceased all negotiations and investments in Armenia, because it is unsafe; a poor risk. They thought to themselves, «If we, a foreign investor, do not have any protection or sponsorship who knows, we may find ourselves competing with another local Armenian oligarch and wind up in the same boat as “Ostinvestor”. As a result they did an about-face and are now investing in Moldova.
Did you try to meet Gagik Tsarukyan personally and discuss the matter? Perhaps there are alternate solutions?
At the very beginning, when this problem arose, I had a talk with the MultiGroup director; not with him directly, but with his translator. The substance of the discussion was more threatening than positive. Their response was that, ‘You either return the shares to us or we’ll bankrupt you’. They told us it was their company and that we didn’t have any rights here. The fact remains that we bought these shares, we were shareholders, and they had no right to say we had stolen those shares. We were investing in this country because we believed in its future.
What other countries in the region have you invested in?
In this region, only in Georgia and Armenia. But in other CIS countries we have investments in Uzbekistan, Mongolia and Ukraine.
What was it about the Cognac Plant that attracted you from a business perspective and made you decide to invest in Armenia?
Naturally, we invest in well-known markets. Fromm a business perspective, I saw that Gagik Tsarukyan was the biggest shareholder in his MultiGroup firm and that he was involved in local, politics. He is a member of parliament and up till then I only had a good experience in Armenia. I also saw an opportunity to make offers and collaborate since there is a lot we can do in the western market. If they had told us to assist them in their marketing strategy and to open the doors to new markets, we could have done it since we have extensive contacts in Europe and the possibilities for “Noy” to operate in that market are great.
What are your plans now? What steps will you take?
I have been really waiting for a long time and hoping that someone can solve this problem in a business or diplomatic way. But since we haven’t received any reply or response to our protestations, I can’t say that I have much hope that we’ll receive justice in the Armenian courts either. Thus, we’ll do what it takes to take the case to the European Court. We are prepared to go this route. It has become a matter of principle for us. We have been patient for a long time and made many proposals to resolve the issue diplomatically, but to no avail. We will wage this struggle with all possible means at our disposal, regardless of the costs or time involved. This investment here in Armenia is quite small in terms of our Fund but it has become a question of principle – will I receive legal defense in this country or not?
As a foreign investor what’s your take on the overall business environment in Armenia?
The financial crisis, of course, has hit Armenia quite hard, especially in terms of the money flow from the diaspora. I think that this will correct itself. Armenia has great potential and a large overseas diaspora community. After the “Rose Revolution” in Georgia, the system there started to recover and many Georgians living abroad returned because now they have an opportunity to work in their home country, albeit at relatively lower wage levels. This has helped the Georgian economy develop very well. I see the same potential for Armenia.
The production of software security has started. The potential exists where the programming is carried out and where the units are used. And, of course, we see how resources are opened up and tapped on the international level and how global firms start such a process. This is an opportunity and a chance for Armenia to ensure local development.
Let me repeat that despite what we’ve experienced here I’m a strong believer in your country, there is a bright leisure future. Investors are standing by and waiting to invest in that country once they feel secure and that is what Armenia needs. You need foreign investors. It will be of benefit both to the investor and the Armenian economy.