August 19, 2008 2:56 pm

Marta legal battle looms with RTM as former partners fall out

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Russian retailer Marta Unternehmensberatung is preparing a lawsuit to reclaim the 37.5% stake in Russian property developer RTM that it sold and arranged to repurchase, said Marta’s 75%-owner Georgiy Trefilov. The retailer will pursue the matter, as well as allegations that RTM-affiliated parties scuppered the sale of Marta’s Grossmart subsidiary to REWE Group, in a Cypriot and Austrian court, Trefilov said in an e-mail to Debtwire.

Trefilov, who co-founded RTM, sold the stake worth roughly USD 120m to RTM-affiliated Pilot Holdings in February for USD 40m, he said. Pilot is controlled by Trefilov’s estranged business partner, Eduard Vyrypaev, who is RTM’s general director and co-founder. Trefilov’s used the funds raised from the transaction to repay a RUB 600m put on Marta’s RUB 2bn (USD 82m) 15.5% bond in February.

Marta will allege in its suit that Vyrypaev reneged on his commitment to enter a repo agreement related to the share sale, said Trefilov.

Trefilov did sign a repo agreement, countered an RTM spokesperson last week, but the contract only allowed him the right to buy back shares in a company called SMH Holding on one particular day in February 2009, not in RTM itself.

Trefilov transferred a 50% stake in SMH to Vyrypaev under the repo agreement, continued the spokesperson, adding that the stake was acquired by Pilot Holding GmbH, in which Vyrypaev is a major shareholder. SMH Holding owns 42.89% of RTM, said the spokesperson.

The battle over the RTM shares is crucial for Marta, as the company defaulted last week on a coupon payment to holders of the 15.5% bond, which is now quoted at half of its face value. Marta also failed to cover another put option on the notes that was exercisable earlier this month.

If Trefilov recovers his stake in RTM and monetises it at market value, he can put the retailer back in the black.

One year ago, default seemed extremely improbable. Marta’s vice president – and 25% owner – Boris Vasilev was deep in discussions to sell Grossmart with Peter Dietenberger, a representative of German food retail group REWE in Russia and an advisor to RTM’s board of directors.

Marta’s link with REWE dates back to 2004 when the two companies founded a joint venture to launch the Billa brand of stores in Russia. In order to help Billa penetrate the Russian retail market, Marta agreed to buy shops and open Grossmart, after which the shops were bought by the JV and started to operate under the new name ”Billa.” The Billa chain has in the past rented shop space from RTM.

Both JV partners agreed to contribute a total of EUR 500m to Billa, and Marta has so far invested EUR 350m, Trefilov said.

Relations between the two chains soured further in late 2008 when the Grossmart divestiture collapsed, a development Trefilov attributes to Dietenberger’s dragging his feet on behalf of RTM. Dietenberger denied this suggestion.

Trefilov also said that he possesses an e-mail Dietenberger wrote in May in which he urged his lawyers to explore ways to push Marta Unternehmensberatung towards bankruptcy and to “make life difficult” for Georgiy Trefilov.

Dietenberger inadvertently sent the email to the retailer’s legal representative Lansky Ganzger instead of to his own lawyers at Gheneff-Rami-Sommer, according to Trefilov. Dietenberger described the allegations as absurd and said the email was a forgery.

At the time of the Grossmart negotiations, Dietenberger was advising the RTM board and also acting as REWE’s representative in Russia, according to the RTM spokesperson. A REWE spokesperson said Dietenberger is not employed by REWE, Billa Russia or Evro-Billa, the company through which REWE holds its stake in Billa.

As the Grossmart sale faltered, Trefilov says he began casting about in early 2008 for an alternative strategy to finance the February put of the first RUB 600m of Marta’s bond. Initially he intended to repo the RTM stake on the open market but the timing would have coincided with a planned secondary offering of RTM stock.

“One investment banker from ING Bank, who was advising about the [offering] on RTM’s side, suggested I not do a repo deal,” Trefilov said. The banker cautioned that lending out so many shares would weaken demand for the secondary issue, which has yet to actually price, and persuaded Trefilov that a traditional repo deal wouldn’t permit payment of the bonds until five days after the put date anyway, Trefilov said.

That, the magnate claims, is why he agreed to sell the shares in a private transaction with RTM, under the understanding that Vyrypaev would sign a repo agreement allowing a prompt repurchase of the stake.

A banking source at ING said the Dutch bank advised RTM on its IPO in 2007 and said he could not comment on RTM’s plans to issue more shares. ING offered no advice to Marta, Georgiy Trefilov or RTM on a repo deal, he added.

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