Letter regarding outrageous breach by Gagik Tsarukyan and “Multi Group” of foreign investors’ rights
Dear Media Representative,
It is with great surprise that, while following and hearing the news from Armenia, we come across Gagik Tsarukyan’s angry statements and attacks on Yerevan Municipality and the Armenian Government about how the latters ignore and fail to support foreign investors and thus prevent them from implementing their investment programs.
We get surprised, because none other than the same Gagik Tsarukyan committed an outrageous breach of the rights of our company, Eastinvestor Ltd and betrayed us heavily as investors in Armenia.
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Eastinvestor Ltd. is an investment fund that has been investing in shares of various companies based in Eastern Europe.
In turn, more than 120 individuals representing companies from European countries including Germany, Austria, and Switzerland made investments with Eastinvestor.
In 2006, Eastinvestor—via the trading system of then Armenian Stock Exchange—purchased 3.2% of the shares of “Yerevan Ararat Brandy-Wine-Vodka Factory” CJSC listed on the same exchange. Of the remaining shares, about 81% were held by Gagik Tsarukyan, 9% by Multi Group, and about 7% by other stockholders—a total of 124 stockholders.
In 2008, we were contacted by “Multi Group” who offered to buy our shares in the factory at a low price. Upon our refusal, they began to threaten us, including by warning that we may face personal problems when we are in Armenia.
This being not enough, they proceeded with consolidation of shares to push us out and to take over our stake cheap; evaluating this huge and highly valuable factory at just EUR 870,000.
According to various assessments, in reality the property was worth around EUR 100-300 million. Anyone in Armenia will tell you that EUR 870,000 is a price for a mansion in the downtown, not a tremendous spirit production facility.
During the last 10 years, our above described problem has become well-known among European investors—who will naturally find it all but possible to consider Armenia as an attractive or reliable investment target. As a result, many of them have terminated their investments, and have refused to participate in any investment programs in Armenia ever since.
In light of this, it is highly strange to witness the statements and demands of Gagik Tsarukyan who “cares” about investors and “protects the investors’ rights”. From our view the opposite is true.
More details could be found in the attached letter.
We would also like to inform, that we are planning to make a visit to Armenia and invite a press conference to shed more light on this issue.
Kind regards,
“Eastinvestor” Ltd.
A. Hinzmann (Director)
A. Geiger (Director)
Eastinvestor YABWV letter
Bamberg – Germany
Dear Sir/Madam,
We are writing this letter as a stockholder of “Yerevan Ararat Brandy-Wine-Vodka Factory” CJSC (YABWV), to reiterate the gross violation of Eastinvestor Ltd.’s
property and other rights by the major stockholders of YABWV “Multi Group Concern” LLC and its owner Mr. Gagik
Tsarukyan.
The importance of this matter -discreditable, in its current state, for both Mr. Tsarukyan and the judicial bodies then
involved – is closely associated with Armenia’s emphasis on attracting foreign
investment.
The country’s government officials, as well as Mr. Tsarukyan himself, have stated on numerous occasions that Armenia’s priority is to provide legally
sound and favorable environment for foreign investors; yet, experiences like the one Eastinvestor Ltd. has been having only
discourage investors from looking into the country’s potential.
Here is a quick recap of the story of the problem.
Eastinvestor Ltd. is an investment fund that has been investing in developing countries
since 2006. In Armenia Eastinvestor’s total investments – in companies such as the
Armenian Development Bank, Pure Iron Plant, and others – exceeded EUR 5 million.
In May 2006, Eastinvestor purchased 1,520 shares of YABWV representing 3.2% of the
company’s charter capital. Of the rest, about 82% were held by Gagik Tsarukyan,
10% by Multi Group, and about 7% by the remaining stockholders – a total of 124
stockholders.
At a special October 12, 2008, stockholders’ meeting it was decided to consolidate the
shares of YABWV from 47,270 shares to 20
shares.
As a result of the share consolidation, Eastinvestor and the other minor
shareholders did not get at least a single share and wound up with fractional shares,
which were to be sold back to the major holders, which were Multi Group and Mr.
Tsarukyan.
During the special YABWV meeting, a formula for the resale of these fractional
shares was worked out. Under this formula, Eastinvestor would receive an AMD
14,791,623 (EUR 27,000) compensation against the 1,520 YABWV shares owned by
Eastinvestor (3.2% of the factory’s total shares), which meant bringing the value of
YABWV to AMD 470,000,000 (EUR 870,000).
So, a major factory with a century-long history located in the centre of Yerevan,
with all its equipment, production capacities, sizeable stock of brandy, as well
as its buildings and other property was evaluated at less than EUR 1 million—price
of a mansion in downtown Yerevan.
YABWV pegged the market value of one full share at approximately EUR 69. In the
meantime, according to various prior estimates, the value of YABWV was
determined at between EUR 100 and 300 million, so Eastinvestor incurred losses of at
least EUR 3 million.
The amount accruing from the fractional shares buyback equaled EUR 27,467 for a
3.2% stake, and Eastinvestor refused to sell its shares at EUR 69 per share, which was
less than 2% of the real market value.
With this step Multi Group and Mr. Tsarukyan intentionally tried to deprive
minor shareholders of their owner rights, breaking the Constitution and Legislation of
Republic of Armenia.
After prolonged litigations, Eastinvestor was unable to succeed in Armenian courts
and get a fair compensation for its losses.
Not to mention that under the laws of the Republic of Armenia, the compensation
should have been calculated based on the market price of the shares, which is a much
higher value.
Therefore, our company has made a decision and applied to the European Court
of Human Rights. We have also submitted an Application-statement to various
competent authorities of the Republic of Armenia. We believe that justice will be
restored.
For the past 10 years, our above described problem has become well-known among
our European customers and partners— who may naturally find it all but possible to
consider your country as an attractive investment. At least, not until such
deception and swindling continue. If Armenia expects to attract foreign
investors, it must take steps towards treating them according to the legislation.
The courts must not artificially delay the cases and, in delivering verdicts, must be
guided by both the letter and the spirit of the law. Minority shareholder rights must
be protected. Investors must not be robbed of their lawfully acquired assets.
Armenia managed to change a lot in the past few months. Still, we are waiting.
Kind regards,
Arthur Geiger
Director Eastinvestor Ltd
Andreas Hinzmann
Director Eastinvestor Ltd
