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Kyrgyzstan: Canadian Court Unfreezes State's Centerra Shares

Kyrgyzstan’s state-run Kyrgyzaltyn gold company says a court in Canada has lifted a freeze on its stake in Toronto-listed Centerra Gold, which in turn owns the concession for the giant Kumtor gold mine.

Kyrgyzaltyn said in a statement on July 25 that the reverse of the freeze, which was imposed in 2014 during a dispute between Kyrgyzstan and several foreign companies, will apply to shares and dividends.

The Ontario Superior Court of Justice ruled on the case on July 20, according to the statement.

Sorting through this tangled web requires an effort of concentration, while the consequences of the resolution of this part of the puzzle on the ongoing dispute between Centerra and the government remain unclear.

The Ontario court-mandated freeze on Kyrgyzaltyn’s share in Centerra stems from suit filed by numerous companies arguing that they had been unjustly treated by the government in Bishkek.

One relates to Stans Energy, a mining company focused on the former Soviet region. An arbitration court in Moscow ruled in 2014 that Kyrgyzstan should pay Stans Energy $118 million in damages for revoking its license to the Kutessay II heavy rare earths deposit. The license was issued in 2009, during the corruption-riddled tenure of President Kurmanbek Bakiyev, and then revoked in 2012, after the leader was overthrown. Stans Energy sought the asset freeze at Centerra as a way of getting Kyrgyzstan to pay out its dues.

The Ontario court’s share freeze decision hinges on something of a technicality. As Stans Energy said in a statement on July 11, the court ruled that the shares were actually property of Kyrgyzaltyn, not the Kyrgyz Republic, which is, however, the ultimate owner of the gold mining company. That notwithstanding, the Ontario court found that Kyrgyzstan “does not have ‘any equitable or other right, property, interest or equity of redemption’ in the Centerra shares that is subject to seizure and sale.”

Stans Energy said it is appealing the decision.

There is some confusion here though, not least because of Kyrgyzaltyn’s less-than-clear press release.

The state gold company’s statement actually refers to two of the four complainants that lobbied through the courts to seek the asset freeze. Aside from Stans Energy, there are the extravagantly named Sistem Muhendislik Insaat Sanayi ve Ticaret Anonim Sirketi and the even more extravagantly titled Entes Industrial Plants Constraction & Erection Constracting Co. Inc. (spelling mistakes in the original). The final litigant was Latvian businessman Valery Belokon, whose dealings with the deposed Bakiyev regime require a whole volume to themselves.

Kyrgyzaltyn makes references in its statement only to shares frozen as part of legal cases filed by Belokon and Entes Industrial Plants Constraction & Erection Constracting Co. Inc. But the Ontario court ruling of July 11 reported by Stans Energy, however, suggests the unfreezing likely applies to all litigants.

Analysts had predicted the asset-freeze would severely complicate relations between Centerra and the Kyrgyz government, and that has indeed proven to be the case.

With Kyrgyzstan now free to divest itself of its shares in Centerra, new potential exits from the current impasse could present themselves. They will all require some level of creativity and flexibility on the part of Kyrgyzstan’s authorities and political class, however, and it is far from given either of those are in abundant supply.

Kyrgyzstan: Canadian Court Unfreezes State's Centerra Shares

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