Eastbridge Capital Partners warns investor
community in view of expected public
offering of Russian Ilim Pulp Group
Eastbridge Capital Partners Fund, October 25, 2006
The international business and investor community should be made aware of the inherent legal and management risks that Ilim Pulp's
shares shall bear, should they reach an IPO stage
PR9.NET October 25, 2006 - Hong Kong - Moscow, Russia - Stamford, CT, USA - Eastbridge Capital Partners (ECP) claim investors
might face substantial risks regarding Russian Ilim Pulp Group's commercial activities and its management's business practices. ECP
has been a co-shareholder (50.9% voting control) with Russian Ilim Pulp Group in Ust-Ilimsk Woodworks OAO – a leading panel board
manufacturer in Russia - since 2003.
The Federal Anti-Trust Service of the Russian Federation deemed Russian Ilim Pulp Group's actions in the last 12 months as
"coordinated and violating Russian legislation." It was alleged that having witnessed high profitability from Ust-Ilimsk Woodworks'
operations, Russian Ilim Pulp Group's management has repeatedly attempted to cause ECP to sell its shares to Ilim Pulp Group at
below fair value and applying pressure generally associated with inappropriate business practices. While enjoying a substantial near-
monopolistic position in the region for various product lines (including wood fiber supplies) Ilim Pulp Group's managers have
repeatedly engaged in price fixing and infrastructure sabotage (blocking roads to the Ust-Ilimsk Woodworks, etc.) in order to lower the
going concern value of the enterprise.
Ilim Pulp Group were found to have purchased wood fiber at approximately US$12 per cubic meter in the open market, and the
group's management have made repeated and concerted attempts to sell it to Ust-Ilimsk Woodworks on an exclusive basis at US$24
per cubic meter. To "encourage" Ust-Ilimsk Woodworks sign on, they caused it to suffer repeated suspensions of steam, air and fuel
oils supplies [by group companies] for what Ilim Pulp Group described as "technical and technological reasons". The repeated
stoppages resulted in the factory falling 25% below its production targets for the first three quarters of 2006.
The Regional Prosecutor's Office is currently conducting an investigation into the activities of Ilim Pulp Group in the region. The
investigation started following a series of revealing articles appeared in the Russian media linking Ilim Pulp Group's regional
executives to illegal activities. It is apparent, Eastbridge Capital Partners claim, that Ilim Pulp Group's managers appear to be
complacent with regard to authorities' resolutions as well as demands put on Ilim Pulp Group by the local Ust-Ilimsk business
Hugo Barrett, Eastbridge Capital Partners Hong Kong-based Managing Director, said: "Recently, Russian mass media devoted much
attention to the activities of Ilim Pulp who appear to be consolidating their assets, which some experts say, indicates an upcoming
initial public offering. In connection with this, we would like to caution the investor community and Ilim Pulp's business partners, that
whilst presenting an apparent open front of good governance and transparent business practice in line with internationally accepted
codes of conduct, Ilim Pulp's management systematically continues to engage in highly inappropriate business practices reminiscent
of the era of infamous Russian corporate wars, when the rule of corporate raiders prevailed over the rule of law. I guess one has to
remember that Ilim Pulp Group itself came into being during, and as a result of, this highly unpleasant time in Russian corporate
"In light of their planned IPO, we find it remarkable that the Company's top management continues to systematically fail to address
these inappropriate business practices at a time when they wish to embrace the international investor universe. Their activities in
Irkutsk region have led to sizable anti-monopoly and legal actions against the company on behalf of Russian authorities, as well as on-
going prosecutor's office's investigations. The international business and investor community should be made aware of the inherent
legal and management risks that Ilim Pulp's shares shall bear, should they reach an IPO stage," – Hugo Barrett stated.
About Ust-Ilimsk Woodworks
Ust-Ilimsk Woodworks is a leading panel board manufacturer in Russia. The company's sales in 2005 were RUR 601 mln (16.7%
growth over 2004), EBITDA margin for the period reached 23.2%. In May 2006, the company successfully accomplished its debut
RUR400 mln bond issue with the Moscow Interbank Currency Exchange (MICEX). One third of the offering was purchased by
international players in Europe and the Americas.
About Eastbridge Capital Partners Fund
The Eastbridge Capital Partners Fund, L.P., is an international private equity investment fund dedicated to Russia and China with
initially committed capital of USD 100 mln. As part of its diversified investment portfolio, the Fund has substantial investments in
panel board and wood processing sectors both in Russia and China. The Fund’s management team is led by Mr. Barrett (Asia) and
Mr. Gunya (Russia & CIS) and is comprised of professionals who formerly worked in private equity investment and other merchant
banking entities for ING Baring, KPMG Peat Marwick, Russia Partners and other leading international financial firms.
Phone: Tel: (852) 22 349 0102
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