Urals Energy PLC (LON:UEN) has demanded that the president of its Petrosakh subsidiary, Sergey Kononov, resign and pay back the US$5.1mln of company money which he is alleged to have loaned out without the board’s permission.
The Russia-focused oil and gas firm revealed at the end of last month that it was low on cash after uncovering US$3mln worth of “loans and transactions” made by Kononov, who indirectly holds 44% of the parent company’s shares.
READ: Urals to carry out emergency working capital review
After further digging, Urals now believes the total of unauthorised loans stands at just over US$5mln.
Among the transactions were loans of roughly US$1.5mln which were made to a commercial seaport in Kholmsk.
That port, which Petrosakh has a 23% stake in, is reportedly on the brink of financial collapse and Urals isn’t sure the loans, which mature between June and September next year, will ever be repaid.
The company reckons its total exposure to the port is nearer to US$3mln, including US$1.45mln of loans made to a Mr Y L Freidis – a Petrosakh employee.
Urals said Freidis would never have been considered as a “suitable” recipient under any circumstances, “and certainly not in the context of the port and on the basis authorised by Mr Kononov”.
The company, which is considering writing off those loans altogether, believes they carry an interest rate of 7.5%, which is below the cost of Petrosakh’s own borrowings.
Loans to associated companies
Alongside the loans, Urals has alleged that Kononov sold some of Petrosakh’s shares in the port to an old business partner at a “substantial discount” to what the subsidiary paid for them.
A report carried out by accountancy firm Crowe also found that loans were made to two other companies, both of which have links to Kononov.
Petrosakh is said to have lent US$1.85mln to two firms called Igrovoy Kontinent and PRO-ARTS.
The board reckons it has evidence which suggests Igrovoy had been owned by Kononov before the loan was made, while it also believes he is a shareholder in PRO-ARTS.
Through its investigation, Crowe has seen no evidence to suggest that either company has the means to repay its borrowings.
Loans worth US$1.44mln were made last year to another floundering company called Maxitrans. They are not due to mature until next year, but Urals, again, does not expect them to be repaid, given the borrower’s financial difficulties.
Wrapping things up are a couple of loans made to two people with connections to Kononov worth US$0.18mln. One of them has recently become due and has not been repaid so the board is once again mulling the idea of impairing them.
Responding to the accusations, Kononov reportedly told Urals and Crowe that, under Russian law, he had the authority to issue the loans.
‘Unforgivable’
But the company disagrees and wants him to resign and pay back US$5.1mln; money which it desperately needs.
Urals expects a cash shortfall of around US$4.5mln in the coming months should the loans not be repaid promptly.
“The results of the report have confirmed the information that the board had been able to obtain concerning transactions relating to the port, but it is extremely annoying that the exercise has disclosed further loans to which the Board would never have agreed,” said chairman Andrew Shrager.
“The breakdown of the group's governance procedures under Mr Kononov is unforgivable and we expect Mr Kononov to resign, as well as immediately repay the sum of approximately US$5.1mln.”
The search for a new president for Petrosakh is expected to begin shortly.
Shares, which have lost more than two-thirds of their value since the beginning of October, were down another 36.5% on Thursday to 22.2p.