Troubled times

A troubled relationship between former Novorossisyk Shipping (Novoship) president Tagir Izmaylov and top colleagues was aired on Tuesday as the Sovcomflot corruption trial continued in London.

In a witness statement produced in court, Novoship vice-president, Vladimir Oskirko, claimed that Izmaylov took complete control of ship sales following his arrival at Novoship including deciding which vessels would be sold, the commissions payable and whether they were sold through Galbraith’s.

Tagir Izmaylov.

Oskirko viewed the level of commissions payable through London shipbroker Galbraith’s as excessive but claimed that its sale and purchase chief Neil Rokison had told him he was wasting his time complaining as the terms had been agreed with Izmaylov.

In his witness statement Oskirko also suggested that Izmaylov behaved in an autocratic fashion and it was not his style to discuss matters with subordinates or explain his actions.

And if he faced difficult questions he would either not answer or become angry. Those who worked at Novoship were generally in fear of him, alleged Oskirko.

The economic logic of various ship sale transactions also came under scrutiny as Sovcomflot’s barrister Andrew Popplewell continued to cross examine Izmaylov on day 51 of the $800m bribery trial.

(Click here to read earlier exclusive reports from the Sovcomflot corruption trial as well as the interlocutory judgments in full.)

But Izmaylov resolutely rejected all Popplewell’s allegations that the various deals pointed to wrongdoing aimed at favouring Russian private shipowner and businessman Yuri Nikitin.

Novoship’s shipbroker Galbriath’s negotiated a $171,000 per ship reduction on newbuilding hulls S182 and S183 under construction by Samho and a $170,000 reduction on two Hyundai hulls, numbers 1466 and 1467, in April 2002.

The reduction in the total contract price of the Samho ships to £41.539m and of the Hyundai ships to $41.53m was balanced by the payment of an additional $4m per-ship early installment.

Izmaylov claimed the deals made sense as Novoship had the cash flow available to cover the cost of the additional stage payment but Popplewell challenged that the deal was to generate additional commissions and test if Galbriath’s as well as Clarksons could be used for such purposes.

Popplewell challenged Izmaylov that from a yard point-of-view the benefit of the transaction was $307,000 at 5% interest rate, $369,000 at 6% or $430,000 at 7% and that if this was so then Novoship was the loser. But Izmaylov objected this was comparing a Korean with a Russian company and their costs were unlikely to be the same.

A calculation that was strangely found in Clarksons’ rather than Galbraith’s’ files calculated that the deal produced a saving of $86,700 at an interest rate of 2.5% but a loss of $32,333 at 3% rising to a loss of $151,388 at 3.5%.

Popplewell put it to Izmaylov that at best the economics of the deal were marginal and only a small increase in interest rates would push it into loss even before legal and other transaction expenses were considered.

Popplewell also produced an e-mail in which John Sawyer, a veteran ship financier who advised Novoship, suggested that an available interest rate might be 1.375% above Libor, which at the time was between about 2.75% and 3%.

So on that basis the deal did not make any economic sense but Izmaylov indicated Novoship had free cash so the cost of borrowing was not a factor in the deal, Popplewell claimed.

The sale of four products carriers under construction at the Uljanik yard in Croatia, the 47,000-dwt Stena Concord, Stena Consul, Stena Contest and Stena Concept (all built 2004/2005) yielded only a $1m per vessel profit so was an unnecessary deal designed to generate commissions for Nikitin, claimed Popplewell.

The barrister challenged Izmaylov that he had instructed Oskirko and Novoship financial controller Alex Agaev to make the profit appear to be $1.5m per ship but the former Novoship chief insisted this was not the case as the company had auditors and profits could not be manipulated in this way.

Yuri Nikitin.

He said the logic of the deal was that the Croatian yard wanted to delay delivery of the vessels that had been ordered at a cost of $29.5m but it was possible at the time to get similar vessels from Hyundai Mipo for $26m.

The deals to be questioned include the 2003 sale of the 20,000-dwt product carriers Altair, Alioth, Almak and Arcturus (built 1999/2000) to Hanseatic Lloyd at high commission levels were highlighted. The court was told negotiations began at a price of $76m less commissions of 4.5% but appears to rise to $77m less commission of 4%

But Rokison defended the deal in a letter to Novoship claiming that the price offered by rival contenders for the ships, Blystad or Dannebrog, were significantly lower than that on offer from Hanseatic Lloyd and it was not unusual for there to be high commissions in deals with KG structures.

Popplewell suggested that Izmaylov had been personally involved with Rokison in determining commission levels and knew they had to be high enough to allow payment to Nikitin.

But Izmaylov determinedly rejected this claim saying that he had always instructed Oskirko to fight for better prices and bring down commissions.

Another transaction that was challenged was the 2003 sale of the 30,000-dwt products carriers Mekhanik Ilchenko, Mekhanik Khmelevskiy, Mekhanik Vraskov, Mekhanik Yuryev, Mekhanik Garovnik (built 1986/1987) to Barclay Shipping of Greece in for an en-bloc price of $32.5m less 4.5% total commission.

The trial continues

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