Inside Business: Rosneft minority investors deserve better Rosneft's $55bn takeover of TNK-BP in March was in many ways a step forward for Russian business and corporate governance. When Rosneft made its last big expansion in 2004, by acquiring the biggest part of Mikhail Khodorkovsky's Yukos, it paid a lowball price, and bought it via a murky intermediary registered at a shopfront in a provincial town. Mr Khodorkovsky was already in jail on fraud charges; Yukos minority shareholders eventually saw the rump of the company forced into bankruptcy to pay off politically inflated tax arrears. This time, Rosneft paid a handsome price to BP and the AAR consortium of oligarchs, which owned TNK-BP 50:50. Both walked away with their billions, although BP did a partial share swap, leaving it with 20 per cent of Rosneft. What a shame, then, that Rosneft did not also offer to buy out the minority shareholders who own 3.5 per cent of TNK-BP Holding, the quoted subsidiary of the parent group. Instead, those minorities now hold shares worth half of what they were when Rosneft's purchase was announced last October. They are still fighting for their fair share of the deal. By the letter of the Russian law, Rosneft did not need to buy them out because TNK-BP Holding was not the actual entity being acquired. In most developed markets, given there was a change of control in the quoted vehicle, it almost certainly would have had to. Igor Sechin, Rosneft's chief executive, boldly declared soon after announcing the TNK-BP deal last October that the company had "no obligations" to the minority shareholders. After it completed the deal with BP and AAR in March, Rosneft's board added insult to injury by approving provisions enabling it to borrow up to $10bn from TNK-BP entities. The market took that as an intention to strip cash from the newly acquired group - without paying minority shareholders any dividends. A few weeks later, Mr Sechin was making reassuring noises, saying TNK-BP minorities would receive dividends at the same payout rate as Rosneft shareholders - 25 per cent of net profits. Last week, however, the Rosneft chief suggested the minorities could count on dividends at the Rosneft rate only from March 21, when it completed the acquisition. Everything before that was the responsibility of the previous shareholders, he added. Yet while TNK-BP payout rates had previously been very generous, minorities did not receive dividends for much of 2012, first because of an escalating conflict between its majority owners, then because of the transition to a new owner. All this sends very negative signals, as Mark Mobius, executive chairman of Templeton Emerging Markets, pointed out to Vedomosti, the FT's Russian sister paper, this week. Russia has a number of new privatisations in the pipeline. Investors, he warned, may take the latest case as "an indicator of how the government will in future treat minority shareholders of privatised companies." Moreover, most investors in Russia find themselves in the minority, because so many companies are either state or oligarch-controlled. Some, particularly the latter, have realised that embracing international governance norms and treating minorities fairly can boost their market value, sometimes many times over. As another TNK-BP shareholder, who asked not to be named, put it: "Minority shareholders are the ones who determine the size of your market value, because they buy the shares. The state doesn't buy its own shares, nor do the oligarchs. But the Rosneft/TNK-BP case shows minorities in Russia still have inadequate defences against unfair treatment. That should be a concern, too, for BP - as a minority shareholder in Rosneft that has faced questions from its own investors over how much influence it will wield. Fortunately, Rosneft seems belatedly to have received the message. People familiar with the situation say it is quietly negotiating with the TNK-BP minorities; some believe a cash offer or proposal to swap their shares for Rosneft ones will emerge. But as too often in Russia, it is doing the right thing only after exhausting other options. Meanwhile, considerable and unnecessary damage has once again been done to the country's investment image. A few years ago, a fast-growing Russia could shrug off such concerns. Now, with its stock market left behind by the rising tide that has floated most others, and growth slowing sharply because of a lack of investment - both due in part to low investor confidence - it can ill-afford to do so. Neil Buckley is the Financial Times" eastern Europe editor