The world’s largest tour operator TUI has a Russian oligarch problem

TUI, the world’s biggest tour operator, is having to deal with the fact that its biggest shareholder, Alexey Mordashov, is a pro-Putin oligarch who met the Russian president at the Kremlin on Thursday in a show of defiance of Western sanctions. As global opposition to Russia’s bloody invasion of Ukraine grows, having a Putin ally on its supervisory board presents TUI with a major optical problem, if not more, difficulties potential financials.

Mordashov holds 34% of TUI Group’s voting rights through control of a Cyprus-based company and is a member of TUI’s supervisory board, serving on its strategy, nomination and chairmanship committees since 2016. Mordashov is around $23 billion, after losing $4.2 billion last week when Moscow’s stock index plunged.

TUI is a German company, but its shares are listed on both the German and London stock exchanges, and as such, Unifirm Ltd., the company owned by Mordashov which is behind his 34% vote in TUI , “is considered a majority shareholder”. under UK registration rules. Germany does not characterize the issue as such.

TUI told Skift on Sunday that Mordashov’s support for Putin would not impact the company.

A Times of London article said the TUI Group was “under pressure” due to Mordashov’s role in the business.

Mordashov, chairman of the board and majority owner of Russia’s largest steel and mining company, Severstal, which is listed in Moscow and London, has yet to be personally or corporately targeted by the latest round of economic sanctions. of the European Union, the United Kingdom or the United States for the Russian invasion of Ukraine, but it could happen. Russia uses Severstal steel to make light tanks, according to an article in The Times of London.

Another company he controls and of which he is chairman of the board, PJSC Power Machines, a Russian energy equipment company, was hit by US Treasury sanctions in 2018 over the occupation of Crimea. by Russia.

“Those who provide goods, services, or material support to individuals and entities sanctioned by the United States for their activities in Ukraine are engaging in conduct that could expose them to U.S. sanctions,” the U.S. Treasury Secretary said at the time. Steven Mnuchin in a statement. .

London-listed Russian companies such as Mordashov’s Severstal, and possibly the TUI supervisory board member personally, could be among the next on the UK sanctions list, if not others as well.

“Corporations are not only crucial to the Russian economy, they also directly fund much of the Russian state,” according to a Guardian article. “London-listed Russian oil, gas and mining companies paid their government £39bn ($52bn) in taxes in 2020, according to a Guardian analysis of payments to government disclosures. These revenues are hugely important to the Putin regime: Russia spent £41.7bn ($56bn) on its military in 2019, or 11.4% of government spending, according to the latest World Bank figures. .

Asked this weekend about Mordashov’s shareholding and role in TUI Group, where he has been an investor since 2007, TUI Group spokesman Kuzey Alexander Esener said the company’s board, and not the 20-member supervisory board, “is responsible for the business and operations”. . We see no impact. »

Any potential sanctions could impact Mordashov’s businesses such as his steel business or his personal net worth and travels, which in turn could impact his stake and voting rights in the TUI Group. This is unlikely to have any repercussions for TUI’s $1.4 billion Covid-related German recapitalization, or that TUI itself will face economic sanctions.

“It is important to first clarify that Mr Mordashov does not own or control TUI,” said Alexander Esener of TUI, although the UK defines his stake as controlling. “He only owns 34% of the capital, 66% of the company is owned by EU shareholders, US funds, as well as private investors.

“Please also note that in Germany we have a two-tier system with an executive board and a supervisory board. The supervisory board supervises and consults,” Esener added. administration of a German public limited company. The shareholders exercise their rights at the annual general meeting (annual general meeting). In this respect, we do not see any impact on the company and the operational activity.

As for Mordashov’s indirect 34% stake in TUI through his ownership of Unifirm Ltd., it was problem enough for TUI that it had entered into a “relationship agreement” with Unifirm Ltd. to ensure that the two companies can operate independently.

At TUI’s last annual general meeting, held on February 8, shareholders, including Mordashov, approved items such as authorizing the board of directors to increase the share capital, the appointment of an auditor , a compensation report and transfers of profits to a wholly owned subsidiary.

Although Mordashov is only one of 20 members of the supervisory board and has received or owed $217,000 in fiscal 2022 for his roles there, an associate, Vladimir Lukin, special adviser to the CEO of Severgroup, also sits on the supervisory board of TUI, giving Mordashov added clout. Lukin is a member of the supervisory board’s audit committee and joins Mordashov on the strategy committee.

In fiscal 2021, Mordashov attended seven of 15 oversight committee meetings, as well as six strategy, three nomination and three chair sessions.

While TUI Group is downplaying Mordashov’s role and the function of the supervisory board in some respects, it is important to point out that Mordashov and Lukin, both based in Moscow, have access to what could be considered sensitive information on developments. geopolitics, international air travel, and the financial situation of TUI.

For example, over the past two years, the TUI board has briefed the supervisory board on Brexit negotiations between the UK and the EU and the likely impact on air travel, the effectiveness of the British government’s efforts to combat Covid-19 and the status of TUI. Germany’s Covid support loan request and TUI’s liquidity position, according to documents filed by TUI.

By the way, Severstal, controlled by Mordashov, has an airline subsidiary, Severstal Air.

There is no way of knowing if any of this information from the briefings was passed on to the Russian government.

The TUI Supervisory Board, among other roles, oversees the legality and effectiveness of the TUI Board of Directors and formally adopts compensation packages for board members.

In 2021, according to TUI publications, the strategic committee on which Mordashov sits heard the latest information on the company’s financial profile, various Covid “recovery scenarios” and the restructuring of TUI’s airline fleet.

The committee also has access to technical developments.

“In addition, the strategy committee received an update on ongoing IT projects and discussed product strategy,” a report from TUI said.

Rather than risking penalties or operational challenges, the biggest risk for TUI appears to be reputation. TUI didn’t choose Mordashov as a shareholder, let alone the largest in the company, but does the German-headquartered company want to be associated with an individual who has Putin’s ear during the largest war in Europe for decades?

Although not an exact parallel as Mordashov does not run the show at TUI, despite his influence, another Russian oligarch, Chelsea football club owner Roman Abramovich, has just dropped the control of the team as British sanctions seemed to crumble.

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