Reasons and details of acquiring 80% of shares of Manas Management CJSC by Manas International Airport OJSC

The acquisition of 80 percent of the shares of Manas Management CJSC OJSC by the Manas International Airport OJSC over the past two years continues to be periodically exaggerated by a certain number of people, accusing them of declaring that this transaction is inconsistent with the requirements of the Kyrgyz legislation.

We tried to understand this story, having found out details about it directly from one of the parties to this share purchase agreement, namely Emir Chukuev, Chairperson of the Management Board, Manas International Airport (MIA) OJSC.

– Emir, first of all, tell us what kind of company is it, what does it do, what interest did it have in the acquisition of the airport?

– Manas Management CJSC was established in 1998. Today, one of the main goals of Manas Management is to create conditions on the basis of MIA OJSC that link the CIS with the markets of Central Asia, the Pacific region, the Far East and Europe. I would like to emphasize at once that the Manas Management Company is not only the center of the catering, as some “well-wishers” say, it is also a large air-cargo center equipped with all the necessary specialized facilities and equipment for efficient and timely servicing of aircraft. In fact, we have profitably acquired a well-promoted business.

– When and how did MIA OJSC buy this company?

– This deal was international public in nature. The company was bought in the summer of 2015. So, on April 21, 2015, we received a notice of intention to sell 80 percent of the shares of Manas Management CJSC, where MIA OJSC had a 20 percent stake.

The offer came from owners of 80 percent of the shares of Manas Management CJSC – an Austrian company named as T & FTrade & FinanceGes.m.b.H., and MIA OJSC decided to take advantage of the preemptive right to acquire this block of shares of Manas Management CJSC.

Appropriate measures were taken, as required by law. So, for example, this stake was valued by an independent appraiser, and its price was over $ 21 million. Thanks to the negotiations with the shareholders, we managed to reduce their cost to $ 12 million.

It should be noted that we have approached the conclusion of this transaction with all the good faith required in such cases. For example, the market value appraisal report was received by an expert opinion of one of the authoritative audit and consulting companies – Ernst & Young, which is included in the “Big Four” of such companies, recognized throughout the world. This expert opinion determines that an independent evaluation is methodologically prepared correctly. Naturally, this transaction was informed as the main shareholder – the Fund for the Management of State Property under the Government of the Kyrgyz Republic, and the government of the Kyrgyz Republic, from whom approval was obtained for this transaction.

I would also like to note that at the time of the talks, the seller of the shares had another potential buyer in the person of the Turkish company named Chelebi, and in case of our refusal to purchase, there was a risk of a change ownership for a private Turkish company, which certainly contradicted the company’s development strategy.

– Now some mass media express their opinion that this package of shares should be transferred to Manas International Airport OJSC by T & FTrade & FinanceGes.m.b.H. free of charge after the end of the investment agreement.

– I would not like to bother the reader with the legal subtleties of the history of the existence of the Manas Management Company CJSC, but apparently this cannot be done without mentioning some facts. One of the issues within the framework of the verification of the legality of the transaction is the issue arising from Clause 2 of the Agreement No. 1 “On the Organization of a Closed Joint-Stock Company for the Management of Kyrgyz Airlines – the Air Cargo Center and Catering Center dated April 21, 1998, concluded between the national airline named Kyrgyzstan Aba Zholdoru (KAZ) and ITI SpA. This point, in the opinion of some “experts”, points to the allegedly inadequate actions of the Manas International Airport management bodies when they conclude the above transaction and, in their opinion, contain signs of a committed crime.

Meanwhile, the facts speak quite differently. Indeed, in clause 2 of the Agreement No. 1 “On the organization of a closed joint-stock company for the management of Kyrgyz airlines – air cargo center and catering center” dated April 21, 1998, concluded between KAZH and ITI SpA, the following is established: “initial percentage distribution of shares in CJSC “Manas Management” will be the following: 51 percent – KAZZH and 49 percent – ITI SpA, for the first 7 years or until the period of full payment of the capital loan and interest. After fulfilling all obligations in relation to ITI SpA, including the payment of the invested assets, all shares of ITI SpA must be transferred to the disposal of KAZ.

As a result of the unlawful actions of certain persons from the Kyrgyz side who tried to redistribute property and take away their rights as defined in the original agreement, the government of the Kyrgyz Republic had to settle these issues in international arbitration by transferring 31 percent of shares to infringed foreign shareholders.

Further, after the illegal actions of the Kyrgyz side and the achievement of consensus in international arbitration, the original Agreement radically changed. Thus, par. 3.1.3. of the settlement agreement approved by the Government of the Kyrgyz Republic No. 475-r dated August 25, 2006, established the following: “The percentage distribution of shares of Manas management among shareholders will be as follows: Foreign investors (or nominated Company) – 80 percent, MAM – 20 percent. The parties agreed that the share of foreign investors (or the nominated Company) in Manas management cannot be reduced under any circumstances and such distribution of shares between shareholders will remain for the entire duration of Manas Management. The Kyrgyz side recognizes and confirms that foreign investors are free to own, use and dispose of these shares. ”

In accordance with cl. 4.2. of the abovementioned Settlement Agreement, the following is clearly established: “The provisions of this Agreement cancel, amend and supplement any provisions not in accordance with them contained in earlier agreements related to Manas management, including the Initial Shareholders Agreement of April 21, 1998, Agreement No. 1 the organization of a closed joint-stock company for the management of Kyrgyz airlines – an air freight center and an airborne catering center dated April 21, 1998, etc.”

Thus, the later Settlement Agreement amended, supplemented, and canceled certain clauses of Agreement No. 1 “On the organization of a closed joint-stock company for the management of Kyrgyz airlines – air cargo center and airborne catering center” of 21.04.1998 relating to the percentage distribution of shares in Manas management, as well as any conditions for their transfer after a 7-year period.

According to the Ordinance of the Government of the Kyrgyz Republic No. 91-r dated March 14, 2008, the Agreement between FINREP Handels Ges.m.b.H and I.T.I was approved. S.p.A., the Department of Civil Aviation under the Ministry of Transport and Communications of the Kyrgyz Republic and the open joint-stock company “International Airport” Manas “. According to para. 2.1. This Agreement establishes that “the Settlement Agreement approved by the Decree of the Government of the Kyrgyz Republic dated August 25, 2006 No. 475-r, and referred to in this Agreement, will be deemed to have entered into force on the date of signing this Agreement.”

Agreement on the settlement of the approved by Order No. 475-r of the Government of the Kyrgyz Republic dated August 25, 2006, which amended and supplemented Agreement No. 1 “On the organization of a closed joint-stock company for the management of Kyrgyz airlines – air cargo center and airborne catering center” dated April 21, 1998 , came into force on March 14, 2008 and was subject to execution by the Kyrgyz side represented by the Department of Civil Aviation under the Ministry of Transport and Communications of the Kyrgyz Republic and MIA OJSC.

I want to reassure you that all the norms and procedures are observed in the process of this transaction. All actions were taken strictly within the framework of the legislation of the Kyrgyz Republic. It is also undeniable that at the time of the acquisition of this shareholding, they were not limited to anything by the registrar – it is this organization that is responsible for the safety, movement and possible restrictions related to the turnover of uncertificated securities – shares. It should be noted that, in fact, this acquisition is based on growth plans and is the prerogative of the enterprise’s economic activities and its development as a whole.

However, for unknown reasons and, perhaps, for the sake of some interests of some people, this issue has acquired a negative connotation. First, because of the unfounded public speech of the leader of the Ata Meken faction throughout the country that only the catering center was allegedly bought for US $ 15 million, and through this, the joint-stock company was damaged.

This, as you can see, is not the case at all. The airport bought a business. You cannot assess the business only by having any fixed assets. This is the trained and trained staff, and the existing customer base, and the reputation of the company (good will), and the prospects for development.

Let’s admit also such situation. To date, the book value of the assets of MIA OJSC is KGS 11 billion. Do you think if tomorrow we sold all the shares of the airport for such a price, what would it be? Probably, we would all be behind bars, because the airport is not only the value of assets, but the price of the whole business, with possible profits and losses, it costs much more.

After acquiring the remaining 80 percent share of the company in 2015, from 2016 net profit increased by KGS 47.890 million (81 percent) compared to 2015. In 2017, net profit increased by 34 percent compared to 2016. Based on the predicted data for 2021, the net profit amount will pay off the invested investments, that is the project payback is expected for a 7-year holding of shares. Although, according to preliminary calculations, the return on investment was 10-11 years.

For three years Manas management earned KGS 310 million of net profit. The expected forecast for 2018 is KGS 180 million.

As of December 31, 2017, the book value of shares of Manas Management amounted to KGS 1,426,051,000 and increased by 249 percent, as compared to 2015.

Once again, I want to note that this transaction was carried out as part of the implementation of the strategic projects of our country’s accession to the Unified Energy System and in order to consolidate the aviation infrastructure and resources.

We must remember that these are our domestic investments, a strategic deal, from which we cannot expect that, having spent one dollar today, tomorrow we will get two immediately. So in legal business does not happen.

The creation of a transport and logistics center is not a year or two works, but a gradual painstaking work of all parts of the company for at least 10-15 years. This is a real fact, and everyone should understand this. There are not and cannot be serious arguments against, except for all sorts of intrigues and the use of some difficulties in the organization of the process. The main thing is that now there is a real base, there are already some successes, the volume of the cargo component of our terminal has increased.

– Please tell us about the company’s development prospects.

– Firstly, Manas Management CJSC is the only air cargo handling enterprise in the Kyrgyz Republic, and it is defined as a cargo entry point in the south of the EAEU. Now there is an interest of transport and logistics companies, including Turkish and Chinese, in the export of consumer goods to the EAEU through the capabilities of our terminal along the China – Kyrgyzstan – EAEU air route.

In conclusion, I would like to add that such unfounded statements by some interested persons can have very negative and deplorable consequences not only for the Manas airport, but also for the business and the investment climate in the country as a whole.

Whether we like it or not, the airport’s activities are heavily integrated into the global aviation market. Be aware, we are making great efforts to attract new partners. The main issues of interest to international air companies are political and economic stability in the country and the region, guarantees of their possible contributions and investments. However, as we see, the exaggeration of absurd statements really damages such cooperation and business development, lead to stagnation in the development of the enterprise, damage the image of our company.

Moreover, we very clearly understand the social component of the issue: this company employs about 250 employees – our fellow citizens who have considerable experience, they work to support their families. Plus, satellites, building their economic relations with this company and also providing for their families.

Multiplicatively, any turbulent events associated with the operation of the terminal will have a negative impact on thousands of people. And who of the current “well-wishers” will then feed them?

I want to say that we did not and do not have the right to make irresponsible decisions! Despite periodically unverified facts and false statements voiced in some media to please their selfish ambitions, we understand: the truth is always the same. And each of us should realize this.

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