Haden: The Bosnalijek affair is an alarm for all foreign investors in BiH

– The actions of Bosnalijek executives grossly violate the company’s article of association and the laws of BiH, they are damaging to the shareholders and the company

– As soon as we started showing our concern „Haden“ was met with attempts to prevent it from executing its lawful right to participate in the management of „Bosnalijek“

– Today’s line-up of the Supervisory Board consists exceptionally of people personally loyal to Uzunovic

 SARAJEVO – The scandals in pharmaceutical company Bosnalijek are still unfolding. In July, the news broke that due to suspicious deals with the assignment of its receivables the company had lost the right to claim the debt worth nearly 16.5 million euro,  that is more than three years’ worth of company’s profits. It is revealed that at least some of the debt assignment deals were used to siphon off funds from the company. The beneficiaries of those deals turned out to be firms and individuals with close ties to Bosnalijek’s director Nedim Uzunovic. The vendor’s largest shareholder, the Luxembourg-based company Haden is very concerned and unhappy with the quality of management at Bosnalijek, about what Konstantin Zevlov, a representative of Haden and the former chairman of the Supervisory Board of Bosnalijek, also comments about.

How do you comment the fact that, notwithstanding your company’s registration in Luxembourg, the local media connect Haden with Russian pharmaceutical companies?

ZEVLOV: Haden SA is a company registered in Luxembourg and acting in accordance with the legislation of this country and other countries of the company’s presence. This said, Haden SA does indeed have close business relations with large Russian distributors of pharmaceuticals. We consider it an advantage, thanks to which Bosnalijek received a serious impetus for development and achieved impressive results in 2013-2015.

What results are you talking about?

ZEVLOV: I’m talking about the company’s key financial performance indicators. These numbers are not a secret, you can easily double-check them. From 2013 to 2016, Bosnalijek’s sales grew 37%. If we look only at the sales in Eastern Europe and Russia, the growth was 42%. At the same period of time, the EBITDA grew 116%, from 10 million KM to nearly 22 million KM. In 2013, the net profit was just 113 thousand KM, in 2015 — 11.1 million КМ, and in 2016 — nearly 9.5 million КМ.

Last year, the Center for Investigative Reporting (CIN) published several articles dedicated to the circumstances of Haden’s acquisition of a share in Bosnalijek. In particular, CIN claimed that the buyout of your stock in 2012-2013 violated the law.

ZEVLOV: We purchased a 29.95% share in Bosnalijek on the free market. The deals were carried out by the specialized brokerage firm EUROHAUS doo, with which Haden had signed an official agreement. Strict compliance with the legislation of Bosnia and Herzegovina was a key term of the agreement. Haden’s management doesn’t have any evidence that the buyout was carried out in violation of the law. However, if anyone have questions in that regard, they should be addressed to Edin Dizdar, who headed EUROHAUS at the time.

The reporters from CIN also claimed that after Haden had acquired a share in Bosnalijek, the Sarajevo pharmaceutical manufacturer started selling its products through the Russian distributor Imperia Pharma. In 2015, the Russian company went bankrupt owing Bosnalijek close to 28 million КМ. According to CIN’s estimates, this sum is comparable to the one you spent on buying the 29.95% share in Bosnalijek. How can you comment that?

ZEVLOV: CIN’s reporters first mixed up the chronology of the events and then presented their theory as facts. First of all, the acquisition of our stock was made in 2012-2013, and the payment was made with real money — our own and borrowed funds. The bankruptcy of Imperia Pharma took place years later and was in no way connected to our equity participation in Bosnalijek. As to Imperia Pharma’s debt to Bosnalijek, it did indeed exist. However, as far as I know, the debt was worth not 28 million KM, as reported by CIN, but much more — about 20 million euro cumulatively for all contracts. Nevertheless, I have to disappoint sensation seekers. Due to Imperia Pharma’s bankruptcy, the debt was transferred to the Russian company Grama and paid off entirely: nearly 15 million euro were paid in 2015, and the remaining sum — in the first quarter of 2016. That means that by the time CIN published its articles, Imperia Pharma’s debt to Bosnalijek had been completely paid off.

Let’s move from the past to the present. How can you describe your relations with Bosnalijek’s managers?

ZEVLOV: Since 2013 Haden has been the largest non-controlling shareholder of Bosnalijek. In this status, we are interested in the stable development of Bosnalijek, its growth, and more effective management. At the same time, we have never tried to force our will on the company’s managers. Unfortunately, as it eventually became clear to us, a whole set of managerial decisions by Bosnalijek’s executives went contrary to the interests of the enterprise and its shareholders and was likely to be driven by personal interests of Nedim Uzunovic, the company’s director. As soon as we started showing our concern and raising questions with the executives, Haden was met with attempts to prevent it from executing its lawful right to participate in the management of Bosnalijek.

Could you be more specific?

ZEVLOV: To begin with, all members not loyal personally to Nedim Uzunovic were expelled from the Supervisory Board. There were also illegal attempts to dilute the stake of Haden by issuing additional shares. These processes are connected, they complement each other. On December 21, 2016, I was illegally dismissed as the chairman of the Supervisory Board, while Edin Dizdar was appointed to the position. Just six days later, on December 27, the board held a special meeting and made a decision to issue additionally one million shares. The shares were placed by private subscription in early 2017. As a result, Haden’s share dwindled from 29.95% to 26.55%. On May 23, 2017, shortly before the annual meeting of the shareholders, the Uzunovich-controlled board made a snap decision to extend his term as the director for four years. Naturally, I voted against it. Apparently, Mr. Uzunovic wanted to play it safe, fearing that a new line-up of the Supervisory Board will be shaped by the shareholders, and not by him. Nevertheless, at the annual meeting of Bosnalijek’s shareholders on June 3, 2017, Haden’s list of nominees to the Supervisory Board wasn’t even admitted to voting for made-up reasons. As a result, today’s line-up of the Supervisory Board consists exceptionally of people personally loyal to Uzunovic.

Bosnalijek’s managers justified the follow-on offering by the company’s need to raise additional funding.

ZEVLOV: In our view, this is just an attempt to camouflage the real motives. What Bosnalijek’s managers say contradicts their own decisions. Consider this: per suggestion from Bosnalijek’s executives at the shareholder meeting on June 3, the dividend reserve was increased by one and a half times. De-facto this extra sum was taken from the company’s development fund. If Bosnalijek needed additional funding, the dividends would have been reduced or not paid out at all. As you can see, the real reason for the additional issue of shares was to dilute the stake of Haden, to weaken the largest shareholder, who is upset by the disastrous management practices at Bosnalijek.

What are you going to do next?

ZEVLOV: We are not ready to tolerate such a flagrant violation of our rights and intend to defend them in court. We have already filed several lawsuits, with more on the way. It is possible that we will be able to rally concerned shareholders around our position. Finally, we would like to draw attention to the fact that the actions of Bosnalijek’s executives grossly violate the company’s articles of association and the laws of BiH. They are damaging to the shareholders and the company. They also challenge the BiH government policies focused on attracting foreign investment and providing transparent and fair business terms. The situation around Bosnalijek, the ease and impunity with which the shareholders’ rights are violated, send an alarming message to all international investors who are currently sizing up opportunities in BiH.

Source: CAPITAL, 18.09.2017