November 18, 2019 / 12:17 PM / 19 days ago

Russia's Yandex proposes governance revamp to allay Kremlin fears

MOSCOW (Reuters) - Yandex (YNDX.O), Russia’s biggest technology company, proposed on Monday setting up a “public interest foundation” to help oversee the business and assuage Kremlin fears about potential foreign influence.

FILE PHOTO: The logo of Russian internet group Yandex is pictured at the company's headquarter in Moscow, Russia October 4, 2018. REUTERS/Shamil Zhumatov/File Photo

Yandex, sometimes referred to as Russia’s answer to Google, provides an array of online services, including taxi hailing and the country’s dominant Russian-language search engine.

The company’s ownership structure has been in focus due to a draft law that would limit foreign shareholdings in Russian internet firms to just under 50% to address Kremlin concerns that user data could fall into foreign hands.

Yandex N.V., the parent company of Yandex Group, is registered in the Netherlands and Chief Executive Arkady Volozh holds 48.41% of the voting rights in the company, according to Yandex’s annual report.

The company said the public interest foundation (PFI) would be run by a board of 11 Russian nationals that would oversee a “golden share” currently held by state-owned Sberbank (SBER.MM) and have expanded veto powers.

Kremlin spokesman Dmitry Peskov said the plan had not been agreed with the Kremlin beforehand, but told reporters the Kremlin was watching the process closely due to the company’s importance for Russia.

He said it welcomed the fact that Yandex understood its responsibility.

Anton Gorelkin, the pro-Kremlin lawmaker behind the proposed foreign ownership legislation, also welcomed Yandex’s proposals and said he would withdraw his legislation and rework it.

Yandex said it thought his legislation’s aims could be achieved “using less painful methods”.

BUYBACK

Yandex said the board of the new foundation would include three members of Yandex’s management team - Volozh, deputy CEO Tigran Khudaverdyan, and HR Director Elena Bunina - as well as representatives from five Russian universities and three non-governmental organizations.

The foundation would have certain voting rights, including the power to block a single entity accumulating 10% or more in economic or voting interests, down from the current threshold of 25%.

The PIF would be incorporated in the Russian exclave of Kaliningrad, a special economic zone with favorable tax conditions.

In a letter to shareholders, Yandex acknowledged the restructuring came with risks, such as a negative impact on its class A shares, but said it was better than all feasible alternatives.

Sberbank, Russia’s largest lender, said it “in general” supported the proposed changes and its management board would review them on Tuesday.

Yandex said Sberbank CEO German Gref would stay on its board.

Critics say Russian authorities have taken steps to tighten control of the internet, threatening to stifle individual and corporate freedom. But the Kremlin says it is trying to protect the integrity of the Russian-language internet.

Yandex also authorised the repurchase of class A shares of Yandex N.V. worth up to $300 million, sending Yandex company shares up around 11% in Moscow as of 1535 GMT.

In a further effort to assuage fears over governance volatility, Volozh pledged not to sell 95% of his class B shares before 2022.

The proposed changes to Yandex’s corporate governance are subject to shareholder approval at a meeting on Dec. 20.

Additional reporting by Maria Kiselyova, Tatiana Voronova, Katya Golubkova and Nadezhda Tsydenova; Writing by Alexander Marrow/Andrew Osborn; Editing by Jason Neely and Mark Potter

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