Beth Potter in Prague -

Sometimes, throwing your fate to the Russian court system might actually work. At least that's how Czech private equity firm PPF Investments feels at the moment following a legal ruling in its favour in Russia's Federal Arbitration Court for the Moscow District on April 4.

PPF Investments and Italian insurer Generali own a 38.5 % stake in Ingosstrakh, Russia's second-largest insurer that's majority owned by Russian billionaire Oleg Deripaska's Basic Element. PPF Investments acquired its stake when Russian financier Alexandr Mamut failed to agree terms to sell his stake in Ingosstrakh to Basic Element in 2006 and turned to the Czech firm. Basic Element has never hidden its desire to take full control of Ingosstrakh and tried to squeeze out PPF Investments by diluting its stake via a four-fold capital increase at an emergency general meeting in Octber to which PPF Investments apparently wasn't invited.

The court said it would uphold PPF Investments' lawsuit against Ingosstrakh that the additional share offering is void. Ingosstrakh tried to appeal the lawsuit, but the court rejected that, Jan Piskacek, a spokesman for PPF Investments, told bne.

While the tide may be turning in the battle, PPF Investments isn't out of the woods yet. A related court ruling just a week before on March 26 wasn't so positive, in that it essentially supported Ingosstrakh's quick footwork in January to restrict membership on its board to Russian citizens. Ingosstrakh has also decided that board members must have experience in the insurance sector and with financial or economic training. "This decision on minority shareholders was no way to value a company," Piskacek says.

For its part, Basic Element has claimed in a statement that "Czech entrepreneurs" have always known about the plans of Ingosstrakh shareholders to increase the insurance company's authorized capital and to retain control over the company. "We honestly warned potential partners that we didn't intend to cede control over the company in the foreseeable future," a statement said. "PPF decided to acquire a minority stake in this private company... fully realizing that the views of the Czech side regarding the development of the company were at variance with the strategic plans of the company itself."

PPF investments has asked the courts to strike down the changes to the board make-up down and referred the matter to higher courts, hopeful that these previous rulings will be overturned. However, Piskacek says it serves as a serious warning for other foreign investors in Russia. Russian laws and its constitution support equal rights, but "how can you talk about equal rights for all shareholders when illegal resolutions in the company are approved not in accordance with the company, but by a simple majority held by the majority shareholders?" Piskacek asks. "If the situation continues developing this way, it could negatively affect the investment climate in Russia."

Perhaps so, though the massive potential of the Russian insurance market is unlikely to deter the flood of foreign firms trying to buy their way into the sector. Four foreign companies closed deals in Russia in 2007, tempted by the soaring number of insurance premiums being written in the country. Insurance premiums jumped 27% in the first nine months, driven in part by regulatory changes - car insurance has been compulsory since 2003 and life insurance can no longer be used as a tax avoidance scheme.

PPF Group, co-founded by Czech entrepreneur Petr Kellner who also owns PPF Investments and is listed by Forbes magazine as the 91st richest person in the world with assets worth $9.3bn, is among the largest international investors in Russia after acquiring consumer lender Home Credit & Finance Bank. According to media reports, the PPF Group and PPF Investments have already invested around $5bn in Russia.

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