Russian conglomerate AFK Sistema has been ordered to pay RUB136bn (€1.95bn) compensation to Kremlin-controlled oil major Rosneft in a controversial alleged embezzlement case that is being compared to the state's earlier attack on Yukos.

Rosneft sought RUB170.6bn in damages from Sistema for alleged abuse of Sistema's shareholding rights in the Bashneft oil company, which was seized by the state in 2014 because of alleged irregularities in the privatisation and transferred to Rosneft in 2016. Reportedly, Sistema will appeal the decision of the Bashkortostan court.

Having lost control of Bashneft to Rosneft, Sistema now has to compensate the state-owned company for its stewardship of the company, in what is being seen as another blow to investor confidence in the Russian business environment. 

The case against Sistema and its owner Vladimir Yevtushenkov has echoes of the corporate attack that the head of Rosneft, Igor Sechin, conducted against the billionaire Mikhail Khodorkovsky and the now defunct Yukos Oil, then Russia's largest oil company. That ended with Yukos being broken up and its prized assets acquired for a song by Rosneft, while Khodorkovsky was jailed for 10 years. It also ended any illusion by foreign investors that Vladimir Putin's regime would respect property rights.

The case is one of the biggest corporate lawsuits in Russian history, being equivalent to about 66% of Sistema’s market capitalisation. Sistema's shares have been sliding as Russian courts repeatedly deny its appeals and froze RUB170bn worth of its assets.  

In July, Sistema announced a technical default on RUB3.9bn (€57mn) worth of credit liabilities, without specifying the creditors, and blamed the default on the controversial lawsuit. 

"AFK Sistema stresses that not complying with certain conditions on a number of credit liabilities justifying the technical default is caused exclusively by the court decision to arrest the above mentioned assets and is purely formal in nature," the statement of July 17 read.

Fitch Ratings on June 28 placed Sistema and its main asset Mobile TeleSystems (MTS) on rating watch negative "following a Russian court injunction to freeze significant Sistema assets including its 31.76% stake in MTS, in relation to claims filed by Rosneft against Sistema".

"The court injunction and the subsequent bailiff's decision [on the asset freeze] significantly limit Sistema's ability to control a sizable portion of its assets, and may reduce the flow of dividends to the holding company," Fitch warned.

As well as Sistema's 31.76% stake in MTS, 100% in the Medsi private healthcare chain and 90.47% in Bashkirian Power Grid Company were arrested this month by court order in Bashkortostan.