TUI Has a Russian Oligarch Problem

TUI, the world’s largest tour operator, must confront the fact that its largest shareholder, Alexey Mordashov, is a pro-Putin oligarch who met with the Russian president in the Kremlin Thursday in a show of defiance against Western sanctions. As global opposition to Russia’s bloody invasion of Ukraine grows, having a Putin ally on its supervisory board presents TUI with a major optics problem, at the very least, if not larger, potential financial hardship.

Mordashov wields 34 percent of TUI Group’s voting power through control of a Cypress-based company, and has been a member of TUI’s supervisory board, sitting on its strategy, nomination, and presiding committees since 2016. Mordashov’s net worth is about $23 billion, after losing $4.2 billion  last week when Moscow’s stock index plunged.

TUI is a German company, but its stock is listed on both German and London stock exchanges, and as such Unifirm Ltd., the Mordashov-owned company that’s the source of his 34 percent voting clout in TUI, “is considered a controlling shareholder” under UK listing rules. Germany doesn’t characterize the stake as such. 

TUI told Skift on Sunday that Mordshov’s support of Putin would not have an impact on the company.

A Times of London story said TUI Group is “under pressure” because of Mordashov’s role in the company.

Mordashov, the chairman of the board and majority owner of Russia’s largest steel and mining company, Severstal, which is listed in Moscow and London, has not yet been personally or corporately targeted in the latest round of European Union, UK or U.S. economic sanctions over the Russian invasion of Ukraine, but it could happen. Russia uses Severstal steel to make light tanks, according to a Times of London story.

Another company he controls, and where he is board chairman, PJSC Power Machines, a Russian energy equipment company, was hit with U.S. Treasury sanctions in 2018 because of Russia’s occupation of Crimea.

“Those who provide goods, services, or material support to individuals and entities sanctioned by the United States for their activities in Ukraine are engaging in behavior that could expose them to U.S. sanctions,” U.S. Treasury Secretary Steven Mnuchin said at the time in a statement.

Russian companies listed in London such as Mordashov’s Severstal, and perhaps the TUI supervisory board member personally, could be among the next ones to appear on the UK’s sanctions list, if not others, as well.

“The companies are not only crucial to the Russian economy, they also directly fund a large part of the Russian state,” according to a Guardian story. “London-listed Russian oil, gas and mining companies paid their government £39bn ($52 billion) in taxes in 2020, according to a Guardian analysis of payments to government disclosures. That revenue is hugely important to the Putin regime: Russia spent £41.7bn ($56 billion) on its military in 2019, 11.4% of government spending, according to the World Bank’s latest figures.”

Asked over the weekend about Mordashov’s shareholding and role in TUI Group, where he has been an investor since 2007, TUI Group spokesman Kuzey Alexander Esener said the company’s executive board, not the 20-member supervisory board, “is responsible for the business and operations. We do not see any impact.”

Any potential sanctions might impact Mordashov companies such as his steel firm or his personal net worth and travels, and this could in turn have a bearing on his shareholding and voting power in TUI Group. There’s little chance it would have repercussions pertaining to Germany’s $1.4 billion Covid-related recapitalization of TUI, or that TUI itself would be the subject of economic sanctions.

“It is important to clarify first that Mr Mordashov does not own or control TUI,” said Alexander Esener of TUI, although the UK defines his stake as controlling. “He only has a 34 percent stake, 66 percent of the company belongs to shareholders from the EU, the U.S. funds, as well as private investors.

“Please also note that in Germany we do have a two-tier system with an executive board and a supervisory board. The supervisory board supervises and consults,” Esener added. “The company’s business is managed by the executive board in a German Public Limited Company. Shareholders exercise their rights in the annual AGM (shareholder meeting). In this respect, we do not see any impact on the company and the operational business.”

Regarding Mordashov’s indirect 34 percent stake in TUI through his ownership of Unifirm Ltd., it was enough of an issue to TUI that it entered into a “relationship agreement” with Unifirm Ltd. to ensure that the two firms can operate independently.

At TUI’s most recent annual general meeting, conducted February 8, shareholders, including Mordashov, approved items such as authorizing the board to increase share capital, the appointment of an auditor, a renumeration report, and profit transfers to a wholly owned subsidiary.

Although Mordashov is only one of 20 members of the supervisory board, and he received or was owed $217,000 in fiscal 2022 for his roles there, an associate, Vladimir Lukin, a special advisor to the Severgroup CEO, likewise sits on the TUI supervisory board, giving Mordashov additional clout. Lukin is a member of the supervisory board’s audit committee, and joins Mordashov on the strategy committee.

In fiscal year 2021, Mordashov attended seven of 15 supervisory committee meetings, and six strategy, three nomination, and 3 presiding committee sessions.

If TUI Group downplays Mordashov’s role and the function of the supervisory board in some ways, it is important to point out that Mordashov and Lukin, both Moscow-based, get access to what might be considered sensitive information about geopolitical developments, international air travel, and TUI’s financial position.

For example, over the last two years, the TUI executive board gave the supervisory board updates on UK-EU Brexit negotiations and the likely impact on air travel, the effectiveness of the UK government’s efforts to combat Covid-19, and the status of TUI’s Covid-support loan application in Germany and TUI’s liquidity position, according to TUI corporate filings.

Mordashov-controlled Severstal, by the way, has an airline subsidiary, Severstal Air.

There is no way of knowing whether some of this information from the briefings was passed along to the Russian government. 

The TUI supervisory board, among other roles, monitors the legality and efficiency of the TUI executive board, and formally adopts board members’ compensation packages.

In 2021, according to TUI publications, the strategy committee that Mordashov sits on heard the latest information about the company’s financial profile, various Covid “recovery scenarios,” and the restructuring of TUI’s air fleet.

The committee also gets access to technical data.

“In addition, the strategy committee received an update on current IT projects and discussed the product strategy,” a TUI report said.

Rather than risking sanctions or operational challenges, the biggest risk to TUI appears to be reputational. TUI didn’t select Mordashov to be a shareholder, let alone the company’s largest by far, but does the German headquartered company want to be associated with an individual who has Putin’s ear during the biggest war in Europe in decades.

While not an exact parallel because Mordashov doesn’t run the show at TUI, another Russian oligarch, Chelsea football club owner Roman Abramovich just gave up control of the team as UK sanctions seemed to be bearing down.