Investor confidence in Russia took another blow yesterday after Sibir Energy, once the biggest company on AIM, disclosed that it would buy property worth $340 million (£229 million) to bail out its largest shareholders.

The deal will enable the group, which drills for oil in Siberia and runs petrol stations in Moscow, to take control of some of Russia's biggest property developments, but it also highlights what many see as the danger of investing in the country.

Sibir's shares lost more than half their value yesterday, falling 57 per cent. They were similarly hit in October after the company revealed that it would spend $160 million to support Chalva Tchigirinsky and Igor Kesaev, who between them own about half of Sibir, by buying assets such as hotels.

The company's success has possibly sprung from the benefits of having core Russian shareholders who could guide it through the notoriously hazardous Russian business world that has troubled others, such as BP.

However, now that Sibir's backers have fallen on hard times amid the collapse in the Russian stock market, the group feels it must act to protect what it sees as its “key intangible asset”.

Under yesterday's deal, the company will buy a 50 per cent stake in the Russia Tower, the planned skyscraper in Moscow designed by Lord Foster of Thames Bank, and half of New Holland, an artificial triangular island in St Petersburg. Shareholders will be given a chance to vote on the proposals. However, given that the Russians and management who devised the plans control most of the company, the vote would appear to be essentially irrelevant.

Henry Cameron, Sibir's Scottish chief executive, said: “Difficult times call for uncomfortable decisions to be made. Doing business in Russia has never been for the faint-hearted and sometimes requires difficult calls in the boardroom.

“The plain fact is that our development as an independent and growing player in Russia is in large part down to the business acumen and wherewithal of our Russian shareholders.”

Mr Tchigirinsky, the group's largest shareholder and the biggest beneficiary of the deal, said that he was “very grateful” for the support.

Sibir was also hit by the sudden departure of Alexander Betsky, its finance director, although he is not thought to have had a disagreement with Mr Cameron and Mr Tchigirinsky about signing the deal, given that he has always taken a back seat in the group's strategy.

One insider who asked not to be named said that the deal was a “classic case of what Russians don't understand about corporate governance” and that the deal would “raise eyebrows around the world”.

“There are always fears about Russia,” he said. “This will confirm some people's worst prejudices about investing in the country.”

Russia's reputation as a place in which to do business has been muddied in the past year by the high-profile government and investor interference and disputes with TNK-BP, BP's Russian joint venture.

There have also been problems for Hermitage Capital, the investment group.

The Sibir development comes only days after the Financial Services Authority published recommendations that stocks should be labelled to flag up any potential risk of weaker corporate governance.

Henry Cameron

Sibir's Scottish chief executive is a veteran of the Russian oil industry. A lawyer by trade, he got to know many Russians while practising in Aberdeen, initially representing the fishing industry, before moving into oil.

He later moved to Russia and in 1989 he assumed control of Pentex Oil, which essentially evolved to become Sibir. Mr Cameron, 68, was recently in the headlines when he tried to sue Roman Abramovich, the Chelsea Football Club owner, over rights to an oilfield.

Mr Cameron, who spends most of his time in the company's offices in Moscow, regards his Russian investors as very close, loyal allies, without whom the group would not be the same today.

Chalva Tchigirinsky

Sibir's largest shareholder is well known in the Russian business community after making his

money in property. A Georgian

Jew, he regards himself as very much Russian and, although

he may not be a world expert on the oil buiness, he is, nevertheless, respected as a good operator, whatever the industry.

Mr Tchigirinsky, 59, was a keen backer of the company when it was down on its luck and he has been fundamental in its development. Accordingly, he probably feels that he is owed support now that the boot is on the other foot. During the Soviet era Mr Tchigirinsky, who speaks fluent English, claims to have made a living selling antiques.

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