Did the Crisis Bankrupt the Oligarchs?

Faces of the Crisis: Oleg Deripaska

The financial turmoil changed the face of Russia’s economy. Many wealthy businessmen became poor and large corporations are being passed from one owner to another. And now, after the crisis passed the acute phase and companies caught their breath, the first results are being seen. It turns out that not all of our rich are suffering, in fact, many of them continue to buy assets. Izvestia decided to find out how those who suffered the greatest losses due to the crisis are getting along. After all, at the peak of their fall, these six people lost more than hundreds of billions of dollars.

“The Perfect Storm” for Deripaska

The video with a memorable scene between Vladimir Putin and Oleg Deripaska during a meeting in Pikalevo is still very popular on the Internet. Remember that the prime minister not only made the oligarch sign the contract on the settlement of debt owed to employees of the rebellious city, but eloquently demanded for him to even return the pen. This scene best describes the situation of the, until recently, country’s wealthiest businessman, as do the prime minister’s offensive words: “You have made thousands of people hostages of your ambitions, lack of professionalism, or perhaps, simply greed. This is unacceptable.”

Although it must be said that Deripaska always said that he was prepared to hand over his business to the state. When, last fall, he was on the verge of bankruptcy, and asked for a multi-billion ruble assistance from the government, that is exactly what happened: in exchange for their assistance, government representatives took over all managing bodies of Oleg Deripaska’s empire.

This businessman’s losses related to the crisis are worthy of the Guinness Book of Records. According to various estimates, he lost $25 – $38 billion. Not too long ago, he was among the 10 richest people in the world, and now he doesn’t know how to pay off his debts. For Deripaska, the crisis was the “perfect storm” because he bought precisely those assets that the global financial disaster hit hardest. From metallurgy (the aluminum industry carries the greatest losses) to engineering (he has several auto businesses, the sales of which dropped drastically) and property developments (the real estate market froze).

But the crisis teaches its lessons and it seems that, with the help of the government, Deripaska, after having lost almost everything, began to once again rebuild his empire by applying the “who has never tasted bitter, knows not what is sweet” principle. Just yesterday it was reported that Deripaska was able to reschedule the Gorky Automobile Plant debt, postponing it for 5 years. This week, United Company Rusal transferred 300 million rubles for the construction of Boguchanskaya hydroelectric power plant (HPP). And, according to the results of the first half of this year, the aluminum giant managed to reduce costs by as much as 27% – an unprecedented result. This means that the production became more efficient by one-fourth. By the end of the year, the company plans to “shed” another 7%, and in the third quarter, United Company Rusal simply expects a global price increase for aluminum. In an extreme case, it could sell some assets (Vladimir Potanin still hasn’t lost his interest in the NorNikel package). So, one could expect him to get out of the situation.

Abramovich economizes …

The story about how Roman Abramovich, in Baku, ordered sushi from a London restaurant, Ubon, which, including delivery fees, cost him $40,000 is being discussed in England. However, in reality, the times of such gestures have passed ­ even for the owner of Chelsea FC. Of course, he lost less than some other oligarchs because he acted at the right time and advantageously sold his oil business. But he held on to the metallurgic business, meanwhile the price of all assets, according to some estimates, fell by more than $10 billion.

So, now he economizes. Not on yachts, of course, but at least on dividends. He doesn’t have his old force. According to a business resource, Solon.ru, Evraz Group dividends, which Abramovich co-owns, in 2008 could have become the greatest in the history of Russian ferrous metallurgy. After just the first half of 2008, the shareholders could have been paid slightly less than $1 billion. But the crisis redrew the plans of the company that is burdened by large debts (in 2009 $2 billion was to be paid to creditors): dividends for 2008 won’t be paid and, for the semi-annual interest payment, the shareholders will receive only about $700 million. Though it must be said that Evraz, along with Alexei Mordashov’s Severstal, remains one of the first companies in the country to pay dividends. So, Abramovich won’t run out of money.

… and Mordashov is buying Canadian gold

Another leading Russian ferrous metallurgist ­ Alexei Mordashov, CEO of Severstal, is also not wasting any of his time. Recently, he proposed to literally “shower with gold” the shareholders of the Canadian gold mining company, High River Gold. He paid them for their shares almost double what they cost before they were purchased. And that’s for minority shareholders ­ Mordashov had already received the High River control package of shares. For him, the Canadian company is not only the mines in Burkina Faso but also in our Buryatia. This was his latest revenge for the lost battle over the control of Arcelor company against the Indian magnate Lakshmi Mittal.

One does not need to get into the details of mergers and acquisitions to understand that Mordashov is not doing so badly. Yes, at the height of the crisis he lost up to $18 billion. Yes, the company still has debts, estimated at almost $7 billion. But the debt is declining, and in June Sberbank delivered a credit in the amount of $300 million. The overall situation in the industry has also stabilized. So, there’s even the possibility to engage in acquisitions.

Lisin ­ media-magnet

One of the most cautious oligarchs, Vladimir Lisin, also does not feel too bad against the backdrop of the crisis. Having lost up to $13 billion at the height of financial cataclysms, and having fallen from 21st spot of world’s richest people rating to 93rd he, as if nothing happened, continued to count his profits and contemplate increasing his business.

Some time ago, Lisin began his work as a steelmaker’s assistant and now, his main asset is the Novolipetsk Steel (NLMK), one of the most modern steel companies in Russia. This week, NLMK published a second quarter report for 2009 which makes it clear that the situation at the plant is greatly improving. Operational revenues skyrocketed by 322% and reached $49 million. Of course, that’s less than in the last year. World prices on metal are still low. But the price of raw materials also declined sharply, so metallurgists are not feeling too badly. They can even allow themselves certain luxuries.

Lisin, for example, in July of this year bought the United Media Holding, which includes Business FM, 98 Hits, and Kino FM. The deal is estimated at $20 million. The oligarch already has the newspaper Gazeta, so this won’t be his first media asset.

Potanin and Prokhorov: divorce against protocol

Mikhail Prokhorov was the luckiest in the crisis. The young businessman, who always stood in the back rows of the union of oligarch, overnight became a star and almost the business poster for the “young aggressive Russian business”. All because Prokhorov successfully sold his assets, which he acquired during the division of property with Vladimir Potanin. There was enough Interros wealth to make two billionaires.

Potanin’s main problem was that the complicated and protracted division of property with his former partner overlapped with the economic crisis. And while Prokhorov was happy about the timely shares he sold, Potanin tried to turn the difficult situation around with his considerable assets. Potanin’s former partner also put a lot of effort into making sure that his future did not seem too easy: he sold his NorNikel assets to Deripaska (the transaction was marred only by the fact that the head of Rusal was not yet able to fully pay his dues), he voted against allocating energy shares, launched the idea of merging NorNikel with other companies, and at the height of the crisis refused to financially support the Potanin development company, which he co-owned.

Potanin opposed the fiery and outrageous style of his former partner with an outwardly unenviable image of someone who follows the rules, unavailingly appealing to the obligations of the opponent in the numerous, but resulting to be useless, joint protocols.

The different tactics in the crisis yielded various results for the partners. Mikhail Prokhorov, who became a permanent character of the high-society chronicles, has an army of Internet fans, and took first place in the Forbes rating, is the only businessman “without problems” in this crisis era. One of the “main victims” of the crisis, on the other hand, Vladimir Potanin, kept almost all previously assets jointly owned with Prokhorov, including NorNikel, and even declared his willingness, if need be, to buy out Rusal’s 25% stake in the company that at one point belonged to Prokhorov. So it seems that he, too, is not doing so badly.

Besides, Potanin managed to find a remedy to oppose his former partner’s tactics. Now, if an agreement on joint assets is not met, the head of Interros simply sells them – including to himself – at a discount. And, suddenly, Prokhorov will need to play the role of a follower. Recently, he had to protest the sale of the assets of the debt-burdened company, Open Investments, to certain Interros partners. However, the transaction took place quickly and without unnecessary protocols. So, it’s most likely that this fall, this protracted business saga will be finalized. And, despite the crisis, Potanin and Prokhorov will come out of it with what they wanted.

BOX: Berezovsky sues everyone

When speaking of oligarchs, it’s impossible not to remember the classics. Residing in London, their patriarch, Boris Berezovsky, became dramatically active during the crisis. He also does not leave any hope to wrap the ongoing redistribution in his favor. Time Magazine recently reported about how, in two adjacent rooms of a London court, two high-profile cases involving Berezovsky were heard. In one courtroom his lawsuit against Roman Abramovich was being played out: Berezovsky is trying to win $3.3 billion from the world-famous billionaire claiming that he, with help from Kremlin, had allegedly forced him to sell Sibneft and Rusal shares. In the courtroom next door, Oleg Deripaska was trying to appeal against the decision of a British court that allowed Mikhail Cherney to sue him in England. Cherney is demanding from Deripaska a 20% stake in Rusal, and Berezovsky, according to the publication, is testifying in favor of Cherney.

At the same time, Berezovsky is making claims for a share of the Metalloinvest company, divorcing his wife, suing a television company for slander and trying to win back the commission he paid on a yacht ­ Time notes with humor. In addition, the disgraced oligarch is also fighting for the inheritance of his partner, Badri Patarkatsishvili, who left him in an untimely manner.

But, all of this activity has not yet yielded any results: Berezovskiy’s attempts to regain at least the shadow of his former influence in Russian industry have been to no avail. And, Abramovich and Deripaska simply don’t notice him: they are using all of their strength for the salvation of the metallurgical business.

Izvestia
Economic department
July 31, 2009

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