MOSCOW Oct 13 The global financial crisis is
set to force a huge redistribution of wealth in Russia, with
some oligarchs losing heavily, others profiting and the state
helping decide who survives.
Bankers and investors say oligarchs who borrowed heavily in
good times to expand their business empires are particularly
exposed as the stock market value of their companies plunges.
One of the most prominent victims so far is Oleg Deripaska,
40, listed by Forbes in May as Russia's richest man on the basis
of his diverse industrial shareholdings. Deripaska has rapidly
sold stakes in two foreign companies to raise cash.
Among those benefiting is metals magnate Mikhail Prokhorov,
43. He amassed up to $10 billion by selling assets before the
crisis and is now buying stakes cheaply, such as a half share in
local investment bank Renaissance Capital.
But one of the biggest winners are likely to be the state.
President Dmitry Medvedev and Prime Minister Vladimir Putin
will lead decisions on whom to bless with rescue funds from the
country's brimming coffers.
Oligarchs are already forming a queue to lobby for the cash.
"There is going to be an enormous political battle over who
is going to be bailed out by the government's reserves," said
Peter Boone, an associate at the Centre for Economic Performance
at the London School of Economics and Political Science.
"The government is going to decide who survives and who
doesn't, because all the oligarchs have borrowed."
"Imagine the politics -- it could become really vicious and
it is a big test of the strength of Russia's political system,"
said Boone, who worked for more than a decade covering Russian
economics for investment banks.
The world financial crisis has damaged investor confidence
in Russia, where worries over government interference in the
economy and concern about Moscow's war with Georgia in August
have led to the withdrawal of tens of billions of dollars.
OLIGARCHS WITH NO CASH?
Many of Russia's richest men are now finding it almost
impossibly expensive to refinance their loans.
Some, who guaranteed their loans against shares in their
companies, need to raise cash because Russian stock markets have
collapsed more than 60 percent since May and banks now require
additional security against their loans.
Deripaska has sold a 9.99 percent stake in German
construction giant Hochtief (HOTG.DE) and handed back a $1.4
billion stake in Canadian auto parts maker Magna MGa.TO to
Deripaska's prize asset is a 66-percent stake in the world's
largest aluminium producer, United Company RUSAL.
But RUSAL is $14 billion in debt, including borrowings of
$4.5 billion from Western banks to fund a stake in rival metals
firm Norilsk Nickel (GMKN.MM).
Severstal (CHMF.MM), Russia's largest steel maker, which is
majority owned by billionaire Alexei Mordashov, is cutting
production by 25-30 percent at some plants this month to cope
with lower demand from carmakers and the construction industry.
"There will be two or three oligarchs who will emerge from
this as big winners and two or three who will emerge from this
as big losers," said one investor, who has been working in
Russia for more than a decade and asked to remain anonymous.
"The rest will probably survive because the quality of their
underlying assets is so high," the investor said.
Hoping to come out of the crisis well is Mikhail Fridman,
who controls a stake in lucrative major oil producer TNK-BP.
That firm has generated billions of dollars in cash dividends
for its oligarch shareholders since its creation five years ago.
Fridman said on Friday his Alfa Group would not sell its
majority stake in X5 Retail Group (PJPq.L), a supermarket chain.
In a world where cash is king, the Russian state -- with the
third-largest foreign exchange and gold reserves after China and
Japan -- has far more cash than all the oligarchs put together.
The importance of the assets owned by top businessmen means
the Kremlin will have to step in to prevent a meltdown and keep
assets from falling into foreign hands, investors said.
The state promised on Sept 29 to make up to $50 billion
available to fund loan repayments by Russian private companies
to foreign banks, thus boosting influence over the oligarchs.
Russian firms have $120 billion of debt coming due before the
end of 2009, and $40 billion is due by the end of this year.
This is a reversal of the 1990s, when a near-bankrupt state
begged oligarchs for loans, pledging as collateral controlling
stakes in some of the biggest and most lucrative raw materials
The state failed to pay back the loans, leaving the
oligarchs in control of the companies.
"1996, the year when (late President Boris) Yeltsin's
government was bailed out and the jewels of the economy were
given away for a song, is back for revenge," Ivan Ivanchenko, an
analyst at VTB Capital in Moscow, said in a research note.
"Only this time the cash-strained oligarchs are pleading to
the cash-rich state to bail them out. And let nobody be under
any illusions, the fight to become the new elite will be tough."
(Editing by Timothy Heritage)