Thursday, 29 January 2009

Oligarchs beware

Guardian Unlimited

By Jason Corcoran

Vladimir Putin's denial that he is a 'billionaire-slayer' looks increasingly unconvincing

The Russian prime minister Vladimir Putin will have raised someeyebrows amongst west London's oligarchical clique by rebuffing his image as "a billionaire-slayer".

Putin has been wielding his power to lance the ambition of aspirational tycoons for almost a decade and is showing no signs of stopping now. In an interview with Bloomberg, the Russian leader insisted the country's rules and laws are a level playing field for all of its citizens.

Well, tell that to jailed oil tycoon Mikhail Khodorkovsky, who haslanguished in a Siberian prison since 2005 on back-dated charges of tax evasion in what many viewed as an attempt to silence a political opponent. A court rejected Khodorkovsky's parole request last year, citing reasons such as a refusal to take part in a sewing course.

Putin had told a meeting of oligarchs early in his reign in 2000 itwas either his way or the highway. Some of Russia's wealthiest and most prominent businessmen, such as Boris Berezovsky and Vladimir Gusinsky, were forced to flee Moscow soon after. The pair had controlled TV stations which were critical of Putin's leadership.

Magnates such as Chelsea football club owner Roman Abramovich and Viktor Vekselberg opted to play ball. The former agreed to sell his oil company Sibneft to state behemoth Gazprom while Vekselberg impressed by splashing out a fortune to repatriate Faberge eggs to the Kremlin.

The credit crisis has put the current crop of oligarchs under thespotlight as they strain to repay hefty foreign loans and respond to the Kremlin's call to chip in more taxes to help foot the national budget.

The founder of Russia's leading mobile phone chain, Yevgeny Chichvarkin, was last week reported to have fled to London after appearing on the federal wanted list. He is accused of being involved in the kidnapping and blackmail of a former employee in a case with political undertones. Chichvarkin is joined in exile by the former president of the oil company Russneft Mikhail Gutseriyev, who fled 18 months ago in order to avoid tax evasion and other charges. Russneft has since been acquired by Oleg Deripaska, who is considered to be Putin's favourite industrialist.

Putin has the financial wherewithal and the whim to decide which oligarchs survive. Vnesheconombank (VEB), the state development bank charged with bailing out troubled companies, is chaired by the prime minister. More than 100 businesses are believed to have gone cap-in-hand to VEB, which has dished out $1 billion to Evraz, the steel and mining group part-owned by Abramovich. Deripaska, once Russia's richest man, benefitted when VEB stepped in to refinance a $4.5bn loan that he had taken out to buy a 25% stake in the mining company Norilsk Nickel.

The credit crunch has also shown up the first cracks in therelationship between Putin and his protege Dmitri Medvedev, who replaced him as president last year.

Unlike his mentor, Medvedev has never been a member of the spying classes. A lawyer by training, he claims to want a strong independent judiciary to decide the fate of bent businessmen. He has twice subtly criticised Putin's government for its handling of the crisis but it remains to be seen whether the ruling tandem is wobbling from its course. Putin still controls the strings and Medvedev can only become the puppetmaster if he cuts them. © Guardian News and Media 2009

Fleming Launches Business In Russia

Dow Jones International News

By Jason Corcoran in Moscow

U.K. investment house Fleming, Family & Partners is launching a fund management business in Russia following its acquisition of DWS Investments in Moscow from Deutsche Bank.

FF&P, which has had operations in Russia since 1992, confirmed it had bought the DWS management company, its legal structure and four unit funds from Deutsche.

Denis Sukhanov, chairman of FF&P in Russia, said the new business targeting private clients and institutions would launch next month or in March. He said: "We think it's a great time to launch considering how equity valuations have bombed in recent months. Asset management is a core business for Flemings in London and Zurich but we have never had it in Russia till now."

The sale of DWS to FF&P by Deutsche marks a turnabout for the German company, which had intended to merge its funds with UFG Invest, an investment boutique in which it acquired a 40% stake in September for $65 million.

A Frankfurt spokeswoman for DWS said it was carrying on its business under the new Deutsche UFG Capital Management brand. She said: "Flemings will not use the DWS brand."

FF&P recently hired Andrei Uspensky to run the fund management business from Pioglobal Asset Management, where he had been chief executive.

Sukhanov said the valuations of the four DWS funds had fallen from $400 million to between $25 million and $35 million following the collapse in equity prices since September.

The UK firm manages the wealth of Roddy Fleming and his family, one of the City's oldest dynasties. It also provides asset management for other wealthy families. As well as providing advice to Russian corporate and personal clients in Moscow, FF&P has real estate funds that invest in the region.

The family previously held a stake in the Russian mining company Highland Gold.

Sunday, 25 January 2009

Merrill Lynch leads Russian M&A in 2008

Business New Europe

Jason Corcoran in Moscow

January 23, 2009

Merrill Lynch has ousted JP Morgan Chase to take the crown as leading adviser to Russian merger and acquisitions in 2008.

US bank JP Morgan narrowly beat its Wall Street rival in 2007 due to its involvement in announced deals worth $40.8bn, compared with Merrill's $39.2bn. However, last year Merrill nudged ahead through advising on 14 deals worth $24bn compared with JP Morgan's 12 transactions worth $19.6bn, according to statistics prepared for bne by data provider Thomson Reuters.

During the year, Merrill's most notable deals included advising steelmaker Severstal on its $775m acquisition of US steel products manufacturer Esmark, as well as Rusal, the world's largest aluminium producer, on its taking a 25% holding in domestic rival Norilsk Nickel.

Overall, fees generated from M&A were well down last year, with Merrill Lynch earning $40.7m, compared with $58m in 2007. JP Morgan's fee income from Russian deals more than halved to $37.6m, from $78m a year ago.

Merrill Lynch is one of the few investment banks operating in Russia that is yet to cut its staffing levels. The bank has 83 staff based in Moscow and has several vacancies it is seeking to fill when the market stabilises. "We have made a lot of money in M&A and fixed income in the past year, and the business is not yet a high cost one," says one senior source. "In fact, we got lucky that we were gradually building up the brokerage business when the banking crisis struck."

Responsibility for the business lies with Riccardo Orcel, head of investment banking for Central and Eastern Europe and the Middle East and Africa, but the business is fronted in Moscow by American Bernie Sucher, head of global markets in Russia. Sergei Aleksashenko, the chairman of Russian business, quit in April last year following a dispute over the running of the operation, but sources indicated his position would not be refilled.

Harsh times

Overall, investment banks operating in Russia have been hit by a 40% slump in M&A activity with little sign of recovery until the middle of 2009.

The volumes of M&A deals tumbled by almost 40% in the three months to November 2008, according to Russian data provider Some 258 transactions were completed worth $13.7bn, down by 40% from $22.6bn for the same period a year earlier. Volumes were hurt when big deals were pulled, including planned acquisitions by electricity utility OGK-1, supermarket chain Lenta and steelmaker Novolipetsk.

Russian deal activity had been growing steadily for several years until the banking crisis hit Russia in September. In the second quarter of 2008, M&A volumes were up 80% to $57bn from $31.5bn in the same period a year earlier. But from January through November, the M&A market declined by 7% to $102bn, compared with $110bn in the corresponding period of last year.

The communications sector was the most popular for deals, generating 20% of all M&A deals between September and November worth $2.7bn. The financial sector was next with 18.5% of volumes worth $2.5bn.

Russian broker Renaissance Capital was again the leading bookrunner in equity issuance for 2008 with a market share of 18% from four IPOs worth $452m. Morgan Stanley came second with three mandates worth $320 in a market where dealflow had dried up by end of the second quarter. The largest deal was a $1bn rights offering by London-listed Russian retailer X5 on April 22. Citigroup and Goldman Sachs were joint bookrunners and the underwriter was Russian broker Alfa Capital.

In debt capital markets, US bank Citigroup triumphed over Deutsche Bank with a market share of 12.4% generated from six issues worth $2.75bn. The German bank registered a market share of 10.6% from five issues worth $2.36bn, while the Royal Bank of Scotland was not too far behind with a 10.4% share from 10 issues worth $2.3bn.

Tuesday, 6 January 2009

VEB plays Father Frost to Russian blue chips

Financial News

Jason Corcoran

Letter from Moscow - January 4, 2009

Letters to Father Frost, the Russian equivalent of Santa Claus, have been stacking up well ahead of the Orthodox Christmas Day on January 7.

This year, the postal service in Moscow’s Kuzminki district reported an unusually high level of correspondence from adults who wish for a new job or help with meeting credit payments.

However, grown-ups looking for personal bailouts may be better served popping a letter in the mail to Vnesheconombank, the state development bank, which has come to prominence during the financial crisis as the Kremlin’s main piggy bank.

VEB, which traces its genesis back to the October 1917 revolution, was originally responsible for managing Soviet-era debt. It was transformed two years ago into a development agency to spearhead efforts to diversify Russia’s economy but has only recently come to international attention as the state’s lender of last resort.

More than 100 businesses are believed to have gone cap-in-hand to VEB which has been authorised to disburse $78bn in state aid. At the height of the banking crisis in September, VEB stepped in to acquire mid-tier lenders Globex and Svyaz Bank after both defaulted on some of their obligations. Its remit is not restricted to the domestic market judging by its recent acquisition of Prominvestbank, Ukraine’s sixth-largest bank, for a reported $1.2bn.

Russian blue chips and some of the country’s best-known oligarchs have been beating a path to VEB’s door. Steel and mining group Evraz, part-owned by billionaire Roman Abramovich, secured a $1bn loan in December with an option for a further $800m.

Oleg Deripaska, once Russia’s richest man, received aid in November when VEB stepped in to refinance a $4.5bn loan that he had taken out to buy a 25% stake in miner Norilsk Nickel.

VEB is offering corporates one-year loans, but they come with caveats and collateral agreements. Unless debts are repaid in full, the Government can seize assets.

The bank is also demanding that one of its representatives sits on the recipient’s board and VEB will have a right to veto any debt, asset sale or big investment decision. Former presidential administration head Alexander Voloshin was nominated by VEB last month as chairman of Norilsk Nickel in a sign of the Kremlin’s expanding corporate influence.

In some cases, VEB could end up with significant equity stakes in Russia’s leading companies and outright control of a few of them is not out of the question.

The chairman of VEB’s supervisory board is Prime Minister Vladimir Putin, and powerful government officials, including the finance and transportation ministers, prop up the rest of the board.

VEB’s goodie-bag has been increased. It was appointed on December 29 as state management company for managing pensions until 2014 and a further $1bn is being made available this year to help small to medium enterprises.

The agency is in charge of financing Russia’s vast infrastructure programme and projects launched by VEB last year were worth $26bn. The bank also last year disclosed it was the anchor investor in a Macquarie Renaissance joint infrastructure investment vehicle.

VEB chief executive Vladimir Dmitriev said the bank had no plans to become a commercial bank and would focus only on solving the tasks relating to financial stability.

Dmitriev neither looks nor sounds like Father Frost but the soundness of his bank’s gift-giving will be crucial in restoring confidence in a needy economy.