Roman's US$1.5 billion holidayPublished by MAC on 2012-12-17
Source: Nostromo Research
A London Calling Oligarchy Special
London's renowned Chelsea Football team hasn't been doing that brilliantly of late - it's slipped to third place in Barclay's Premier League.
This may have given the club's owner, Roman Abramovich, a spate of the blues as he pored over the team's lacklustre performance in the comfort of his multi-million dollar London town house.
Last week, however, the Russian oligarch - an ally of president Putin, and whose personal wealth is said by Forbes magazine to be some US$12.1 billion - scored a definite "result".
His private equity firm, Millhouse Capital, gained a stake in one of Russia's biggest mining companies, Norilsk Nickel; thereby winning Abramovich significant voting power over the world's leading nickel producer.
In fact, he'll be able to block two fellow Russian oligarchs, Oleg Deripaska and Vladimir Potanin, in any decisions taken by Norilsk - a company both these men have been squabbling over for several years.
Not only has Abramovich secured the trump card, but ordinary Norilsk shareholders have also been cheated of a fair return from his largesse, according to Reuters.
The news agency's Moscow correspondent, Polina Devitt, judged the deal to be "one of the biggest prizes handed to insiders in the post-Soviet carve-up of Russian industry that created a clique of politically powerful tycoons" [Reuters, 11 December 2012].
Roman will pay his cash straight to Potanin and Deripaska, thus "depriving other investors of the windfall" and probably "force Norilsk to borrow to fulfil promises to increase its dividends".
According to JPMorgan Cazenove: "Norilsk Nickel (as well as its minorities) will not receive any cash from Millhouse Capital's arrival as minority shareholder...Abramovich will buy a 5.86 percent stake for $1.5 billion and be given voting control over about 20 percent".
Moreover, "Alexander Abramov, Abramovich's partner in Evraz, Russia's largest steelmaker, could become the new board chairman at Norilsk Nickel..." [Reuters ibid].
In turn, Oleg Deripaska's RUSAL (the world's biggest integrated aluminium producer) will hold 27.8 percent of Norilsk, while Potanin's Interros Holding ends up with 30.3.
Reuters concludes that the three billionaires will end up "with nearly equal voting stakes, meaning Abramovich can impose a resolution in any dispute between the other two".
To the victors - the spoils
In recent years, Norilsk's operations have attracted heavy flak from environmentalists over pollution and toxic emissions from its mines and processing plants.
It remains de-listed from the Norwegian government's Pension Fund portfolio, after being ejected on ethical grounds in 2009. See: Norilsk Nickel: The Soviet Legacy of Industrial Pollution
Whether the company's minority investors have done much to address its bad behaviour in the time is highly moot. And the pre-emptive stake in Norilsk, now purchased by Abramovich, gives little confidence that the company's performance will be improved.
On the contrary, as the major stakeholder in Russia's London-listed Evraz steel company, Abramovich must bear responsibility for what - arguably - are the worst mining and mineral related disasters in the country in recent times. [See: http://moneytometal.org/index.php/Millhouse_Capital]
For his part, Oleg Deripaska has doubtless cracked open a few extra vodka bottles. RUSAL may currently be $10.7 billion in debt, but he.s probably the second main beneficiary of Roman's munificence.
One of his key demands has been that Norilsk Nickel fulfil an earlier pledge to pay out dividends. Now, says Reuters, he'll receive these pay-outs at $3 billion each year between 2012 and 2014.
Gunning for Metal
Roman Abramovich isn't the only dubious Russian billionaire to spread around profits from mining-related investment; nor to field some of his fortune into premier league football. As of June this year, Uzbekistan-born Alisher Usmanov, held a 4% stake in Norilsk Nickel, having failed to take over the company a few years earlier.
Though less notorious than Abramovich, Usmanov is worth considerably more - largely thanks to a majority ownership of the huge Metalloinvest iron ore conglomerate. (Earlier this year, The Sunday Times Rich List put his personal fortune at over £12 billion).
In November 2012, Alisher tried to register MegaFon on the London Stock Exchange, putting a value of around £8.3 billion on Britain's second-biggest mobile phone company [CityAM, 19 November 2012].
As yet, the deal hasn't materialised, for reasons strongly hinted at last week by Britain's leading satirical magazine, Private Eye.
According to Private Eye, Usmanov will come to hold 60 per cent of Megafon through his "umbrella company" USM Holdings.
However, 30% of the mobile phone concern will be in the hands of "another Russian billionaire, Vladimir Skoch, father of Andrei Skoch, who is also a longstanding business associate and a major shareholder in Usmanov's Metalloinvest group" [Private Eye, 13 December 2012].
Andrei Skoch (like Roman Abramovich) is thought to be a close friend of Vladimir Putin, as well as a parliamentary deputy for Putin's United Russia party.
It was at a different kind of party, held in Prague in May 1995, that Andrei came to the attention of European law enforcement agencies. He was arrested while commemorating the 38th birthday of Viktor Averin, a man "long alleged [to run] the powerful [Russian] crime group, Solntsevkaya".
Although Skoch wasn't charged with any offence (and denies working for Solntsevkaya), one of his fellow party-goers, Gafur Rakhimov, hasn't got off so lightly.
Described by Private Eye as "a reputed leading Uzbek organised crime figure", Rakhimov was "banned from entering Australia for the 2000 Olympics...[when] the FBI identified [him] as an associate of the Solntsevkaya organisation".
Where all this leaves Rakhimov's fellow Uzbeki, Alisher Usmanov, and Usmanov's intention to float Megafon in London, we can't yet say. However, Private Eye claims that the Metalloinvest magnate has "admitted to knowing Rakhimov for many years".
And Megafon's pre-launch prospectus "is reported to contain 45 'risk factors' which include 'media speculation' about alleged Russian mafia ties that have always been denied by Usmanov" [Private Eye, ibid].
But Alisher's true "darling", held close to his treasure chest, must surely be Arsenal.
Commonly knows as "The Gunners", it's a north London football club in which he has a 30% stake, through his Red and White Holdings outfit. [CityAM, 28 September 2012].
The Great Game
As we went to press this week, Manchester United - owned by US tycoon Malcom Glazer - headed Barclay's Premier League with a total of 42 points.
Abramovich's cherished Chelsea lay third with 29 points; while Usmanov's Arsenal lagged behind in seventh position (24 points).
That's the way it is with the Great Game: up one day, down the next. But your fan base will usually see their club through thick and thin, whoever pulls its financial strings. And there's often a surprise, waiting in the wings.
In the closing moments of the 1966 FIFA World Cup final, as English fans poured onto the pitch, the BBC's Kenneth Wolstenhome declared: "They think it's all over!"
Then, with a final shot by Geoff Hurst, leaving West Germany losing two goals to four, Wolstenhome interjected with the comment: "It is now!" - one that's gone down in football folklore.
Will the besmirched investment by Russian oligarchs in English soccer soon come to a similarly resounding conclusion?
There's no harm in hoping...
For more on Usmanov, see: http://moneytometal.org/index.php/Metalloinvest
[London Calling is published by Nostromo Research. Opinions in this column do not necessarily represent those of any other party. Reproduction is welcomed under a Creative Commons Licence].