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The last days of the Russian oligarchs?

The last days of the Russian oligarchs?
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First Published: Sun, Mar 08 2009. 09 12 PM IST
Updated: Sun, Mar 08 2009. 09 12 PM IST
Moscow: They are larger-than-life figures at home and abroad, men who saw themselves as the Carnegies or Rockefellers of Russia. Known as oligarchs, they may soon be thrown into the dustbin of history by the economic crisis.
Brash, young and wealthy, those insiders of post-Soviet business who escaped nationalization—to say nothing of exile or prison—under Vladimir V. Putin went on to make ever greater fortunes in the commodity boom of recent years. But few businessmen anywhere have fallen as hard or as fast in recent months.
Many of Russia’s richest men were highly leveraged as the financial crisis unfolded and were unable to roll over loans from Western banks. The Kremlin bailed them out with short-term credits last year, not wanting the assets to fall into foreign hands. Those state loans will be coming due by the end of the year, on top of additional foreign loans.
The mountain of debt is so huge—the Central Bank calculates that corporations and banks in Russia must repay $128 billion (Rs6.6 trillion) this year alone— that many oligarchs will be unable to repay the loans, bankers say. Only a fraction of this debt, about $7 billion, is corporate bonds. The rest is bank loans to companies predominantly owned by the oligarchs or the state.
“Those who are left will be swept away in the crisis,” said Olga V. Kryshtanovskaya, a sociologist who studies the Russian elite at the national Academy of Sciences. “The Kremlin has all the levers. If they want to help, they will help. If they do not want to help, they will say, ‘We are liberalizing now; market relations will determine which of you survive.”’
Some oligarchs are so desperate that a group of metal executives made a pilgrimage to the Kremlin in January to make what once would have been an unthinkable proposal. Meeting with President Dmitri A. Medvedev, they proposed merging their assets, which include some of Russia’s largest mines and factories, into a state-controlled conglomerate. In exchange, the government would refinance billions in Western bank debt.
In other words, they were voluntarily proposing to reverse the contentious loans-for-shares privatizations that birthed the oligarchs in the mid-1990s. Unfortunately for many oligarchs, and the Western banks who lent them money, that card may no longer be drawn. In a paradoxical twist, the government that had supported nationalization in oil and other industries is now strapped for funds to support the ruble and prop up the budget, and seems wary of investing in troubled industries.
In the initial collapse of the Russian stock market from May to October last year, Bloomberg News has calculated, the richest 25 people on the Forbes magazine list for Russia lost a collective $230 billion. Some of those unable to win state bailouts put up planes, yachts and mansions on the Cote d’Azur as collateral for loans, said Oleg V. Vyugin, the director of MDM Bank.
In addition to Usmanov, other oligarchs at the Kremlin meeting were Oleg V. Deripaska, a nuclear physicist turned post-Soviet corporate raider; Mikhail D. Prokhorov, a metals investor known as the bachelor billionaire; Vladimir O. Potanin, an industrialist and early beneficiary of privatization; and Viktor F. Vekselberg, an oil magnate who recently donated a $100 million collection of Faberge eggs to a Russian museum.
At first blush, the oligarchs’ proposal looks similar to what governments worldwide are considering: taking stakes in collapsing companies. But Russia is different. A takeover here would look less like a measured policy response and more like another pretext for an ever-expanding role for the government in business.
©2009/THE NEW YORK TIMES
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First Published: Sun, Mar 08 2009. 09 12 PM IST