The world financial crisis will cross some familiar names off the list of Russian oligarchs. The state is eager to save the billionaires' assets from foreign creditors. The fees charged for this assistance will lead to the complete reapportionment of property in the country.

 

Last year there were more than 100 billionaires, calculated in dollars, in Russia. This was a record-breaking number. Just a year earlier, the number was only about half as high. It was too soon to celebrate, however. The world liquidity crisis sent company stocks plummeting, margin calls came in, and recently successful businessmen were deep in debt. "It is already time to cross us off the Forbes list," Aleksandr Lebedev, the banker and Aeroflot co-owner occupying the 39th spot on the list, quickly declared.

 

Kompaniya tried to find the prominent Russian businessmen who are unlikely to survive the crisis and the ones who are least affected by it. All of them are experiencing difficulties, however, even if their financial losses are not particularly noticeable yet. Many oligarchs had time to "put their eggs in many baskets," so the failure of one business does not necessarily mean the end of the company. The securities of Sistemy Gals, the development subdivision of Vladimir Yevtushenkov's holding company, have lost more than 90 percent of their value since the start of the year, for example. Yevtushenkov's Sistema includes several other large assets, however, such as MTS, for instance, and these have not been affected as seriously by the crisis. It is extremely difficult to assess the losses of Roman Abramovich's business empire. In the metallurgical sector, Yevraz and Highland Gold, where the businessman owns 36.4 percent and 32 percent of the stock, respectively, have "shrunk" dramatically. Millhouse Capital, which manages the businessman's assets in a variety of sectors -- from the production of medications to development -- is not advertising its assets. In addition, experts believe Abramovich probably has not spent the entire $13.1 billion he made on the sale of Sibneft in 2005.

 

The disastrous state of the construction sector is unlikely to "bury" the developers with close ties to officials in the capital. According to market traders, Inteko, the company owned by Yelena Baturina, the wife of Moscow's mayor, is almost certain to receive state orders, as is SU-155, the company owned by former municipal government official Mikhail Balakin.

 

Despite the crisis, it is too early to call Alisher Usmanov, the head of Metalloinvest, a loser. In summer he became the co-owner of the Digital Sky Technologies Foundation, which now controls Mail.ru and Classmates, and is the co-owner of Yandeks, Vkontakte, and other well-known sites in Russia and Ukraine. In view of the new president's interest in the Internet and the predictions regarding Internet advertising, Usmanov could moderate his ambitions and start focusing more on online business.

 

Finally, Dmitriy Rybolovlev might have topped the list of crisis victims, but Deputy Prime Minister Igor Sechin stopped the "guillotine" a millimeter away from Uralkaliy, essentially forgiving the big accident at one of the company's mines in fall 2006.

 

In other words, Kompaniya is not claiming to be accurate in its choices. Its goal is to point out a trend: The days when the oligarchs could feel relatively independent of the government are over. They will have to accept the state's presence in their once exclusive "domains," government officials on their boards of directors, and the credit burden of the billions in state money that is keeping them afloat during the crisis. As TsPKR head Konstantin Simonov put it, the Russian raw material and financial holding companies are expecting "shares-for-loans auctions in reverse." When margin calls come in, the debtors' blocks of stock will be transferred not to foreign lenders, but to domestic government agencies. The state cannot control this many assets, however, so the process of turning them over to effective -- according to officials -- owners will begin in a year or a year and a half.

 

This sequence of events was predicted by former President Vladimir Putin: "They (the state corporations -- Kompaniya) certainly have many critics, who see them as an unregulated channel for the diversion of state resources to private owners, but the state corporations are a temporary measure... In time, they should become 100-percent privately owned businesses...." Experts expect the assets of today's oligarchs to be taken over by the members of Putin's inner circle. "We can safely assume that the list of the top 10 Russian billionaires will undergo substantial changes by the end of President Dmitriy Medvedev's first term in office. There will be some completely new names on the list. New oligarchs will spring up like the devil from the snuffbox, as they did during the shares-for-loans auctions of the 1990s," Simonov said. This will erase part of the history of the Russian economy and whitewash another part of it. Whereas the first shares-for-loans auctions left an unending trail of unscrupulous behavior and judicial proceedings, the second wave will be above reproach. Actions taken at a time of crisis could be as unimpeachable as acts committed in a state of temporary insanity.

 

1. The Emperor Has No Clothes. Deripaska's Fortune Is Dwindling

 

Just a little over a year ago, aluminum tycoon Oleg Deripaska said in an interview for Britain's Financial Times that he and the state were one and the same. For this reason, the state could take overall of his businesses at any time.

 

Deripaska, whose fortune was then estimated at almost $30 billion, may as well have been gazing into a crystal ball. Aside from the decreasing capitalization of his companies, for which no one has any hazard insurance, his purchase of the Norilsk Nickel block of stock from Mikhail Prokhorov's Oneksim group dealt a heavy blow to his business. Rusal borrowed $4.5 billion from Western banks to buy this stock. When the shares of the metallurgical combine serving as loan collateral plummeted in value in fall, the billionaire was asked to repay part of the debt. The consortium of Western banks headed by BNP Paribas, Merrill Lynch, Credit Suisse, and Royal Bank of Scotland agreed to give Rusal an extension, but the attempts to borrow another $1.8 billion from the same consortium were unsuccessful because of the increasingly severe credit crisis. VEB saved the day by lending Deripaska $4.5 billion for one year at the end of October to pay off the Norilsk Nickel shares. In exchange, the state strengthened its position in the Norilsk Nickel management by adding two of its own representatives to the board.

 

Deripaska seemed to be prepared for this turn of events. In his prophetic Financial Times interview, he said: "I do not separate myself from the state. I have no other interests. I have nothing to apologize for, I have nothing to be ashamed of, and I have nothing to hide. I personally am interested only in the long-term development of the company." As he put it, "I was just lucky, and money fell from the sky." Now the "sky" apparently wants to take back part of this money. "After VEB became part of the Norilsk Nickel management, it was clear that the state was ready to become actively involved in company business, which essentially signifies the partial nationalization of Norilsk Nickel," Aton analyst Olga Mitrofanova asserted.

 

There is a good chance, therefore, that Deripaska will lose this asset, just as he already was forced by margin calls to give up his 20-percent block of shares in Magna, the Canadian vehicle parts producer, and 9.99 percent of the stock in Hochtief, the German construction holding company. The same thing could have happened to his shares in Strabag, the Austrian construction corporation, which he has managed to save so far. The loss of his 25-percent stake in Strabag Basel was prevented by the shareholders of the Austrian construction holding company: They offered Deripaska a loan of 500 million euros to refinance the loan he had taken out from Deutsche Bank to buy this stock. The generosity of foreigners is limited at a time of crisis, however, and if the stock markets continue their plunge, and metals continue to lose their value, Deripaska's empire could collapse like a house of cards. In any case, the businessman has no money or assets to supplement his collateral, and the state has clearly shown that it wants to participate directly in the management of any business it supports. Of course, if the billionaire really does not see himself as separate from the state, his empire's problems are not critical. When the crisis ends, capital will pour from the horn of plenty in the sky again. The main thing is to avoid taking any personal interest.

 

2. The Invisible Man. Suleyman Kerimov and the Remote Control of Business

 

Senator Suleyman Kerimov from Dagestan is catching up with the mayor of New York on the list of the world's richest politicians (according to a Times story) and ranks 36th on the Forbes global list of billionaires. Although this list does not take the possible consequences of the ongoing financial crisis into account, Kerimov has every chance of passing up his fellow oligarchs, if not of staying in his present position.

 

A year before the beginning of the financial storm, the senator started protecting his profit margin by withdrawing from several big projects. He withdrew, for example, from the United Hotel Corporation (OGK), to which the municipal government was supposed to contribute all of its shares in 20 hotels in the city and Nafta was supposed to contribute a billion dollars. He gave up the operator of the Merkado supermarket chain soon afterward, receiving $200 million. He then sold the design and plans for the city for millionaires to the Rublevo-Arkhangelskoye firms, closely affiliated with Binbank owner Mikhail Shishkhanov. Experts estimated the cost of this transaction at over $500 million.

 

According to unofficial sources, just before the crisis, the senator made a huge profit by selling 4.5 percent of the stock in Gazprom (the block of stock was valued at $15.37 billion at the beginning of the year) and 6 percent of Sberbank ($5.4 billion). The National Telecommunications Company, the biggest Russian cable TV and Internet operator, was bought from Kerimov by Yuriy Kovalchuk's companies for $1.5 billion. Experts described this transaction as an ultra-profitable deal. In June, Nafta sold 68 percent of the stock in the Polimetall gold mining firm to Aleksandr Mamut, Aleksandr Nesis, and a Czech private pension fund. The new owners paid about $1.8 billion for the shares.

 

After these events, the experts were divided: Some were predicting where Kerimov would invest the billions he had made and others were trying to guess the reasons for his sudden loss of interest in business. There was even some speculation that the cause was a car accident he suffered in Nice in 2006. His Ferrari Enzo had spun out of control, crashed into a tree, and caught on fire. After that, the businessman with such a high profile, who had hosted highly publicized parties attended by world-famous pop stars, stayed out of the public eye and, for that matter, out of the State Duma as well. "His absence could start having a negative effect on the personal relationships lying at the basis of some contracts," suggested Ilya Shershnev, the Swiss Realty Group's director of development.

 

In 2008, without every making an appearance, Kerimov withdrew from the LDPR faction, joined United Russia, and was confirmed as the senator representing the People's Assembly of Dagestan. The businessman's spokesmen are still denying their boss' incompetence, insisting he is still active in business and politics. These words were confirmed when Forbes "installed" Kerimov in eighth place among the richest Russians, with a fortune of $18.4 billion, in its May ratings. Unofficial reports soon afterward said that the businessman had spent a large part of the money he made from the sale of his assets on shares in Deutsche Bank and the Belgian-Dutch Fortis group. Purchases of 1 percent each in UBS, Morgan Stanley, and Credit Suisse were also "ascribed" to Kerimov. These purchases broke the string of good luck. After he bought the block of Fortis stock for 630-750 million euros (according to various sources), Kerimov lost hundreds of millions of euros. After the bank essentially collapsed under the weight of the global financial crisis, shares of Fortis stock lost more than 90 percent of their market value. At first, the businessman was even planning sue the former head of the bank, Maurice Lippens, who had advised him to make this "good" investment. The senator soon changed his mind, however, and chose not to spoil his relationship with the Belgians. After his accident, it was the former Belgian defense minister that had ordered Kerimov's transfer from Nice to Brussels in a government helicopter, for which he was accused of abuse of office.

 

3. No Holds Barred. Vladimir Potanin Succumbs to Nickel

 

Vladimir Potanin, the head of the Interros holding company, spared no expense in his war with Oleg Deripaska over the block of Norilsk Nickel stock he had bought from Prokhorov. He used every weapon at his disposal, from smear tactics in the media to extremely ingenious schemes for buying up stock to augment his own stake. At a result, Potanin's fortune "shrank" by more than $13 billion in just a few months.

 

This was not the worst possible turn of events, in view of the fact that some oligarchs lost much more. Potanin turned out to be less farsighted in this situation, however, than his colleague, the former co-owner of the metallurgical combine, Mikhail Prokhorov, who cashed out just in time when he sold his share to Rusal. Instead of doing this, Potanin dreamed up a scheme, as if to spite Rusal, to augment his own share of Norilsk Nickel without having to make the proper offers to minority shareholders, obligatory in these cases, and without breaking the law. Three Norilsk Nickel subsidiaries loyal to him, OGK-3, the Norilsk Combine, and the Kola GMK (mining and metallurgical combine), joined forces and began buying up stock in the metallurgical combine to "drive up" the price of the stock. According to the most conservative estimates, this cost about $2 billion, but the Norilsk Nickel shares followed the rules of the market and fell to just over one-fifth of their previous value.

 

This devalued Potanin's investments, but he was able to get some of the money back by means of the stock redemption Norilsk Nickel announced, ostensibly to support the company's listed prices. In the Krasnoyarsk Arbitration Court, Rusal managed to secure an injunction on stock buyouts at 2.5 times the market price, but delays in the issuance of the court ruling gave Interros enough time to buy more stock for approximately $1 billion. When the emotions driving the battle between Potanin and Deripaska reached their peak, the state stepped in, sent the two back to their respective corners of the ring, and forced the warring oligarchs to reconcile publicly. As usual, however, the casino always wins, and the referee, or the croupier in this case, was the state, which almost effortlessly gained an opportunity to control the operations of Norilsk Nickel through its representative on the company's board of directors. The ultimate losers were Potanin and Deripaska, who had to accept not only each other as shareholders, but also the "guiding role" of the state.

 

At the end of November, Vladimir Potanin reported that, by the terms of new agreements with Oleg Deripaska, the executives of the companies representing the main shareholders of Norilsk Nickel would not be on the next board of directors of the combine, and Deripaska added that neither he nor Mikhail Prokhorov would have a seat on the board. Consequently, after spending several billion dollars on this fight, Potanin effectively lost the influence he already had in the company and ended up with the same rights as the owner of the smaller stake -- Deripaska. Meanwhile, the head of Interros was also losing another of his projects. The construction of the Rosa Khutor ski resort near Sochi was suspended last week. The territorial administration of the Federal Agency for the Management of Federal Property had ruled that the lease for the land of the resort complex was invalid, and its decision was upheld in court.

 

4. A Fistful of Dollars. Mikhail Prokhorov: I Will Give It Up, But Not to You

 

Mikhail Prokhorov is known to be the owner of the biggest fistful of cash in Russia. Just before the financial upheavals, he sold his share of Norilsk Nickel to Oleg Deripaska for $13 billion. The head of Rusal paid for the stake partly in shares of stock and promised to pay the rest in cash ($7 billion). Prokhorov has already collected $4.5 billion and is waiting impatiently for the balance of more than $2 billion. Besides this, he has no plans to give up the Polyus Zoloto gold mining company, one of the biggest in the world. "We have a basket of stock, no debts, and cash on hand," Prokhorov declared in an interview on Bloomberg TV. In addition to a stake in Rusal and about 30 percent of Polyus Zoloto, Prokhorov's Oneksim group owns stock in TGK-4, Open Investments, UK Rosbank, APR-Bank, and the Soglasiye Insurance Company.

 

The businessman recently has been busy proving that "money burns a hole in his pocket." In June 2008, he announced his wish to "buy bankrupt development companies in fall" and later announced his willingness to refinance the debts of troubled Russian firms in exchange for a controlling interest. Nothing has been reported about the purchase of construction companies yet. Furthermore, there has been no decision on the future ownership of the Open Investments Development Firm, a joint venture with Vladimir Potanin, his former partner in Norilsk Nickel. The Snob media project Prokhorov funded, however, is now the most valuable outlet in the media market.

 

In September, the businessman paid $500 million for 50 percent plus one share of the stock in the Renessans Kapital investment bank. According to several experts, the deal included a discount for the crisis. When VTB was planning to buy Renessans Kapital a year ago, the sum of $4 billion was mentioned. Rumors making the rounds of the market suggested that Prokhorov bought the investment bank to keep his own money in that bank safe. The purchase of Renessans Kapital has been Prokhorov's only large acquisition so far. The businessman is in no hurry to spend his reported billions. Instead, he has started using state funds. His Oneksim group and the Rostekhnologii state corporation will receive 1.776 trillion rubles from Rosnano for the production of LED chips. The total cost of the project is 3.3 billion rubles, and Prokhorov's company will have the controlling interest.

 

In addition, the head of Oneksim still has about 2 percent of the Norilsk Nickel stock and a 13-percent stake in Rusal. The capitalization of these assets leaves much to be desired. Norilsk Nickel, for example, has "shrunk" to less than one-third of its previous value. Prokhorov, however, apparently has no plans to leave his former partner and his chief debtor in peace. In November, the head of Oneksim was elected to the Norilsk Nickel board of directors. In contrast to Potanin, who is unlikely to be happy about the return of his controversial colleague, Deripaska received an extension on his next payment of $735 million, which was supposed to have been made on 24 October. He is unlikely to give up the debt in exchange for stock in the near future, however. Prokhorov probably will offer to accept the conversion of the remaining debt into shares of Rusal, for instance.

 

In general, the head of Oneksim proudly wears the title of the country's chief moneybags, but he never ignores the simple pleasures of life. This year Prokhorov became the president of the Russian Biathlon Union. Now only a public apology by the French stands between him and his return to Courchevel in this new capacity.

 

5. The Dive Bombers' Chronicle. Kirill Pisarev And Yuriy Zhukov Could Not Stay Out of Trouble

 

Kirill Pisarev and Yuriy Zhukov probably head the list of developers suffering from the crisis. No one foresaw any trouble at the time of their PIK company's IPO on the London Stock Exchange for $1.85 billion in 2007. The capitalization of the company then exceeded $12 billion, which put the developer on the same level as giant European companies like Hochtief and Strabag.

 

The first worries about the state of company finances were expressed by market traders in January this year, when PIK sold a 25-percent stake in its Yaroslavskiy residential construction project, covering an area of 1.14 million square meters in Mytishchi in Moscow Oblast, to GIC Real Estate, a Singaporean fund, for $233 million. After that, the apprehensions were dispelled by the report that PIK had purchased 127 hectares of land along the Kaluga Highway from the Masshtab Company.

 

The optimistic view of the company's future turned out to be false in fall, when it published its financial results for the first half of 2008. Its net liabilities totaled $1.32 billion, mostly in short-term loans. The financial report stipulated, however, that the company was planning to sell residences to a wholesale buyer for $1 billion in the second half of the year. Market traders assumed that this buyer had to be the state in the atmosphere of crisis. This information was confirmed a month later, when the Moscow Government decided to buy residential construction projects covering an area of more than 300,000 square meters in Moscow Oblast from the developer.

 

In view of the Moscow officials' agreement to pay 80,000 rubles per square meter of this real estate, PIK should have collected the $1 billion it wanted. Officials in the capital had a change of heart, however. City Hall demanded a discount of 17 percent. As a result, the contracts were torn up, and PIK asked the Federal Anti-Monopoly Service to check the legality of the Moscow officials' actions. In response to this, they ostentatiously returned the company's security deposit -- 5 percent of the amount of the contract. Three days later, PIK backtracked and withdrew its claim, but no contract with the city was ever signed. The Moscow Government scheduled an auction for the homes of the Moscow developers for 19 December, but the price was already down to 59,000 rubles per square meter. Now PIK has to negotiate a new deal with the Moscow Government.

 

Meanwhile, the international Fitch Ratings agency lowered the company's rating by several points on 13 November. Its long-term credit rating fell from BB to the pre-default CCC. The reason was the company's shortage of funds to pay off short-term loans.

 

The $262 million it received from VEB is equivalent to no more than one-third of its short-term indebtedness, now estimated by market analysts at approximately $900 million. The development company's success in the sphere of cooperation with the federal center has not been impressive either. This time Fitch changed its projection of PIK from "developing" to "negative." Forecasts essentially indicate that, barring a miracle, PIK can expect to be in default quite soon.

 

The development company's executives found no better response than to follow the "back at you" rule. In particular, Artem Eyramdzhants, the vice president of the group of PIK companies, informed news agencies that the Fitch Agency had made the "wrong" decision and had ignored the developer's negotiations with banks. In spite of this, PIK was asking $1.13 for one GDR on the London Stock Exchange on 9 December, whereas the price in September 2008 was $30. In other words, the company's capitalization had been 26 times as high and has now fallen from $11.7 billion to $450 million.

 

6. Au Jus. Nikolay and Yuriy Bortsov: Getting Out at the Right Time Is the Main Thing

 

Nikolay Bortsov could have been remembered by his colleagues only as the energetic director of the Lebedyanskiy Plant, an experimental cannery. In the 1990s, he was instrumental in the installation of the Tetra Pak antiseptic bottling line at the enterprise. Bortsov had seen the invention at the All-Union Exhibition of National Economic Achievements, and when the exhibition was over, he talked the USSR minister of fruit and vegetable farming into installing it at his plant. The production of juice packed in cardboard containers later became the company's business mainstay. Lebedyanskiy was privatized in 1992. Nikolay Bortsov became the plant's main shareholder. He did not want to give up his block of stock and continued to develop the business. In 2001, Bortsov shepherded the premium "Ya" brand of juices and nectars to the market, sending chills through the industry leader, the Wimm-Bill-Dann company, which then controlled 50 percent of the market. In 2003, Bortsov left the enterprise to take a seat as a State Duma deputy, which did not keep Lebedyanskiy from taking the title of the top-ranking major juice producer in Russia a year later.

 

At the time of Lebedyanskiy's successful IPO in 2005, it passed up its longtime rival Wimm-Bill-Dann in terms of capitalization. Theprice at the time of the offering was $37.23 and the company's capitalization was $760 million. Investors bought 19.9 percent of the company stock for $151 million. After the IPO, Bortsov had 30 percent of the stock left, his son Yuriy had 25.13 percent, Deputy General Director Olga Belyavtseva had 18.4 percent, Director of Purchasing Konstantin Voloshin had 3.2 percent, and Deputy Chairman of the Board of Directors Dmitriy Fadeyev had 2.77 percent.

 

Rumors about the sale of Lebedyanskiy had been making the rounds for a long time, but Bortsov was biding his time and watching the sales of his competitors. Coca-Cola bought the Multon plants for $501 million in 2005 and Aqua Vision for $191.5 million in 2007. Lion Capital, a British investment fund, bought approximately 75 percent of the stock in the Nidan company, the third-largest producer of juices in Russia, at the end of 2007. What is more, in summer 2007, Bortsov confirmed the media reports that PepsiCo had made an offer for more than 70 percent of the enterprise stock more than a year earlier, estimating the value of the block of stock at $1.5 billion. He stressed that the shareholders were not planning to sell their shares: "I would never do something like this for patriotic reasons, because our enterprise should earn income primarily for the fatherland."

 

By spring 2008, however, Nikolay Bortsov and his son Yuriy had already agreed to sell their shares to PepsiCo, as well as the shares of another two co-owners of the company (totaling 75.53 percent), for the unprecedented sum of $1.357 billion. This deal almost certainly would not have taken place now, because PepsiCo is losing profits due to falling sales. The capitalization of companies in the consumer sector has decreased by half since the middle of the year. According to Tatyana Bobrovskaya from BKS, however, Lebedyanskiy has lost about $200 million since the sale, and its capitalization is about $1.5 billion (on 9 December 2008).

 

BKS analysts believe the Bortsovs sold their share with a bonus for market share. Lebedyanskiy is the biggest vegetable and fruit juice producer in Russia and ranks sixth in the world. Its share of the market in our country is approximately 30 percent. Renessans Kapital analyst Natalya Zagvozdina says Lebedyanskiy will never be appraised so highly again. "This was the peak, the best time to sell," the expert pointed out. The Bortsovs managed to sell at the right time, and now, according to unofficial sources, they are spending money at a rapid clip, buying up elite real estate in Rublevka and in the south of France.

 

7. Changing Lanes. Aleksandr Vinokurov: Not for His Own Benefit

 

The sale of the KIT Finans bank marked the end of one of the most high-profile banking careers of the last decade: Multimillionaire Aleksandr Vinokurov lost his business. The 38-year-old banker's dynamic and aggressive bank management had made him a success symbol. He started building his empire in 2000, when VEB-Invest, Aleksandr Vinokurov's brokerage, became the owner of Palmira, a finance company in St. Petersburg. KIT Finans, the investment bank that sprang up on this basis, started displaying high growth rates, gradually taking over new segments of the market and new companies. KIT Finans was one of the top 40 Russian banks in 2006 and already one of the top 30 in 2007. Bank spokesmen were just recently saying with pride that KIT Finans was the biggest operator and underwriter in the Russian bond market, the leader in retail investment funds, and one of the top 5 banks in the Russian mortgage market. The KIT Finans group was made up of the investment bank, a brokerage, a managing company, a leasing company, a private pension fund, a subsidiary bank in Ukraine, and subsidiary investment companies in Kazakhstan and Europe. Meanwhile, Aleksandr Vinokurov was constantly increasing his share of the bank stock, bringing it up to 43 percent in 2006 and then to 62 percent in 2007. Vinokurov's business was then appraised at $1 billion, and his own fortune therefore amount to at least $600 million. The businessman enjoyed discussing his success, was always in the public eye, and always granted interviews. Experts predicted that KIT Finans would be the first private Russian bank with an IPO. What happened to Vinokurov's company was a complete surprise to everyone.

 

In September 2008, KIT Finans ran into a problem that was quite common for investment banks and had been the ruin of several in the United States: too many securities on its balance sheet. According to experts, the bank's securities portfolio represented 14.4 percent of its assets (20.5 billion rubles) on 1 September 2008, and this did not include the operations of its subsidiary brokerage. All of the analysts believe the biggest problem was its Rostelekom stock, which KIT Finans is rumored to have been buying in the interest of Yuriy Kovalchuk's Rossiya Bank. The bank was conducting repo operations with the shares of stock. In other words, it was essentially using them as collateral for other banks, but the shares were losing value, and the bank could not pay its creditors.

 

The whole time the bank was in business, people were saying that Aleksandr Vinokurov was particularly influential in the government. People even said he was backed up by none other than Finance Minister Aleksey Kudrin. For this reason, people assumed the bank would not be allowed to go under. In fact, the minister of finance actually made this promise. There were reports of negotiations with VTB, Gazprombank, and UK Lider. After the start of the negotiations, the state banks gave KIT a loan, enabling it to begin paying its creditors. The state intended to save the bank, however, and not Vinokurov's fortune. As a result, the bank was purchased by two state corporations -- ALROSA and Russian Railways. The amount of the transaction has not been made public, but sources say the price was extremely low. After selling his stock, Aleksandr Vinokurov resigned from the office of general director, but he stayed on at the bank as the adviser to the head of the group of new owners.

 

8. Voice Control. Leonid Reyman Can Sell at the Sound of the Bell 

 

An event of great significance for the entire telecommunications sector took place in the past year: Leonid Reyman, who had seemed to be unsinkable just recently, left the top office in the Ministry of Information Technology and Communications. By a lucky coincidence, his friend, Danish lawyer Jeffrey Galmond, who is said to be the nominal owner of the former minister's assets, agreed almost simultaneously to sell his main businesses in Russia. Above all, this applied to the controlling interest in Telekominvest and a block of shares in Megafon, the cellular communications operator, which were acquired by Alisher Usmanov, the co-owner of the Metalloinvest holding company. The sides did not officially announce the amount of the transaction, but analysts assume it was in excess of $2 billion. Furthermore, the sale was made at an extremely fortunate moment: just before the effects of the world financial crisis reached Russia, when Megafon's capitalization had reached its absolute maximum. The value of the securities of this cellular communications Kompaniya) have been sold, and I have nothing to do with that business anymore," the Danish lawyer said at the end of October.

 

The ownership of the sold assets is still in question, however. "Despite all of the controversy, Reyman's connection to those assets and projects has not been proved," Finam analyst Tatyana Menkova pointed out. Nevertheless, during arbitration proceedings in the case of the Bermuda-based IPOC Fund (the Megafon stock belonging to Galmond was on its balance sheet), the Zurich international tribunal found that Reyman had a direct connection to Telekominvest and Megafon. The arbitration tribunal's decision does not identify people by name, referring only to "Witness Number 7," but through indirect data, particularly the positions occupied by the witnesses and his quoted remarks, the media recognized him as Leonid Reyman. The "witness" therefore can be congratulated on the extremely lucky sale of the assets just before the crisis.

 

Now the former minister occupies an extremely formal position as the president's adviser, and judging by all indications, he is in no hurry to go back into business. Many analysts believe this is a good time to buy assets, which can be acquired for a fraction of their prices six months ago because of the global downturn in financial markets. There have been no reports, however, that Reyman is planning to spend any of the money he made on any new assets whatsoever. Judging by all indications, civil service will be his area of concentration, just as it was before. At the end of October, there were reports that he might be appointed to head the new Council on the Development of the Information Society. The head of the IFK Alemar Analytical Office, Vasiliy Konuzin, believes this could become the official's next "feeding trough." "This position will enable him to control state subsidies and state orders for IT development projects in the country," the expert said. Financial Bridge analyst Yekaterina Loshchakova, on the other hand, said that although the possibility of illegal attempts by officials to benefit from council membership cannot be excluded, the economy's need for this institution can hardly be denied. The experience in carrying out the Electronic Russia program clearly showed how the money allocated by the state can be spent.

 

9. Foxhole. Vladimir Lisin -- the Metallurgist with Nerves of Steel

 

Two years ago, the owner of the Novolipetsk Metallurgical Combine (NLMK), Vladimir Lisin, said that money represented a certain degree of freedom to him: "Of course, a certain degree of freedom always presupposes a certain degree of responsibility and a certain degree of trouble. One thing leads to the other, but it is worth it to feel free." Lisin evidently will have to give up his complete freedom in business. According to the most conservative estimates, the financial losses of the NLMK owner since the start of the crisis exceed $21 billion. The abrupt drop in the demand for the combine's products was seriously inopportune in combination with the plummeting prices of the enterprise stock, which has lost more than 70 percent of its value in the last six months. The lack of buyers drove prices down to less than half of their previous level. As a result, the output of steel at the NLMK Open Joint-Stock Company decreased by 35 percent and the cast iron output decreased by almost 50 percent in October and November this year. Two blast furnaces were shut down in the middle of October, in addition to one furnace that had been shut down earlier. The enterprise is halting the production of its own coking coal and two coke batteries have already been shut down.

 

The company has had to optimize expenditures, to which end the NLMK already "cut" vacant positions and reduced the work week to four days. Even this could not save the company, however. Lisin had to give up deals made earlier. In October, after "missing" the deal to buy the John Maneely Company (JMC), the largest independent pipe producer in North America, for $3.53 billion, he nevertheless decided to complete the acquisition of Beta Steel, the supplier of rolled metal for the JMC plants, for $350 million. In the atmosphere of crisis, this purchase cost Vladimir Lisin's company $50 million less than it had planned to pay earlier. Financial problems forced Lisin to ask Vneshekonombank for help. The NLMK applied for a loan of 32 billion rubles from VEB for the construction of an electrometallurgical plant in Kaluga, for which the preparatory work had already been completed. "It is difficult for the NLMK to be completely self-reliant now that the demand for metallurgical products and the price of these products have dropped everywhere in the world," Finam analyst Aleksey Sulinov remarked in his comments on the situation. He also said that loans are almost inaccessible to the largest enterprises now and are quite costly, so they have had to ask the state for help. Of course, Lisin, just as all the other oligarchs, runs the risk of ending up under the strict control of state agencies in this case and of augmenting Rostekhnologii's "piggy bank" with his assets in the future.

 

Experts do not expect the situation in the metallurgical industry to change in the near future: The demand of Chinese consumers can only be reduced by the crisis, so there is no reason to expect prices to recover soon. Lisin's enterprises therefore will start operating at a loss. His plans for rectifying the situation are not quite clear. In the atmosphere of the downward spiral of financial and raw material markets, Lisin is squandering money, apparently in the belief that "if the head breaks free, the tail will follow."

 

The NLMK owner is still spending money on non-core assets: The news that Lisin had bought 69.4 percent of the stock in the Tuapse commercial sea port from NLMK for $254 million was reported last week. This asset had been described as a "superfluous" part of the metallurgical holding company structure for a long time, but the enterprise had no luck finding a buyer for it. Lisin's own expectations in this case are not quite clear: The current state of the metallurgical combine's finances (net liabilities of $360 million, according to the results for the first half of the year) leaves much to be desired.

 

10. Chaos. Aleksandr Mamut Will Sell to the Right Buyer

 

For years now, Aleksandr Mamut has been a good example of a person who knows how to buy assets and get rid of them at the right time. In April 2008, the businessman bought 28.89 percent of Korbina Telekom from Vektor Vekselberg, thereby consolidating a 49-percent stake in the company. Analysts estimated the amount of the transaction at $100-150 million. In summer this year, Vympelkom followed up the Golden Telecom takeover by acquiring Mamut's share of the Internet provider, paying about $400 million for the 49-percent stake. That was followed by another deal, in which Mamut again was the middleman. At the beginning of September, working through the same company that participated in the deal with Korbina, Rambert Management Limited (RML), the businessman bought 100 percent of the Yevroset cell phone retailer for $1.25 billion, including $850 million in debts to the company. In other words, Timur Artemyev and Yevgeniy Chichvarkin, who owned the chain of more than 5,000 shops through the offshore More Front Holding Limited, essentially received $400 million for their asset. Furthermore, other buyers also wanted the company. MTS was in negotiations with the Yevroset owners, for example. In addition, VTB, Russkiy Standart, and Alfa-Group also had their eye on Yevroset. Mamut evidently was able to offer terms they liked, however. A month later, when the crisis was raging, the businessman managed to make money, selling a 49.9-percent stake in the cell phone retailer to Vympelkom for $226 million. In other words, the asset's value had increased by one-fourth.

 

Mamut actually does have assets that are not earning a profit yet, however. The SUP company, for example, controls the popular LiveJournal blog service. According to experts, maintaining the company cost Mamut (who owns close to a controlling interest) and his partner in this project, Andrew Paulson, almost $2 million a month. In fact, the company recently had to give up a spacious suite of offices of Class A (commanding rents of more than $3,500 per square meter per year) on the top floor of Smolenskiy Passazh and move into a more modest business center. The move will reduce the shareholders' expenses considerably. Mamut was already concerned about the company's profit margin in summer, however. At the end of June, the owner of SUP and businessman Alisher Usmanov exchanged Internet assets: The Kommersant Publishing House received close to 50 percent of SUP, which, in turn, became the owner of 100 percent of Gazeta.Ru.

 

In addition to the media assets he owns, Mamut has a stake in Oriel Resources, Plc, a British mining company, International Logistic Partnership, and during the year he made several deals to acquire a stake in Polimetall, the gold mining company. The businessman also owns the Inostranka publishing house and the Bookberry chain of bookstores, and his Attikus Publishing group merged with Azbuka, one of the top 10 publishing houses. In May 2007, Mamut sold his 38.5-percent stake in the Ingosstrakh company to the Czech PPF group for more than $750 million. His fortune was estimated at $1.2 billion in 2007, putting him in 94th place in the Forbes "Golden Hundred." This year, it obviously was augmented at least by the $225 million he made on the sale of his shares of Korbina and Yevroset.

 

The Bookberry chain of bookstores, just as SUP, probably cannot be called effective. According to market traders, the company has a markup of at least 110 percent on books, whereas other chains do not go beyond 50-70 percent. As a result, books cost more at Bookberry stores than they do anywhere else. At a time of crisis, this policy can hardly be called effective. For this reason, the company, which Mamut owns jointly with Oleg Deripaska, is changing its development plans, and instead of opening new bookstores, it will be closing 3 of the largest of its existing 17 stores.

 

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Source: www.ko.ru