They bought country houses, super-yachts and football clubs, but the era of the Russian oligarch may be drawing to a close.
Details of the financial bailout being offered by the Kremlin to Russia’s richest men have revealed that many could be stripped of power by next Christmas. The loans will last for one year only and will be collateralised against shares owned by the oligarchs.
Most are expected to struggle to repay the loans within a year, raising the possibility that the Kremlin is trying to engineer the renationalisation of the Russian economy.
The bailout could be a double-edged sword: it may save the oligarchs’ companies in the short-term but could reduce their power and wealth in the long run. According to Zina Psiola, a Russian fund manager at Clariden Leu in Zurich: “Some oligarchs will no longer be oligarchs. It’s extremely unlikely they’ll all be able to repay in a year.”
Figures such as Roman Abramovich, the owner of Chelsea Football Club, have seen the value of their companies collapse, forcing them to seek government aid or risk defaulting on loans to foreign banks. Evraz, a steel company part-owned by Mr Abramovich, has reportedly already received $1.8 billion (£1.2 billion) from the Kremlin.
More than 100 businesses are thought to have asked for financial aid and about $78 billion is expected to be made available in the coming months through Vnesheconombank (VEB), a state-controlled lender. The bank will demand that one of its representatives sits on the recipient’s board.
VEB will also have a right of veto over any debt, asset sale or big investment decision made by the recipient, which will give the bank enormous influence over the companies controlled by the oligarchs. The loans will be collateralised against shares, assets and export revenues.
Russia’s companies have to repay an estimated $160 billion in loans to foreign banks next year. Falling revenue as a result of collapsing commodity prices will make refinancing with any institution other than VEB difficult.
A number of the oligarchs have been bailed out by the Kremlin already. Oleg Deripaska, once Russia’s richest man, received Kremlin aid last month when VEB stepped in to refinance a $4.5 billion loan that he had taken out to buy a 25 per cent stake in Norilsk Nickel.
Mr Deripaska said yesterday that he expected greater government involvement in his companies as a result of the bailout. However, he insisted that this would not lead to him losing control of his business empire: “I think that any level of the Government’s involvement will not prevent me from implementing the policy I consider necessary,” he said.
Mr Deripaska also said that he was willing to sell stakes in all the companies that he owns to pay off his debts. Mr Deripaska’s empire includes RusAl, the world’s largest aluminium producer. He also owns a bank, car manufacturers and an insurance company.
December 23, 2008
David Robertson, Business correspondent
Source: The Times