A Russian financial coup d’etat « Mining Blog

A Russian financial coup d’etat

12. December 2012,

London’s renowned Chelsea football team hasn’t been doing well of late – in fact it’s performance has been pathetic.

This may cause the team’s owner, Roman Abramovich, some sleepless nights, as he pores over the lacklustre goal sheets from the comfort of his multi-million dollar London town house.

However, the Russian oligarch – whose personal wealth was estimated by Forbes magazine at US$12. 1 billion earlier this year – this week had a distinct “result”.

His private equity firm, Millhouse Capital, has secured a stake in Russia’s biggest mining company; and with it significant voting power over the world’s premier nickel producer – Norilsk.

Moreover, Abramovich now appears able to block two fellow Russian oligarchs, Oleg Deripaska and Vladimir Potanin, in any decisions taken by Norilsk – a company that the two men have been fighting over for several years.

On 11 December, Reuters parsed the details of this deal, concluding that, not only had Abramovich got the best out of it, but that ordinary shareholders in Norilsk had been cheated of their fair share in Abramovich’s largesse.

According to Reuter’s Moscow correspondent, Polina Devitt, Roman will pay his cash straight to Vladimir Potanin and Oleg Deripaska, “depriving other investors of the windfall” . Devitt called this “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].

It would probably “force Norilsk to borrow to fulfil promises to increase its dividends”, while JP Morgan Cazenove in a research note added that “…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. Alexander Abramov, Abramovich’s partner in Evraz, Russia’s largest steelmaker,could become the new board chairman at Norilsk Nickel…”

In turn, Deripaskas’s RUSAL (the world’s biggest integrated aluminium producer) will hold 27.8 percent and Potanin’s Interros Holding end up with 30.3 percent in Norilsk.

Reuters says that the arrangement will “… leave the three billionaires 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 come in for heavy flak from environmentalists over pollution and toxic emissions from its mines and processing plants; it remains delisted by Norway’s government Pension Fund.

Whether the minority investors in the company (some of whom are listed on the From Money to Metal database) have done much to address the company’s bad behaviour is questionable. However, the pre-emptive stake in Norilsk, now purchased by Abramovich, provides little confidence that its performance will improve.

On the contrary, as the major stakeholder in Russia’s London-listed Evraz steel company, Abramovich has to bear some 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]

Deripaska (whose RUSAL aluminium company is reportedly $10.7 billion in debt) must also have cracked open a few vodka bottles, as he seemed to become the second key beneficiary of the deal: “…Norilsk Nickel will stick to a pledge to pay dividends, another key demand by Deripaska, in the amount of $3 billion per year for 2012-2014” [Reuters ibid].

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