Russia Tosses Life Preserver To One Of Its Richest Men
The Kremlin is stepping in to bail out one of the country's richest men, in what could be the first move in a shakeout among the powerful businessmen known as oligarchs, whose holdings are spread throughout the Russian and world economies.
People close to the situation said that on Tuesday Russia allowed Alfa Group, a conglomerate controlled by businessman Mikhail Fridman, to tap its $50 billion rescue fund to pay back a $2 billion loan to a group of banks led by Deutsche Bank AG. The funding allowed Mr. Fridman to avoid having to give up his 44% stake in one of Russia's biggest cellphone service providers, OAO Vimpel Communications, which he had pledged to Deutsche Bank as collateral for the loan.
Alfa's difficulties had triggered concerns among investors who feared that Russia was attempting to protect the company from paying its loan obligations. The new revelation will likely signal that the Russian government wants to avoid tarnishing its reputation with banks and investors abroad.
The Kremlin's move comes as a number of Russia's wealthiest people and companies are feeling the pain of the credit crunch. Some have been hit as banks have demanded added collateral for loans secured by shares whose value has now plunged. Others have short-term loans coming due that they can't refinance except at punishing terms in suddenly tight Western credit markets. After years of heavy borrowing by the country's richest tycoons and industrialists as well as big state companies and banks, the government now has the power to decide whom to save -- and on what terms.
The situation is a twist on the recent rash of ambitious government efforts around the world to bail out troubled financial institutions. Thanks to hundreds of billions of dollars in oil wealth Russia has saved in recent years, the Kremlin has more money to cover bailouts than many countries. Last month, the Russian government set aside the fund of at least $50 billion to help companies and banks refinance foreign loans, but the first deals haven't yet been announced. Over $100 billion in applications have been received, officials said.
Banks like Deutsche also find themselves in a delicate situation. While the credit crisis has forced them to be much stricter with borrowers, they are loath to spoil lucrative relationships with customers like Mr. Fridman and Oleg Deripaska, who have vast empires that still generate a lot of cash, and with government officials in Russia, one of the fastest-growing major economies.
Vladimir Putin came to power pledging to eliminate 'as a class' the oligarchs, the wealthy men who turned their huge fortunes into vast political influence. Mr. Putin, now prime minister, has largely succeeded, reasserting tight Kremlin control over the Russian political scene. But many of the 1990s tycoons remain major economic forces, though some are now struggling to hold onto their empires amid the financial crisis.
The 44-year-old Mr. Fridman appears to be the first to tap the Kremlin fund. A spokeswoman for Vnesheconombank, or VEB, the state bank that is administering the money, declined to comment on whether any deals had been approved. A spokesman for Alfa's telecoms unit, Altimo, said it was meeting its obligations to Deutsche but declined to comment on any possible deal with VEB.
Mr. Fridman started his career as a window washer and computer trader in the twilight of the Soviet Union. He rapidly built up a fortune through his Alfa Bank, adding oil, telecoms and other assets along the way. Known for its aggressive tactics, Alfa has often found itself in conflicts with local and foreign partners. Recently, Mr. Fridman and his partners have been embroiled in a dispute with BP PLC over control of a huge oil-producing venture in Russia.
The selection criteria for the bailout loans are supposed to be objective, but VEB's board is dominated by government officials and headed by Mr. Putin. People close to the process have said the Kremlin's aim is to keep important assets from falling into the hands of foreign creditors as a result of the global financial turmoil. Priority is being given to protecting major industrial and banking assets in Russia, although some foreign holdings also are being considered, these people said. |
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