BAILOUTS FOR TYCOONS?
Russian Elite Look to Kremlin For Aid as Wealth Evaporates
Friday, October 17, 2008
MOSCOW, Oct. 16 -- In April, Oleg Deripaska seemed unstoppable.
Forbes magazine had just named him the richest man in Russia, estimating his fortune at $28 billion. His mining and manufacturing empire was expanding, picking up assets around the world and launching a takeover bid for a huge nickel producer. The gossip pages tittered with rumors of his plans to buy racehorses and soccer clubs.
But the global financial crisis has not been kind to the 40-year-old tycoon and friend of the Kremlin. In recent weeks, he has been forced to surrender prized assets to creditors, including his stake in North America's largest auto-parts supplier, Magna International. His bank, Bank Soyuz, stopped lending and was downgraded by ratings agencies. The automaker GAZ, in which he holds a majority stake, temporarily shut down assembly lines.
With stock markets here down more than two-thirds from their May highs and continuing to fall, almost all of Russia's billionaires -- men and women who made their fortunes in the transition to capitalism after the Soviet Union's fall -- are hurting. According to one analysis, the wealth of the top 25 on the Forbes Russia list has plunged nearly $240 billion in the past five months.
These losses have been felt across the Russian economy, as the tycoons' businesses trim jobs, cut salaries and suspend projects, and have presented Prime Minister Vladimir Putin with a delicate political question: Should the Kremlin bail out the billionaires?
Putin has already reached into the nation's huge reserve funds, the third-largest in the world, and announced one emergency measure after another in an attempt to end the turmoil that has gripped the Russian financial system. The government has pledged more than $200 billion thus far to bolster stock markets and banks, an amount equal to about 15 percent of the country's gross domestic product.
But it remains uncertain whether the money will be enough, how it will be distributed, and to what extent the Kremlin will try to use it to help friends and punish enemies. In a sign of growing dissatisfaction with Putin's handling of the crisis, an influential business group published an unusually blunt letter last week warning that the reserves could be exhausted within two years and urging the Kremlin to refrain from playing favorites as it distributes aid.
"The principles of providing state support to companies should be made public and transparent," wrote Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, complaining that the Kremlin often only helps the few, privileged businessmen who can get meetings with officials.
The billionaires' plight is in some ways a reversal of the situation a decade ago, when the government was mired in debt while a handful of tycoons wielded such clout that they came to be called oligarchs. Now, the Kremlin is flush with cash, and the tycoons are struggling with debt.
The nation's second-richest man, Alexei Mordashov, is slashing production at steel plants in Russia, Italy and the United States. The third-wealthiest, Roman Abramovich, has seen his holdings lose as much as $20 billion in paper value. On average, Russia's 110 billionaires have lost half their wealth in the crisis, said Oleg Anisimov, chief editor of Finance magazine, which tracks and ranks the elite.
Analysts said the financial crisis could strain the unspoken pact between Putin and the tycoons, who have been allowed to prosper as long as they do not challenge his rule.
"They're going to be fighting to get money from the Kremlin, and behind the scenes, people inside the Kremlin will be fighting to get control of assets," said Peter Boone, an associate at the London School of Economics who studied the Russian economy for investment banks. "That's when the politics get tough."