Humbled by huge debts, Russia’s once mighty oligarchs are fighting for survival after the government warned there will be no more bailouts. Falling company revenues have forced some of the tycoons, who borrowed heavily to expand in the boom years under former President Vladimir Putin, to beg Western creditors to allow them to restructure loan payments.
Many Russian oligarchs built their fortunes from metal, steel or oil companies but the prices of all their products have fallen because of the global financial crisis. Now they are seeking salvation at the hands of the state. “Today the so-called natural resource oligarchs do not have the resources to cope with their debts so their fate depends on Vladimir Putin,” said Oleg Kiselyov of Russia’s Union of Industrialists and Entrepreneurs, otherwise known as the oligarchs’ union.Russia’s private sector has about $500 billion in foreign debt outstanding with $130 billion due this year, according to central bank data.
Prime Minister Putin’s first deputy, Igor Shuvalov, said on Tuesday many firms would not be able to service their debt and the Russian state would not take on their debts.
As money gets tight, Russia has frozen a $50 billion facility at state corporation VEB to help refinance foreign debts after just $11 billion was distributed. Senior bankers said officials may be nudging the tycoons to repatriate money from abroad. They believe the state will eventually have to take on some of the oligarch debts — for a handsome price — to ensure social and economic stability. “Russia has reached a crossroads. Many of the oligarchs are basically bankrupt and will not get out of this mess by themselves,” said one senior Western banker, who requested anonymity because of the sensitivity of debt talks. “Should they be bailed out with public money intended for Russian pensioners? That is the next page which we are about to see,” said the banker. “Many are facing extinction.”
OLIGARCH END GAME
The oligarchs have had their worst year since emerging as power brokers out of the chaos of the 1990s. The 32 Russians who made it on to the Forbes global rich list have lost more than $250 billion combined over the past year. Last year, 87 Russians were listed as billionaires. The fortunes of Siberia’s metals barons have sunk, although their assets remain some of the best in the world.
United Company RUSAL, the world’s largest aluminum company, said last week it had reached agreement with the bulk of its Western creditors in getting a two-month grace period on servicing $7.4 billion in foreign debts. RUSAL, controlled by Oleg Deripaska, employs 90,000 people and says it has $14 billion in debt. Deripaska says he does not need state financial help. Forbes estimates his fortune has tumbled to $3.5 billion from $28 billion over the past year. Alexei Mordashov, who controls Severstal (CHMF.MM), Russia’s largest steel maker, has seen his fortune drop to $4.3 billion from $21.2 billion.
Vladimir Yevtushenkov, who controls the Sistema (SSAq.L) services conglomerate, has seen his fortune tumble by nearly 90 percent to $1.2 billion from $10 billion. Bankers warned of infighting between tycoons after Mikhail Fridman’s banking arm said it was pursuing Deripaska for about $1 billion it says he owes the Alfa Bank group. “The final picture will be a mixture of the following: some of the stakes will go to the state, some will go to the Western creditors and the oligarchs will be left some of their stakes, though those stakes could be as low as zero,” said Kiselyov.