Russian Billionaires Reluctant to Give Up Their Toys

OLEG DERIPASKA - RUSSIA'S RICHEST MAN WITH PUTIN

Billionaires Reluctant to Give Up Their Toys
10 April 2009By Ira Iosebashvili / The Moscow Times

For most of the decade, the country's billionaires spent hundreds of millions of dollars on boats, jets, expensive art and the occasional football team. But, despite strained bank accounts and public outrage, the tycoons have been loath to part with their expensive trinkets, choosing instead to hunker down and wait for better days.

To be sure, these are not happy days for the country's superrich. In Forbes magazine's latest ranking of the world's wealthiest people, Russia's billionaires had an estimated collective loss of $369 billion last year, and two-thirds fell from the list altogether. Moscow, which had 74 billionaires a year ago, more than any other city in the world, now finds itself with only 27.

Even those who have managed to hang on have not had an easy time of it. Oleg Deripaska, owner of RusAl, the world's largest aluminum company, has seen his net worth tumble from $40 billion to about $4 billion, and he ceded his spot as Russia's richest man to investor Mikhail Prokhorov, who himself is worth half of what he was in 2008.

The country's tabloids, trade unions and politicians have expressed outrage that the billionaires have been so reluctant to part with personal assets, especially as jobs and wages are being cut.

Deripaska's companies, for example, have received billions of dollars in government bailout money, but the metals magnate has not been in any rush to sell the Queen K, his 73-meter, $117 million megayacht. He did, however, agree to cede stakes in builder Hochtief and auto-parts maker Magna International to banks last year to help him hang on to his core assets.

Another boat lover, Roman Abramovich, has sold none of his four yachts, which have been collectively dubbed the "Abramovich navy," and he has said work continues on the fifth: the 168-meter, $290 million Eclipse, which reportedly will have a missile detection system and a detachable submarine to carry the billionaire to safety in case of attack.

Abramovich, who owns a large stake in the Evraz Group steelmaker that got an $800 million loan from state bank VEB to refinance short-term debt in December, has also said he remains fully committed to what is perhaps his best-known toy: the Chelsea football club, which he bought in 2003 for ?140 million (now $205 million).

And while Portsmouth owner Alexander Gaidamak, the son of Russian-Israeli billionaire Arkady Gaidamak, said he was in the market to sell his football team if the price were right, other football club owners are doing more than holding on. Metalloinvest owner Alisher Usmanov has been quietly building up the 15 percent stake he bought in Arsenal last year and became the team's largest shareholder in February, with a 25 percent blocking stake.

Uzbek-born billionaire Lev Leviev, whose Africa Israel Investments holding company has been badly hurt by its exposure to the Russian and U.S. real estate markets, did sell his private Bombardier jet -- reportedly for about $50 million, or $10 million less than he paid for it. A company representative, while not confirming the price, said the sale had less to do with liquidity than market timing.

"The market for private jets is falling, and [Leviev] simply wanted to sell it so he could buy it back at a better price," said company spokesperson Natalya Ivanova.

She said the price being quoted in the media was "quite small" when considering the scale of the company's global operations. "The shopping center we're building on Tverskaya Ulitsa alone costs $250 million, and that's just one of many projects," she said.

Leviev is not the only billionaire you might now spot in an airport VIP lounge. Alexander Lebedev, a banking and property mogul who also owns about 30 percent of Aeroflot, sold his private jet and an Italian villa before buying London's Evening Standard newspaper in January for a nominal fee.

While the English daily could hardly be considered a toy, the maintenance costs aren't unlike that of a yacht or plane. The Times has reported that the paper is losing ?1 million per month.

Some of Russia's wealthiest had also been showing a growing taste for more highbrow pursuits, turning Moscow into a hot spot for the world's top auction houses.

When he wasn't busy with his fleet or football club last year, Abramovich was brushing up on his knowledge of contemporary art -- the tycoon was widely reported to be the mystery buyer behind a $120 million splurge at Sotheby's and Christie's in New York last May. The new interest could have been motivated by girlfriend Daria Zhukova, who in September opened the Garage Center for Contemporary Culture in Moscow, Russia's largest exhibition of contemporary art.

In September, a Sotheby's exhibition of work by British artist Damien Hirst drew several big-name buyers from Russia and the CIS, including property magnate Vladimir Doronin and Kazakh mining tycoon Alexander Machkevich, who acquired two diamond cabinets, three butterfly paintings and a gold spot canvas for a total of ?11.7 million, The Economist reported. Another buyer at the auction was Ukrainian steel mogul Viktor Pinchuk, whose eponymous art center in Kiev is scheduled to show a Hirst retrospective featuring 100 works by the artist next month.

Sotheby's declined to comment on the auction.

Despite the strain on their businesses and bank accounts, art collectors are not exactly stampeding for the exits, said Maria Baibakova, a curator at the Krasny Oktabr Chocolate Factory gallery who also collects art with her father, Oleg, president of Prokhorov's Onexim-Development.

Baibakova, who estimates that there are about 30 "serious collectors" in the country, said a recent 25 percent drop in the art market was caused by a dearth of buyers, rather than a rush to sell.

"Most collectors do not collect as a business, and art is not their primary asset, so they do not need to sell into a low market," she said.

But while the country's elite are not selling their toys, the lavish purchases of the last few years have been curtailed, said Ellen Verbeek, editorial director of Robb Report Russia, a lifestyle magazine for jet-setters.

"Nobody's selling, and nobody's buying," she said. "Everyone is just trying to spend less. [Thriftiness] is even becoming fashionable, although nobody would ever have imagined that six months ago."

Perhaps in keeping with this trend, Prokhorov in February denied a report in The London Times that he backed out of a deal to buy the world's most expensive property, a French Riviera mansion that reportedly cost $633 million, leaving his lawyers to seek the return of a 39 million euro deposit.

Prokhorov's representatives have repeatedly said he will not invest in France until the government apologizes for arresting him in 2007 on suspicion of flying in a plane full of prostitutes for a party in Courchevel.

At least one prominent businessman appears conflicted about what to do with his personal assets.

In January, Mirax Group chairman Sergei Polonsky wrote in his LiveJournal blog that he was selling his yachts, a mansion on the Cote d'Azure and his Sungate Port Royal Hotel in Turkey and putting the money into his struggling developer, which like other big Moscow builders has been having trouble selling apartments and paying down debt.

When contacted by The Moscow Times, however, a Mirax representative said Polonsky still owned the Sungate Port Hotel and had never owned a yacht or a house on the Cote d'Azure.

The blog post, she said, was "only a joke."


Note : According to a recent study by PriceWaterhouseCoopers, Russia is home to the world's third largest concentration of billionaires (after the United States and Germany) and over 100,000 multimillionaires who have a combined $300 billion of cash on hand.(1) According to Associated Press, “Moscow is home to more rich people than New York.”(2)

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How metals and a ruthless streak put Russian patriot at top of the rich list
Oleg Deripaska talks money, Moscow and his friend Abramovich
Luke Harding in Moscow
Saturday February 24, 2007
The Guardian

In a book written about Russia's mighty oligarchs in 2002, Oleg Deripaska fails to get a mention. And unlike his friend and former business partner, Roman Abramovich, Deripaska is scarcely known in Britain.

This may be about to change. According to the Russian magazine Finans, Deripaska - a softly spoken 39-year-old metals tycoon - last week quietly overtook Abramovich as Russia's richest man, no mean feat in a country bulging with billionaires.

His fortune, based on his ownership of the world's second-largest aluminium company, was estimated at $21.2bn (£10.9bn). Abramovich was beaten into second place. The Chelsea FC owner's fortune was put at a trifling $21bn.

Sitting in the turquoise Moscow office of his aluminium company, Basic Element, Deripaska pours scorn on the suggestion that he is now officially top of the rich list. Last week's report was "a mistake", he says, drawing on his pad to illustrate how large sums of money can be made to vanish and reappear.

That he is commenting at all on the state of his bank account is something of an event. Deripaska rarely gives interviews, normally managing only one or two a year. "If you want to be precise I know a dozen people who should be above me," he tells the Guardian.

How much, then, is he worth? "I don't know," he answers. "Much less. Let's say two times less." In fact, Deripaska - whose idiomatic English has been polished by frequent business trips to London - says this is merely one of a series of erroneous stories about him.

Last September there were rumours he was interested in buying Arsenal football club for about £350m. Other more lurid stories go back to the 1990s, after the collapse of the Soviet Union, when ruthless oligarchs carved up the country's newly privatised state industries. Deripaska was involved in the struggle for control of an aluminium plant in Sayanogorsk in Siberia. The battle was so vicious that it became privatisation legend, and was dubbed "the aluminium war". At one point, it was alleged, his enemies tried to ambush him on a mountain road with a grenade launcher. Was this true?

Both stories, Deripaska says wincing, are horribly wrong. He dismisses the idea that he might fancy buying Thierry Henry or the rest of the Arsenal squad. "It's not my thing," he says. "I'm not very enthusiastic about football" - a claim undermined slightly by the fact that he has been spotted on Chelsea's terraces with Abramovich, with whom he is on "very" good terms. He also co-owns a football team in southern Russia.

Like many uber-wealthy Russians, Deripaska is a keen Anglophile. There is, of course, the obligatory £20m house in Belgravia. (When I ask him about this he replies: "Um-hum.") His five-year-old son and four-year-old daughter have a British nanny and already speak English.

He also has business interests in the UK. Last year his company bought the ailing British van-maker LDV. He recently toured its Birmingham plant and says he is impressed by British engineering - and baffled that the indigenous car industry has been allowed to suffer a painful Thatcherite extinction. "You have almost written off your car industry. You have a very experienced workforce with wonderful engineers. I have no idea why you stopped your car business," he says. "Actually, I think it was a mistake. Other countries around subsidise or support their manufacturing and you give up."

What, then, does he think of the British? Deripaska is charm itself, praising the Brits as honest, decent, well-educated and polite.

But here Deripaska's superficial resemblance to Abramovich ceases. While Abramovich spends more and more time in London, and has made several unsuccessful attempts to give up his thankless job as governor of Russia's far-flung Chukotka region, Deripaska is happy to live in Russia. He has no plans to leave.

Moving to "post-industrial" Britain would be pointless he says, for someone whose empire is based on smelters, hydro dams and cheap Siberian power. His trajectory from a small village in Russia's fertile north Caucuses to the pinnacle of Russia's billionaires club is remarkable. Born in the city of Nizhny Novgorod, a 10-hour train journey east of Moscow, Deripaska moved aged four to rural southern Russia with his widowed mother, an engineer.

He milked his family's cows, looked after the ducks and fetched water from the well. His family was happy, but hard up. Later, as a student at Moscow State University, he was skint. The Soviet Union had just collapsed, the country was in turmoil and "decay"; Deripaska worked on building sites across Russia to prevent himself from starving.

"We had no money. It was a very practical question every day. How do I get money to buy food and keep studying?" he recalls. There was little future in his university subject, theoretical physics. He abandoned his studies and started business as a small-time metals trader.

Between 1993 and 1994 he accumulated a 20% stake in the Siberian aluminium factory - to the annoyance of the plant's communist-era bosses. "I was expecting they would treat me as a shareholder. But they said, 'No, you have the shares, but we run our business. And it's separate.'"

Deripaska persuaded the workforce not to go on strike, boosted production, and - it's not entirely clear how - crushed the local mafia. In 2000 Abramovich bought up most of the holdings in Russia's aluminium industry and merged them with Deripaska's company to create Russian Aluminium (Rusal). Abramovich later sold his stake to Deripaska, leaving him the undisputed tsar of one of Russia's most lucrative industries.

Next month, Deripaska's company is due to merge with two others to create the world's largest aluminium group. Worth an estimated $25-30bn, it is likely to float on the London Stock Exchange this year, or early next, consolidating Deripaska's position as a global player. Had he planned all this? "No plan," he shrugs.

And yet it's clear Deripaska is in possession of a ruthless, calculating intellect. Several former business partners have sued him and the court cases are still dragging on. Tall, with boyish features, cropped blond hair and relentless blue eyes, Deripaska looks not unlike Daniel Craig - and shares the Bond actor's reputation for toughness.

He is also impeccably well connected. In 2001 he married Polina Yumasheva - the daughter of Boris Yeltsin's powerful ex-chief of staff Valentin Yumashev, who is now married to the former president's younger daughter, Tatyana. As well as this useful dynastic alliance with the Yeltsin clan, Deripaska is on friendly terms with Yeltsin's successor in the Kremlin, Vladimir Putin.

He has, so far, dextrously avoided the Icarus-like fate of other oligarchs, who include Boris Berezovsky, who is in exile in London, and Mikhail Khodorkovsky, who fell out with Putin and is serving an eight-year sentence in a Siberian jail. Khodorkovsky's once huge Yukos oil empire is being sold and broken up.

Relations between London and Moscow have been strained after the recent murder of the former KGB spy Alexander Litvinenko and talk of a new cold war between the US and Russia. Russia, Deripaska says, has been misunderstood. The west fails to give Russia credit for progress in the past 15 years and concentrates on its failure to progress to a western European-style democracy. "We had discussion with our advisory board of one of our companies last week," Deripaska explains. "There was one comment from a very prominent member of British society who said, 'If you look at the front page it's a disaster. But if you go further down to the economics page it's brilliant.' We try to live on the economics page.

"Long term I do believe internationally there is a huge misunderstanding of Russia. I've just recently been in Riyadh in Saudi Arabia and never heard any comments in the British press about democracy there. I don't know why you expect that we - because we are near to Europe, and are neighbours - should be like this. We are different."

Deripaska is reluctant to discuss his private life - although given his 14-16-hour days, he can't have much of one. Nor will he talk about his philanthropic activities. He has funded the restoration of orthodox churches - a project that goes down well in the Kremlin.

His quiet, unshowy nationalism appears to be key to his success. He says he still meets the same group of friends from his childhood days in the north Caucuses, and from the Soviet army, where he spent two years as a sergeant.

He doesn't think much of Moscow. "I don't like Moscow. It's not my city. I would like to spend more time relaxing in Siberia, Lake Baikal or the far east, or the Caucuses,' he says. There is, then, no chance Russia's richest man will soon be taking up residence in north London and acquiring a new home in Arsenal's Emirates Stadium. "My base is in the northern Caucuses," he says, his pale eyes unblinking. "It's my final destination."