Kremlin holds key as crisis threatens oligarchs

Mon Oct 13, 2008 5:11am EDT
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By Guy Faulconbridge

MOSCOW, Oct 13 (Reuters) - The global financial crisis is set to force a huge redistribution of wealth in Russia, with some oligarchs losing heavily, others profiting and the state helping decide who survives.

Bankers and investors say oligarchs who borrowed heavily in good times to expand their business empires are particularly exposed as the stock market value of their companies plunges.

One of the most prominent victims so far is Oleg Deripaska, 40, listed by Forbes in May as Russia's richest man on the basis of his diverse industrial shareholdings. Deripaska has rapidly sold stakes in two foreign companies to raise cash.

Among those benefiting is metals magnate Mikhail Prokhorov, 43. He amassed up to $10 billion by selling assets before the crisis and is now buying stakes cheaply, such as a half share in local investment bank Renaissance Capital.

But one of the biggest winners are likely to be the state.

President Dmitry Medvedev and Prime Minister Vladimir Putin will lead decisions on whom to bless with rescue funds from the country's brimming coffers.

Oligarchs are already forming a queue to lobby for the cash.

"There is going to be an enormous political battle over who is going to be bailed out by the government's reserves," said Peter Boone, an associate at the Centre for Economic Performance at the London School of Economics and Political Science.

"The government is going to decide who survives and who doesn't, because all the oligarchs have borrowed."

"Imagine the politics -- it could become really vicious and it is a big test of the strength of Russia's political system," said Boone, who worked for more than a decade covering Russian economics for investment banks.

The world financial crisis has damaged investor confidence in Russia, where worries over government interference in the economy and concern about Moscow's war with Georgia in August have led to the withdrawal of tens of billions of dollars.


Many of Russia's richest men are now finding it almost impossibly expensive to refinance their loans.

Some, who guaranteed their loans against shares in their companies, need to raise cash because Russian stock markets have collapsed more than 60 percent since May and banks now require additional security against their loans.  Continued...


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