Russian Oligarchs Destroyed In Market Mayhem!

The recent falls of US markets have attracted attention to the problems of a lack of regulation and proper disclosure. However, these problems are much more severe in many middle and lower income markets. One of the worst of these is Russia. On Monday, the Moscow stock exchange had the largest fall in its 17-year history, declining by 19.1% in a single day. The Moscow exchange has lost over half of its value in the last few weeks.

Some of Russia's wealthiest men have been wiped out in "margin calls", which result from taking out a loan to buy an asset which then drops in value, which has to be sold for a price too low to pay off the loan. Metals magnate Oleg Deripaska, best known for his large stake in Arctic nickel and platinum producer Norilsk Nickel and in Siberian aluminum producers, has been the first to be hit. Ukrainian steel tycoon Konstantin Zhavago is reported to have been hit as well.

Russia's government has announced a massive $180 billion "rescue package", which is larger in proportion to GDP than the one in the United States. However, this was announced before the market selloff on Monday. One wonders if the government, feeling a decline in support because it could be seen as bailing out oligarchs, will begin criminal investigations. Many of Russia's oligarchs could be in danger of suffering the fate of Mikhail Khodorkovsky, who in a high-profile 2004 case was sentenced to eight years in a Siberian prison for tax evasion.

http://www.ft.com/cms/s/0/39bf0736-91ae-11dd-b5cd-0000779fd18c.html

Crisis takes toll on oligarch Deripaska

By Catherine Belton and Charles Clover in Moscow

Published: October 4 2008 03:00 | Last updated: October 4 2008 03:00

Oleg Deripaska became the first Russian oligarch to be publicly hit by the global financial crisis yesterday after he was forced to divest his 20 per cent stake in Magna International, the Canadian car parts maker, to creditors.

Mr Deripaska had faced margin calls on the $1bn loan that helped fund the $1.4bn investment as the value of the stake in Magna he had offered as collateral plummeted, two people familiar with the situation said.

On paper, Mr Deripaska is Russia's richest man with an estimated fortune of $28bn. But concern is growing about the level of indebtedness in his empire which spans aluminium, cars and construction amid the liquidity squeeze and a stock market rout that wiped more than half of the value off Russian stocks since May.

Mr Deripaska himself has taken issue with the tag of richest man because it does not take into account the high level of debt in his empire, otherwise known as Basic Element. His UC Rusal aluminium business has said it owes a total $14bn.

Rusal is battling to pay off part of a $4.5bn loan it raised to purchase a 25 per cent stake in Norilsk Nickel, the world's biggest nickel miner, this April which was backed by shares in Norilsk, several people familiar with the situation said.

The value of the stake held as collateral has more than halved since the loan agreement was reached. Mr Deripaska has won a preliminary agreement to raise partial refinancing for the loan, three people close to the company said.

The news of Mr Deripaska's forced divestment contributed to another dramatic slide of more than 7 per cent yesterday on the RTS with trading suspended three times to halt a wave of selling. Magna shares lost 4.7 per cent yesterday.

Additional reporting by Bernard Simon and Haig Simonian