Russia’s richest oligarch bails out Societe Generale in ‘fantastic deal’ for himself

Vladimir Potanin is still negotiating trade deals as his fellow oligarchs stumble, raising questions about whether this metals mogul is too big to be punished.

Personal sanctions have hit the wallets and pocketbooks of many Russian oligarchs, as the US, EU and UK go after their lavish mansions, private jets and daring yachts.

One person who has yet to be sanctioned by these powers (but was sanctioned by Canada last week) is Vladimir Potanin, a metals magnate and one of Russia’s first oligarchs. His company, MMC Norilsk Nickel PJSC (also known as “Nornickel”), the world’s largest producer of refined nickel and palladium, is taking advantage of soaring commodity prices amid a shortage of time supply. of war.

Now, amid the upheavals of war, Potanin is poised to expand his business empire. French bank Societe Generale announced yesterday that it is selling Rosbank, a Russian-based banking group, to Interros, Potanin’s investment conglomerate. Societe Generale paid around $4.3 billion to Interros between 2006 and 2014 to acquire a nearly 100% stake in the Russian bank and its subsidiaries.

Terms of the deal were not disclosed, but Societe Generale said Interros would repay the Russian unit’s outstanding loans and the French bank would write off $3.3 billion.

A Societe Generale spokesperson said Forbes by email: “With this agreement, concluded after several weeks of intensive work, the Group would leave Russia in an efficient and orderly manner, taking into account its employees and customers. Interros Capital is one of the largest private investment firms in Russia and knows the bank well, which would help with business continuity.

Based on the information available so far, the deal was “fantastic” for Potanin, says Jérôme Legras, head of research at Paris-based investment firm Axiom Alternative Investments and former deputy head of structural capital finance at the Societe Generale.

“The business is going to be disrupted of course because of the collapse of the economy and everything, but he gets a bank for close to zero, so of course it’s a good deal for him,” says Legras. “Based on the amount of depreciation, they [Société Générale] say they took, and from the amount of capital in the company and what was said about the subordinated debt, it’s pretty clear that it was a nominal price.

“In terms of pure equity, I think the price was about zero,” adds Legras.

Rosbank serves more than 5 million individual customers and nearly 100,000 businesses and small businesses in Russia. Its shares are up nearly 80% since markets opened Monday morning; the company closed Tuesday at a valuation of $2.4 billion.

Societe Generale shares also jumped 7% on Monday as investors breathed a sigh of relief: the French bank had warned on March 3 of the possibility of Russia seizing Rosbank, after threatening the Kremlin rhetoric in response to Western sanctions. On March 11, Potanin spoke out against the seizure of Russian assets held by foreign companies. “We should not try to ‘slam the door’ but strive to preserve Russia’s economic position in these markets that we have spent so long cultivating,” Potanin said on the Telegram messaging app. Any seizure of assets by the government, he warned, “would set us back 100 years to 1917. And the consequences – an overall lack of investor confidence in Russia – would be felt for many decades”.

It’s unclear whether Potanin’s missive had any effect on President Vladimir Putin (the Kremlin did not authorize the seizure of foreign assets), but what is clear is that his takeover of Rosbank is the latest in a string of wins for the 61-year-old. former metal magnate, who fared significantly better than many of his fellow oligarchs during the Russian-Ukrainian war. Potanin is now Russia’s richest oligarch, with an estimated fortune of nearly $26 billion (as of April 12).

“We see Potanin not only as the negotiator but also as the consummate political insider in Russia,” says Stanislav Markus, a professor of international business at the University of South Carolina who has studied the Russian oligarchy. “He navigated the Byzantine world of Kremlin politics since the 1990s, while some of the other “original” oligarchs were marginalized (or, at times, ruined) during the transition of power from Yeltsin to Putin and, later, as Putin handed out juicy state contracts with his personal friends. The acquisition of SocGen could not have happened without Potanin’s solid understanding of the political realities in Russia.

Foremost among these realities: Nornickel’s global reach and market strength. While Canada became the first Western power to sanction Potanin last week, the mining colossus, in which Potanin has a stake of more than a third, has not been sanctioned. It is the world’s largest producer of palladium and refined nickel, a key ingredient in steel production. Europe, in particular, relies on Nornickel for Class 1 nickel, a purer form of the metal used in electric vehicles and stainless steel production. Potanin’s company supplied around 27% of European nickel imports in 2021, according to natural resources consultancy Wood Mackenzie. The company has distribution centers in Hamburg and Rotterdam, as well as a sales office in Zug, Switzerland. It also operates in the United States with a sales branch located in Pittsburgh, Pennsylvania.

A wartime commodities boom bolstered Nornickel’s profits, with the price of nickel rising more than 100% this year. Nornickel stock is up nearly 20% from its low for the year on February 24, the day Russia invaded Ukraine and the Moscow Stock Exchange announced it was suspending trading on all the steps.

If the EU were to sanction Nornickel, “it would lead to a disruption of demand, because it is very difficult to replace losses [nickel] units. Europe has the greatest exposure. says Nikhil Shah, head of nickel research at British business intelligence firm CRU Group. By comparison, the United States depends on Canada for most of its Class 1 nickel imports, but any U.S. sanctions against Nornickel would ripple through Europe and drive up prices everywhere, Shah says.

Short pressure on nickel futures in early March caused the price of the commodity to more than double in one day to over $100,000 per metric ton on the London Metal Exchange, raising fears of market instability. market. (Nickel is currently trading around $32,000.) Last week, prices for palladium – a key ingredient in catalytic converters for cars – soared after the London platinum and palladium market announced it would ban metals from two refiners belonging to the Russian government, thus reinforcing the importance of Nornickel. as the largest producer of palladium in the world.

Economic and market considerations have long been part of the decision-making process of sanctioning authorities. For example, the United States lifted sanctions in December 2018 against Oleg Deripaska’s metals producer Rusal and its parent company En+, less than a year after they were imposed, after the sanctions had driven up oil prices. ‘aluminum. Similar concerns may help explain why Potanin was not sanctioned by the great powers.

“As we saw with Deripaska, we took this step and world aluminum prices skyrocketed,” says Richard Nephew. “You might find that something makes a lot of sense and is totally justified, but will have significant economic consequences.”

Before the war, Potanin cultivated ties with Western financial and cultural institutions. In 2013, he signed The Giving Pledge, founded by Warren Buffett and Bill and Melinda Gates to inspire billionaires to dedicate at least half of their wealth to charity. He served on the advisory board of the New York-based Council on Foreign Relations and served as a trustee of the Guggenheim Museum Foundation. He donated at least $5.5 million to the Kennedy Center for the Performing Arts in Washington, DC between 2011 and last year, according to data from the Anti-Corruption Data Collective.. His charity, the Vladimir Potanin Foundation, has also made donations to Oxford University. She bequeathed more than 250 works of Russian art to the Center Pompidou in Paris in 2016.

Potanin apparently took care to keep close ties with Putin as well. He invested more than $2 billion in the construction of Rosa Khutor, a ski resort in Sochi built for the 2014 Olympics in Russia. He and Putin are known to have skied and played ice hockey together on several occasions.

Potanin was among the first group of Russian oligarchs who built their fortunes in the chaotic 1990s when President Boris Yeltsin oversaw a wave of corrupt privatization deals. He and his longtime business partner Mikhail Prokhorov acquired stakes in Nornickel through Yeltsin’s infamous equity loan system, in which a small handful of businessmen lent money to the Russian President’s 1996 re-election campaign in exchange for control of state-owned assets. (The partners separated in 2007, after Prokhorov was arrested by French police for soliciting prostitutes. He was not charged but agreed to sell his stake to Oleg Deripaska’s United Co. Rusal, which still owns his Nornickel shares.)

Potanin was not only a beneficiary of Yeltsin’s project, but was allegedly its main architect. “Borrowing for stocks was the brainchild of Potanin,” says Markus, a professor at the University of South Carolina.

Nornickel and Potanin’s charity did not respond to requests for comment.

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