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Can oligarchs survive Russia's slump?

By Rupert Wingfield-Hayes
BBC News, Moscow

Getting to talk to Russian billionaires is never easy. They are notoriously camera-shy, and with good reason.

Mikhail Prokhorov (2008)
Mikhail Prokhorov has done better than others - but still lost billions

In Russia, the "oligarchs", as they are generally known, are not very popular. Most ordinary Russians believe that their vast fortunes were stolen during the corrupt privatisations of the 1990s.

So news that the oligarchs are in trouble has been met by many here with a degree of Schadenfreude.

It is - if you like - the story of the incredible shrinking billionaires.

According to Forbes Magazine, a year ago Moscow was home to 74 of them - more than any other city in the world.

Now there are only 27 left. Even those that survive have seen their fortunes slashed.

So imagine my surprise when not one, but two of them, invited me round for a chat.

Everyone in this country had the same opportunity. Those who were clever, or reacted faster, got control
Mikhail Prokhorov

And they were not just any old second-rate billionaires - one was Russia's richest man, Mikhail Prokhorov.

To put it mildly, Mr Prokhorov is an impressive figure. He stands 2.03m (6ft 8in) in his socks. He is just 43 years old and, even after losing half his fortune, he is still worth close to $10bn (£6.1bn). The Russian magazine Finans estimates his fortune to be $14.1bn (£8.6bn).

Sadly, Mr Prokhorov did not invite me to his country estate, or for a quick spin in his $60m jet.

Instead, it was 20 minutes over coffee in the business-class lounge of a grimy provincial airport.

'Good position'

The first thing that was clear was that Mr Prokhorov was not about to apologise for his wealth, or for the way he amassed it.

RUSSIA'S SUPER-RICH
Mikhail Prokhorov - $14.1bn
Roman Abramovich - $13.9bn
Vladimir Lisin - $7.7bn
Vagit Alekperov - $7.6bn
Suleiman Kerimov - $7.5bn
Mikhail Fridman - $6.1bn
Vladimir Potanin - $5bn
Oleg Deripaska - $4.9bn
Dmitry Rybolovlev - $4.6bn
Alisher Usmanov (Arsenal FC shareholder) - $4.5bn
Source: Finans weekly magazine

"There is no such thing as fair privatisation," he told me. "Everyone in this country had the same opportunity. Those who were clever, or reacted faster, got control."

The main problem in Russia, he said, was that ordinary people "still don't respect private property".

I put it to him that maybe this was because the gap between people like him and ordinary Russians was so vast.

"I like the fact that in Russia we have such extremes," he said. "If you can live in such extremes, it's like fresh water all the time."

But the main point he wanted to get across was that Russia's business elite were not about to disappear.

"Some are in a good position right now, some are not," he said. "But they are all real fighters."

A woman walks past an elderly beggar in Moscow  (13 March 2009)
There are concerns Russia's worsening economic situation is adding to poverty

"Now they must protect assets and restructure loans. Once that is achieved, there is a great chance to recover."

Mr Prokhorov is clearly one of those in a "good position". He is believed to be sitting on half his $10bn fortune in cash, having sold out his stake in Russia's biggest nickel mine just before the market tanked.

But others are not in such a happy position.

In the good years when oil prices were high, Russia's billionaires borrowed huge amounts of money against the value of their assets.

Now, the market value of those assets has collapsed, the rouble has fallen by 30%, and soon many of the loans will fall due.

Debt

The second man I went to meet was a lot less sanguine than Mr Prokhorov about the situation.

Peter Aven is one of Russia's most urbane billionaires. He spends much of his time at his home in Wentworth, Surrey. He is also chairman of Russia's biggest private bank, Alfa Bank.

Peter Aven (2008)
We'll have to wait until a recovery outside Russia. Only then will the money starts coming back
Peter Aven

"We're just at the beginning of this crisis, not the end," he told me.

The reason is all that debt.

"We can expect the value of non-performing loans to grow tremendously in the coming months," he explained.

"I would expect by the end of this year the volume to easily reach 20%. That's 20% of the whole capital of the system."

The only answer, according to Mr Aven, was a massive US or UK-style government recapitalisation of Russia's banks. But even then he was not optimistic the prospects for a quick recovery.

For that he blames not the oligarchs, but the Russian government.

"The problem is the structure of Russia's economy," he said. "We are hugely dependent on oil and gas exports."

I asked him whether the last eight years of Russia's boom had actually been wasted, when economic reform should have been pushed forward.

"I agree," he said. "More than that, the share of oil and gas in government revenues actually grew in those years, not decreased. Unfortunately we didn't implement the reforms."

Russia's continued dependence on oil revenues means everybody here is now waiting and hoping that the US economy will turn around.

"We'll have to wait until a recovery outside Russia," Mr Aven said. "Only then will the money starts coming back."



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