MOSCOW (Mineweb.com) – Cash cows need careful herding, just like the lactating and the beef species. As every cowboy knows, if you don’t fence them in properly, on cloudy nights you run the risk losing then to rustlers or wolves.
Gazprom, Russia’s leading resource company and the world’s largest gas producer and exporter, has been inadequately protected from the beginning, ) when it was created by rustlers with well-known names like Victor Chernomyrdin, Rem Vyakhirev, and his family. Alexei Miller, the ranch hand engaged by President Vladimir Putin to get the company safely back into the corral, has been too slow, too weak and too ineffective, by most accounts; although it is too early to say that he is allowed the big cash cows in the Gazprom herd to escape, or run wild.
His inventory recovery efforts have made some former Vyakhirev associates nervous. Alisher Usmanov, for example, had been in charge of converting Gazprom receivables and debt into assets and revenue streams managed through a company called Gazprominvestholding, which did exactly what its name suggests, but off the Gazprom books. These assets have now grown into the prize bulls of the Usmanov herd – the Oskol steel plant, Urals Steel (formerly the Nosta steel plant), and the Lebedinbsky iron-ore mine. Leveraging these assets, Usmanov has been trying to borrow or trade his way into a safe-haven fortune offshore, in the Anglo-Dutch steelmaker, Corus. The Corns shareholders have appreciated the share value Usmarov’s raid has generated, but they have kept the keys to the ranch-gate to themselves.
The announcement by the Russian government, and by President Putin, that Gazprom’s shareholding is to be reorganized, so that: the state stake will be increased from 38.4% to 50%+1 control, Gazprom shares swapped with Rosneft, and the latter turned into a fully-owned Gazprom subsidiary, creates the perfect corral for the combined enterprise.
Incidentally, but demonstrating much foresight, the move allows the government to create enough capitalization to acquire the distressed Yukos oilfield assets – in settlement of its tax and fraud bills – and at the same time, allow the beef-hungry share markets of Moscow, London, and New York to buy into the upside value of the new Russian energy giant. Sharebuyers in those markets have been hobbled by the so-called ring fence, the state rule limiting direct purchase of Gazprom shares.
In a trice, the dream Mikhail Khodorkovsky, principal shareholder of the Yukos group, once had of doing the same thing with Yukos, creating a Russian energy conglomerate bigger than Gazprom and selling half of it to the United States, has been replaced by an idea foreign share-buyers and speculators will now consider much safer. By dismantling the old ring fence, and erecting the corral, the stock markets can swap speculative Yukos, Sibneft, or other commercial Russian oil risk for sovereign risk in the new Gazprom-Rosneft combination. To the stock-broking trade, this is pure filet mignon.
It is a move that required careful analysis over many months, blanket secrecy, and a deft public relations touch at the end. For all the abuse that has been heaped by the Khodorkovsky-fed media on those in charge – Putin himself, his advisor Igor Sechin, and the specialist advisors in the natural resource sector -it is a model of the post-oligarch Russian resource company that meets both the state interests Putin has spelled out, and also the foreign investment conditions.
As the grass-fed Moscow brokerage analysts have already begun pointing out,the new company is compatible with the state-controlled energy corporations of all the great oil-producing states in the world. Yukos shareholders and directors were uncertain of the outcome of their gunfight with the Kremlin, this is their tombstone.
Just in case anyone remembers the lurid conspiracy theories of the Financial Times, Vagit Alekperov, CEO of LUKoil, has announced, simultaneously with the Gazprom disclosure, that when the state shortly sells off its 7.6% stake in his company, most likely to ConocoPhillips, the American oil company will not (not, editors of the FT be advised) be permitted to raise that shareholding to anything approaching a blocking stake.
If anyone in Washington needs further reminding that the fight over Yukos has been to stop US takeover of Russian resource assets, the next steps Putin will take in the corral strategy should suffice. The roundup of the cash cows will continue.
Putin is now on track to apply the corral approach to all of the Russian resource extraction industries that were prematurely rustled, a decade ago, by the so-called oligarchs. These include the minerals, inducing precious metals, owned by Vladimir Potanin; aluminium and bauxite owned by Oleg Deripaska and Victor Vekselberg; and oil by Roman Abramovich and Mikhail Fridman.
A Kremlin investigation on whether to approve or veto Potanin’s $1.16 billion purchase of a 20% stake in South African miner, Gold Fields, is now in its sixth month. But already the South African shareholders of Gold Fields have decided to pre-empt Potanin’s takeover ambition by merging with the Canadian miner lAMGold, thereby doing to Potanin what he has often done to others – diluting his share value, paralyzing his manoeuvre.
The Kremlin might therefore do Norilsk Nickel a favour by ordering a reversal of the Gold Fields deal, forcing Potanin to liquidate his stake, and repatriate the funds to Russia. Two years ago, on a flying visit to Norilsk, Putin warned Potanin that the company was paying too little tax;. A fresh attack on this front might be the route Putin’s advisors will select or restructuring the Norilsk Nickel shareholding and corraling Russia’s largest mining company, according to the new model.
Deripaska’s attempt to sell Russia’s largest aluminium rolling mill at Samara, plus the smaller Belaya Kalitva plant in Rostov, will be another good test, since Deripaska requires Kremlin permission – nominally, the authority of the federal anti-monopoly service of the Ministry of Economic Development and Trade – to sell the assets for about $220 million to Alcoa, the: US-owned global aluminium leader. Alcoa had expected approval to be granted by June, and here we are almost in October, with no approval – and no veto – in sight yet, according to the federal and regional officials involved.
Kremlin concerns about Deripaska’s political ambitions, his sweetheart deals with regional governors to supply cut-price electricity, and his tax minimization schemes have been under investigation for weeks now. Had the Kremlin reached a consensus on what to do, it could have brought Deripaska to his knees by the simple expedient of having Sberbank call in repayment of several hundred million dollars’ worth of loans to Deripaska’s cash cow, Russian Aluminium (Rusal).
To anticipate that, Deripaska has been seeking an equivalent loan from a syndicate of European banks. Their reluctance to lend has lasted a year now. At the same time, Deripaska’s cash cow is urgently required for milking, in order to fund acquisition of the remaining 25% stake in Rusal, which Deripaska doesn’t own. The sellers in this case include Abramovich, Eugene Shvidler, and others in the Millhouse holding company. Their selling price will be at least $1.2 billion more than Rusal can afford to give Deripaska right now.
Other Rusal schemes to buy or build expensive new mines, refineries and smelters in Australia, Venezuela, Jamaica, India, Nigeria, and the Congo have been proposed, but most are still up in the air, awaiting Kremlin judgement of how to corral the aluminium cashflow in the national interest.
No-one has paid quite as much money as Victor Vekselberg recently promised to Brian Gilbertson, former CEO of BHP Billiton, to drive his cash cows to market outside Russia. If he succeeds, Gilbertson stands to set the world record for cow-punching compensation; for Vekselberg, the price would be worth paying to swap his vulnerable stake in Siberian Ural Aluminum (SUAL) for the safety of foreign registration.
You do not have to like American westerns to know what the genre demands. When ambitious cowpunchers come into town, they either pay their respects to the sheriff, or they prepare to fight him. Gilbertson has yet to do the former. And if he can read the meaning of the Gazprom-Rosneft announcement, he will understand that it would be folly to try the latter. He is out-gunned.