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Russia broadens efforts to control key industries
A Russian governor said OAO Norilsk Nickel, the world's largest producer of nickel and palladium, has discussed a merger with state-run diamond monopoly Alrosa, marking a milestone in the Kremlin's drive to gain control of key sectors of the Russian economy.Alexander Khloponin, governor of Krasnoyarsk province in Siberia, where Norilsk has its main production facilities, and a former chief executive of the company, said no final decision had been made regarding a merger. "Don't assume it's going to happen any time in the near future," he told local reporters. But he said shareholders in both companies had discussed "various approaches" to a tie-up that would leave the Russian government with a 25% stake in the combined entity and other shareholders with the rest. His comments come in the midst of a Kremlin campaign to restore state dominance of strategic sectors of the economy -- a reversal of the legacy of the 1990s, when the state divested itself of some of its biggest industrial assets in often-controversial privatizations. During the past 12 months, state-owned energy companies OAO Gazprom and OAO Rosneft have expanded by swallowing up independent oil producers. Gazprom bought OAO Sibneft for $13 billion, and Rosneft acquired a big chunk of oil company OAO Yukos after it was broken up to settle a tax bill. But the state's interest has increasingly spread from energy to other industries, such as car making and engineering. Rosoboronexport, the government's arms-export agency, recently took over management at Avtovaz, Russia's biggest auto maker, while state electricity monopoly RAO UES last year bought a big stake in OAO Power Machines, an engineering company. The pattern has worried economists from the World Bank and other international institutions, who say state companies are usually less efficient than privately owned ones. Norilsk has long been seen as the next potential target. The company was acquired in 1995 by Interros, an industrial group controlled by tycoon Vladimir Potanin, in one of the controversial "loans for shares" auctions in which state natural-resource companies were sold to well-connected insiders in cut-price deals. At the time, Interros paid $650 million for a 51% stake in Norilsk. The company is now valued at around $15 billion, and Mr. Potanin and another core shareholder, Norilsk Chief Executive Mikhail Prokhorov, are two of Russia's richest men. Some have suggested Norilsk could go the way of Yukos, another company whose shareholders benefited from loans-for-shares and whose founder Mikhail Khodorkovsky was sent to prison last year for fraud and tax evasion. "Oligarch risk" is seen as one of the main reasons for the big valuation gap between Norilsk and its global mining peers. But it now seems clear that Norilsk will be merged with a state-owned entity, rather than broken up like Yukos or bought outright like Sibneft. Mr. Khloponin's statement yesterday was the first official confirmation that discussions on a merger with Alrosa have taken place. Spokesmen for Norilsk, Alrosa and Interros all denied the talks, and Mr. Khloponin later put out a statement stressing there were "currently no plans" for a merger. "The companies are both being restructured and are not ready for such a process," he said. Certainly, such a tie-up could take a long time to work out. Norilsk is spinning off its gold-producing assets into a separate company, Polyus, while the Russian government is trying to secure majority control of Alrosa. The government currently owns 37% of the diamond producer, with the fiercely independent local government in the Siberian province of Yakutia controlling 32%. Moscow is trying to take over Alrosa's diamond mines, which the company leases from the Yakutian government. Analysts said Mr. Khloponin's merger proposal was more realistic than a leveraged buyout of Norilsk by Alrosa, which is a much smaller company. Alrosa posted about $380 million in net profit for the first nine months of last year, just 22% of Norilsk's net profit for the same period, according to Citigroup. "It's debatable whether Alrosa is really the right proxy for the state's interests," said a Moscow-based Western banker. Posted by: lotp 2006-01-19 |
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