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Russia's richest man is out to prove a point

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Sept. 28, 2012, 6:09 p.m. | Russia and former Soviet Union — by Reuters

Alisher Usmanov, the richest man in Russia, is stabbing the air emphatically with his finger.
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Reuters

MOSCOW - Alisher Usmanov, the richest man in Russia, is stabbing the air emphatically with his finger. 

"With Facebook, people say I took money from the Kremlin," he declares. "But I invested my own money."

Usmanov's point is broader than the tenfold return he made from his 2009 investment in the social-networking site. The Uzbek-born tycoon, who is worth an estimated $18 billion, said he had been sure that investing in a social network of 1 billion people would generate "big money".

"Nobody believed in it, and in Russia at the very least, a lot of people said I was mad," Usmanov told Reuters in a rare interview.

"Can you imagine life without the Internet?" asks the 59-year-old, who this year made $1 billion selling Facebook shares and pulled off the feat of taking control of Russia's No.2 mobile phone company MegaFon.

Usmanov built his first fortune in iron ore, but it was his well-timed bets on technology and telecoms that have multiplied his wealth more than tenfold since 2009, catapulting him to the top of Russia's rich list. He is unusual among Russia's richest businessmen in venturing out in this way.

"It was always a challenge for me to prove that a Russian financial investor can be as successful in the West as back at home in Russia," Usmanov said in a two-hour conversation over tea and central Asian delicacies at his mansion outside Moscow.

In the exclusive district of Gorki 10, his residence lies behind green security gates which slide open to reveal a guest house and a glimpse of a palatial country house through a shroud of silver birch trees.

Unlike the Russian tycoons who won control of empires through rigged privatisation auctions in the 1990s,Usmanov said he had accumulated his wealth by investing money smartly.

"Buy low, but not at the bottom, and sell high but not at the top, to leave some profit to others," said Usmanov. "We never bought anything at auctions. We only bought on the open market, from owners."

FINANCIAL AEROBATICS

Usmanov, who has degrees in law and banking, is a former fencer and ballet lover. He made his investments in telecoms, media and technology over the last decade after building his first fortune in metals and mining.

"Making money from money is like aerobatics," he said. "This is the most enjoyable money. Because you don't have competitors, you have to compete only against yourself and the market."

But, in a country where government connections can prove more important than financial savvy, he hits back at critics who have made allegations concerning his business methods and relationships which he has denied.

"It's unpleasant when people say someone gave you a gift in Russia," said Usmanov, who switched from strongly accented English to Russian when he wanted to express himself precisely.

Usmanov did borrow money from the wife of a government official, Igor Shuvalov, nearly a decade ago to buy shares in UK steel maker Corus. The loan agreement was subsequently modified to deliver a significant profit to the politician's wife.

Usmanov and Shuvalov have admitted the dealings but denied any conflict of interests or favours were involved.

The tycoon snapped up the 450-piece art collection of Mstislav Rostropovich after the cellist died in 2007, and donated it to a St Petersburg presidential residence renovated on the orders of President Vladimir Putin.

He also owns the Kommersant publishing house which prints the influential business daily Kommersant. When its weekly Kommersant-Vlast magazine printed a photograph featuring an obscene message to Putin last December, the editor was abruptly replaced and said he had been fired. Usmanov said at the time there had been violations of journalistic ethics at the paper.

Usmanov does not deny his Kremlin connections, and says he admires Putin, who has run Russia in the role of president or prime minister for more than a decade.

Putin has this year faced the biggest protests since he rose to power, mainly by relatively well-off Russians in big cities. Usmanov said Russia's rising middle class had forgotten how bad things used to be.

"Compared to the time when Putin came to power, and today, and you will see the massive scale of development in our country, with at the same time enormous problems," said Usmanov, a heavy-set man who spoke eloquently at times and could also be abrupt. "Russia should be grateful to Putin."

UMBRELLA COMPANY

Many Russian businessmen who own diverse assets hold them in one umbrella company, a structure Usmanovis now adopting.

The company - to have annual profits of around $7 billion - will be owned with his partners Farhad Moshiri, with whom Usmanov owns a stake in London soccer club Arsenal, and Vladimir Skoch, father of billionaire lawmaker Andrei Skoch, who helped build up Metalloinvest, the world's fifth largest iron ore company.

To be created in the coming months, it will own stakes in Metalloinvest, Russia's No.2 mobile operator MegaFonand Internet firms such as Facebook and Groupon.

Creation of the company - expected to have a turnover of up to $25 billion - is a logical step, consolidating shareholdings and creating a separation from management, he said.

"For me as a shareholder ... I don't want more insight into these operations. We need a management advisory company."

Usmanov, who is married to gymnastics coach Irina Viner, says at some point he would like to step back from business but is not about to start selling assets.

"Honestly, I don't want to do business any more, but you have a responsibility towards business that you (already) have," he said.

Usmanov's typical strategy is not to take majority positions in his assets. He owns a 50 percent stake inMetalloinvest and minority stakes in Mail.ru, Facebook and Arsenal.

In a departure, he took control of MegaFon this year by buying shares from tycoon Mikhail Fridman and TeliaSonera , the Nordic telecoms firm, ending years of shareholder infighting. He now controls 50 percent and one share.

"In the MegaFon situation, before we came, the shareholders hated each other and did not think about an alliance between each other," he said. "When there is no controlling shareholder, 'independent' management works in its own sybaritic interests."

Giving a "very elegant form of realisation" for the shareholders, Fridman "fixed a miracle profit" while TeliaSonera "received the biggest dividend in its history", said Usmanov.

MegaFon is now preparing to go public in London and is expected to be valued at around $15 billion, in a deal that will offering Teliasonera a route to further monetise its investment.

"Of course, we are not against being public - but not because we want only to be public, but because I think it is good for our partners," he said. "If we see the level of the valuation as good, we go to IPO."

FACEBOOK GAMBLE

It is telecoms and technology bets which have set Usmanov apart from rival tycoons, who have largely stuck to their roots in metals, mining and energy.

These bets have propelled him to become the 28th richest in the world, according to Forbes, in the league of financial masters such as investor George Soros, Google's Larry Page and Amazon's Jeff Bezos.

Usmanov, who cites the late Steve Jobs, creator of Apple , as a businessman he has admired, now has a string of technology and media investments to his name.

He has invested heavily in funds of Digital Sky Technologies (DST), the investment firm of Russian social media investment star Yuri Milner with whom he invested in Facebook.

Milner himself didn't believe it would be possible to buy such a stake, Usmanov said.

"I suggested that he should go to (Facebook CEO Mark) Zuckerberg and propose that he buys a far larger volume of shares without voting rights. This became our DST-style deal."

Usmanov, who hasn't yet met Zuckerberg, has no plans to sell out despite the stock trading around half its IPO price.

"I continue," he said. "I am there. I am confident about this investment."

Social media is a long way from Usmanov's first industrial investments in iron and steel, accumulated as a tough new breed of businessman was still vying for control over the industrial legacy of the Soviet Union.

Much of Usmanov's wealth still lies underground, in the form of his iron ore business Metalloinvest, in which he owns 50 percent. Skoch and state-controlled Russian bank VTB own the remainder.

Usmanov built up Metalloinvest through a series of acquisitions after working at the investment arm of state gas export monopoly Gazprom in the late 1990s. During the early 1990s, Usmanov worked in banking.

In the 1980s, he spent six years in a Soviet prison, but his conviction was later overturned. He was exonerated in 2000 by Uzbekistan's supreme court, which ruled that the case against him had been fabricated and no crime was ever committed.

Now the biggest iron ore producer in Russia, Metalloinvest has a portfolio of mines, owns the Baikal Mining Company which holds the mining license to the vast Udokan copper deposit and a 4 percent stake in platinum giant Norilsk Nickel.

"Metalloinvest is a company that knows it will someday come to an IPO," said Usmanov, adding that it would likely first need to reduce its debt burden.

ALL-MINING DEAL

As a stakeholder in Norilsk, the world's largest nickel and palladium miner, Usmanov has sought to mediate a bitter dispute between the company's two main shareholders, Deripaska and Vladimir Potanin.

"We think the day will come ... when these two partners understand that (there is) such big potential if they work together," he said. Only these two partners can determine what it takes to create a "normal atmosphere inside this company".

Usmanov has in the past suggested solutions - to no avail -such as merging Norilsk with Rusal andMetalloinvest to create an all-Russian mining giant. He said one possible option still could be to create a unified holding company, into which all three put their Norilsk shares.

Usmanov thinks Norilsk, currently valued at around $30 billion, could have a value of between $60-$80 billion although he gave no timeframe for when this could be achieved.

Of Usmanov's assets, one is a clear favourite. When the topic of football is mentioned, he is visibly delighted, smiles, settles back in his seat and purrs with a sigh: "Aaah, Arsenal".

Usmanov, who jointly owns a 29.9 percent stake in the club with Moshiri, is one of a handful of tycoons who own or hold stakes in English club sides.

But the investment has proved difficult and he recently criticised the club's board for failing to halt an exodus by top players such as Dutchman Robin van Persie which he blames on underinvestment.

"I consider Arsenal to be the best club in the world and there is enormous achievement by those who have managed the club until today," he said. "But that doesn't mean (you should) remain silent when you see mistakes."

Usmanov will "always be there" for Arsenal, and his greatest hope is for success on the pitch. He says he cares about fans' views, and enjoys having an incognito drink in a Holloway pub near Arsenal's new stadium where "no-one recognises me". 

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