Newsmakers ’09: The blingsheviks

Rogues and Russian Oligarchs

They are Russia’s versions of the Carnegies and Rockefellers, the robber barons, rogues and plutocrats, the blingsheviks who dazzled and disgusted the world with their brassy displays of post-Soviet wealth: US$275,000-a-bottle champagne, diamond-encrusted cellphones, fleets of superyachts—“yachtskis,” to the British tabs. Suddenly, those days seem a distant memory. Since the economic crisis began, Russia’s once-invincible oligarchs have taken one of the most dramatic falls of businessmen anywhere. The Russian edition of Forbes says the combined fortunes of the country’s richest 100 people have fallen to US$142 billion, from US$520 billion one year earlier. The number of billionaires dropped from 110 to 32. And many have been forced into a pitiful game of musical chairs, begging for emergency loans from the Kremlin’s diminishing pot.

The biggest loan of all, US$4.5 billion, went to Oleg Deripaska, once Russia’s richest man, whose personal fortune has shrunk by US$20 billion since the meltdown. His empire, which stretches from metals to mining to finance to cars, accounts for fully two per cent of the Russian GDP. To pay off crushing debts, he is peddling stakes in just about everything he owns (including Canadian car-parts manufacturer Magna), and restructuring US$7.5 billion of debt for UC Rusal, the world’s biggest aluminum producer and his crown jewel.

Roman Abramovich, the multi-billionaire owner of the Chelsea Football Club, and a fleet of private yachts known as “Roman’s Navy,” has also leaned on the state for his metals and mining company Evraz, picking up two government loans totalling US$1.8 billion to help repay foreign creditors. Oleg Tinkov, who made his money in beer and finances, and Lev Leviev, who made his US$8.5-billion fortune in diamonds, have each unloaded a jet.

Indeed, Russia’s entire private sector is in serious trouble because, over the past five years, its oligarchs borrowed at least US$490 billion from global banks and investors, merging, acquiring, and expanding at a voracious pace, creating sprawling empires on mountains of borrowed rubles. But over-borrowing is ending badly for the oligarchs, as it always does when credit conditions tighten, consumers stop spending, banks stop lending, and cheap money dries up. Along with commodity prices, the curtain has come crashing down on the Russian economy, revealing just how vulnerable some companies were—and how incompetently they were being run, says London-based Russia watcher Edward Lucas, author of The New Cold War.

To keep his business afloat, Sergei Polonsky, head of Russian real estate giant the Mirax Group, sold his prized yachts, his hotel, Sungate Port Royal, and his house on the Côte d’Azur. It wasn’t enough. Mirax, worth US$1.2 billion in 2008 according to Forbes, has had to stop all construction after a court froze the firm’s assets for its failure to repay a US$242-million loan. Call it karma. This is the same Polonsky who, just a year ago, declared, “Those who don’t have a billion can go to hell.”

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