En plussed: Deripaska Loses Face

By Maximilian Hess

It is not often two of Russia’s most prominent firms see their president resign on one day. Yet on 19 February, aluminum giant Rusal and energy-focused EN+ both experienced a change at the top, with oligarch Oleg Deripaska stepping down. The move will allegedly enable him to focus on managing auto-manufacturer GAZ, but this explanation lacks credibility given GAZ’s much-smaller size and the rekindling of his feud with oligarch Vladimir Potanin over control of Norilsk Nickel three days earlier.

Two weeks prior, Deripaska was riding high. The latest edition of his annual Davos gala went off with nary a hitch. The attendance of British Labour Party luminary Peter Mandelson may have been of particular comfort; the two were known to be friendly. One of the most prominent scandals of Mandelson’s career followed revelations he was repeatedly entertained by Deripaska on the oligarch’s yacht while serving as EU Trade Commissioner.

The day after his lavish bash, Deripaska would be named on the US Treasury’s list of Kremlin-connected officials and businessmen. The move was easily shrugged off however, as those listed were subject to no sanctions and the names merely parroted Forbes’ reporting on Russian billionaires.

Inclusion on the list though is not without repercussions. Western financial institutions will certainly have to treat Deripaska as a ‘politically-exposed person’. But this is nothing new for Deripaska. After all, he was reportedly barred a US visa over criminal ties after arguing in a London courtroom that an alleged business partner had provided a mafia ‘krysha’ before settling with him out of court.

The Kremlin’s Man

Deripaska’s career has long been a roller-coaster ride of controversy. Perhaps most famously, in 2009 Putin summoned him and a coterie of his fellow oligarchs, then feuding about the factories that provided the lifeblood for the monotown* of Pikalevo. Putin then made them sign an agreement ending the feud. Putin then demanded Deripaska return his pen, on camera.

There were long claims the pen incident was a stunt, to give Putin an appearance of cracking down on oligarchs as the global financial crisis wreaked havoc on the Russian economy. By 2017, it had become undeniable that Deripaska was a close Kremlin ally. As we know now, this was evident a year before the pen incident, when he attempted to invest in a Ukrainian firm named Black Sea Cable. He partnered with Paul Manafort, who then rose to infamy after a stint as Donald Trump’s well-pedigreed but short-lived campaign manager.

Controlling the Odessa-based communications provider is exactly the kind of deal the Kremlin likes to see friendly oligarchs take in Russia’s near-abroad, though if there is any doubt over Deripaska’s governmental association, a May 2017 New York Times report should put it to rest. It alleged Deripaska avoided US visa concerns using a diplomatic passport granted him by the Kremlin.

Risk, Reward

Deripaska’s association with Manafort, against whom US Special Counsel Robert Mueller brought money laundering charges on 30 October 2017, gave him a few headaches. CNN caught Deripaska on camera ten days later; his only comment on their connection was ‘fake news’ despite widespread reporting they had a relationship dating back as far as 2005.

But reputational damage matters little when you are making money. The day before the New York Times report, he also secured a major new pre-export finance agreement for Rusal. A week before Mueller’s charges, Deripaska saw through the IPO for his firm EN+ in London, the most significant Russian IPO since the 2014 annexation of Crimea.

China’s new, ostensibly private geoeconomic giant CEFC China Energy underwrote the deal, and Glencore’s support secures Deripaska formal majority control of Rusal. Glencore’s agreement to swap its shares in Rusal for an EN+ stake has yet to close, although Makim Sokov, the firm’s CEO and now president, said at Davos it expected the deal to close in the first quarter of the year.

One could forgive Deripaska for thinking the worst of his travails were over after the oligarchs report landed with a dud. Deripaska was pitching major Western banks on the sale of a further US$1bn stake in EN+. Nevertheless Further negative revelations could also be forthcoming given the report in the LA Times that Rick Gates, Manfort’s longtime deputy including in dealings with Deripaska, will plead guilty and testify against Manafort.

Back in the ring

Opposition activist Alexei Navalny had other plans, making Deripaska the target of his latest in a long-running series of anti-corruption investigations, arguably Navalny’s most prominent contribution to the Russian political landscape. The report alleged Deripaska had flown Russian Vice-Premier Sergei Prikhodko, profiled by Bear Market Brief’s Anna Nadibaidze last week, to his yacht to discuss US politics. Most shockingly, Navalny’s claims were backed up by the testimony of a self-described oligarch huntress, Natalya Rybka, who alleges to have had a long-running affair with Deripaska.

The Kremlin reacted angrily. Whereas it has called on oligarchs before to serve as attack dogs against Navalny, most prominently Alisher Usmanov suing him for defamation last April, it intervened rapidly and vociferously on Deripaska’s behalf. Communications watchdog Roskomnadzor demanded Youtube and Instagram remove the videos, with the latter complying. Navalny’s site was again blocked to users in Russia.

Fresh off the Kremlin’s intervention and at the center of the Russian media world, a strange thing happened. The ghosts of Deripaska’s 2012 feud over Norilsk Nickel with oligarchs Len Blavatnik, Viktor Vekselberg, and Vladimir Potanin – no strangers to the Kremlin’s halls and all members of the Forbes/Treasury list – burst back to the fore

The Kremlin intervened in December 2012 to halt the Norilsk feud, marshalling Roman Abramovich to take a relatively small stake – but with significant voting rights – subject to a five-year lock up. The stake came with a shareholder agreement in place for five years thereafter. Abramovich reportedly was prepared to sell the stake to Potanin, who has publicly declared he wants to lower the firm’s dividends. For Deripaska on the other hand, they provide a steady revenue stream to meet the debt loads of his other firms, most prominently Rusal, whose credit rating remains notches below the sovereign ceiling. Deripaska sued the pair’s holding companies in London on 16 February.

Cui Bono? Кому выгодно? For Whose Benefit?

To see Deripaska resign EN+ and Rusal days later was unexpected, to say the least. An argument could certainly be made that the move is an attempt to insulate the firms from fallout of a renewed Norilsk Nickel feud, particularly after news of his London lawsuit impacted share prices. However, there are reasons to be skeptical either Potanin or Deripaska would risk a new feud only a month before Russia’s presidential election.

It is early days, but the play of events supports the argument that the Kremlin orchestrated Deripaska’s resignations. The most frequent answer to cui bono when discussing mysterious machinations of the Russian elite is, after all, the Kremlin. A new oligarchic fight is the last thing it wants before the 18 March presidential election.

* Monotown is local parlance for a one-company town.

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