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AT THE RASHOMON GATE OR THE SPASSKY – THIS IS HOW SULEIMAN KERIMOV, MIKHAIL PROKHOROV AND STEPHEN JENNINGS HAD THEIR FALLING-OUT, IF THAT’S WHAT HAPPENED

By John Helmer, Moscow

It’s a cliché about greed.

Akira Kurosawa’s 1950 film Rashomon allows four witnesses to an affair of lust, robbery and murder to tell their own versions of what had happened. There is one corpse, and several versions of how it got that way – at the hand of the wife, the bandit, or by suicide. The film originated in two earlier short stories by Ryunosuke Akutagawa. Japanese audiences haven’t been as moved as western ones by either. From the Japanese point of view, dressing up dead samurais, violated ladies, grumpy bandits, and humble woodcutters doesn’t make the lesson of the story fresher than it can be. Who doesn’t know that people do what they do, see what they see, remember what they remember out of their own self-interest?

A debt of $650 million, and accumulating losses of more than $100 million are the interest of this little Russian tale. The characters are Stephen Jennings (image, upper right), founder of the Renaissance Capital (RenCap) group; Suleiman Kerimov (lower right), an investor for himself and others who prefer to hide in the forest; and Mikhail Prokhorov, part-owner of RenCap since 2008 and thus Jennings’s Russian partner. There is no lady, no sex act, and death is avoided, at least so far.

According to one version, Jennings met Kerimov at a Moscow restaurant for dinner. Either Prokhorov was the third character at their table, or Prokhorov’s deputy and manager of his Onexim holding, Dmitry Razumov. Jennings asked for more money to cover the growing losses of their joint business, the RenCap group. Kerimov got angry, and accused Jennings of mismanaging the funds he had been entrusted with, especially Kerimov’s, and of helping himself at the expense of his partners. You have lost the business — we own it, and that’s a take it or leave it proposition, Kerimov is reported to have said, with a hand gesture indicating that his bodyguards nearby were in substantial concurrence with the idea, in case Jennings was having a different one. Jennings then felt a dagger-like pain in the chest. An ambulance was called, and Jennings was driven off. Once inside the vehicle and in motion, Jennings sprang back to painlessness, and offered the medics a significant sum to drive him to Sheremetyevo airport. After he got there, he took the next flight to London. From there he went to his Oxfordshire home where he is still refusing to sign the papers Kerimov and Prokhorov require.

The ambulance trip to the airport appears in a second version, only it takes place the next Moscow day, after Jennings and his partners walk guardedly, if unassisted, from the dining table to their cars, and head to sleep in separate beds.

A third version describes Jennings going to Kerimov’s Moscow office. Cap in hand, no table, no drinks, though the knives were out, in a fashion. He has been unable to staunch the earlier losses, Jennings explains, and trading volatility has caused funds to evaporate. Would he mind topping up? Jennings asks. Kerimov doesn’t exactly say no, but reaches for his telephone and calls Onexim. On the other end of the line there is either Prokhorov or Razumov. The conversation intimates that the Russians think Jennings has been moving assets or earnings in such a way as to conserve cash and profit for his own interest, but leaving the Russians with an empty bag. What remained to be communicated after Kerimov put down the receiver was pithy: we trusted you with our money – you lost it – we don’t trust you — RenCap is ours now – you’re fired. In this version, Jennings is ambulatory all the way to the airport. The dagger-like pain in Jennings’s chest is more a psychosomatic reaction than something directly attributable to Kerimov or to his bodyguards.

A fourth version claims the money lost was by Kerimov, who had borrowed the funds he passed to Jennings to trade for him, and now has a problem explaining what happened. Jennings became Kerimov’s scapegoat after Kerimov got calls from his partners, and after Kerimov asked Prokhorov to bail him out of a hole. “Typical Kerimov margin-call situation. Kerimov now owes Prokhorov,” according to this witness. Between those two, that isn’t a new story [1].

There are other versions of the tale. But those missing the angry confrontation between Jennings, Kerimov, Prokhorov and/or Razumov, the swift trip to Sheremetyevo, the dagger-like pain in the chest, and Jennings’ refusal to sign over the Rencap investment banking, commercial credit and Russian businesses — those tales miss the moral of the story.

Onexim has issued [2] a public version of the outcome assuming Jennings does sign, and the deal closes. On November 14 this claim appeared on Onexim’s website: “Onexim Group and Renaissance Group announced today that they have agreed a series of transactions whereby Onexim Group will purchase Renaissance Group’s stakes in Renaissance Capital Investments Limited (“RCIL”), Renaissance Capital Limited (“RCL”) and Renaissance Capital International Services Limited (“RCISL”) for an undisclosed amount.”

“Once the transaction has been completed, Onexim will become the indirect shareholder of 100% of Renaissance Financial Holdings Limited (“RFHL”), the investment bank operating internationally under the name Renaissance Capital, and indirect owner of 89% of RCISL, the consumer finance bank operating in Russia under the name Renaissance Credit. RFHL and RCIL will maintain their stakes in certain assets previously owned by Renaissance Group (the most significant of which are stakes in Ukrainian Agrarian Investments and Russia Forest Products) that were transferred to RFHL’s and RCIL’s ownership in the last 18 months as part of the restructuring of the debts owed by Renaissance Group to RFHL. The transaction is subject to regulatory consents in the jurisdictions where these companies operate.”

Jennings has authorized a slightly different deal announcement, putting himself at the growth centre of the business in Africa, about which Kerimov and Prokhorov have been less than complimentary. “Renaissance Group has agreed to sell the outstanding 50% of Renaissance Capital, its investment banking operation and 89% of its Russian consumer credit business to Oneximbank. This will enable Renaissance Group and its leadership team under CEO Stephen Jennings to focus its energies and resources on the faster growing parts of the group, namely: Renaissance Asset Managers; Rendeavour, the firm’s African urban development business; Renaissance Credit Nigeria, the recently launched consumer lender in Africa; and Renaissance Real Estate.”

In the Financial Times’s telling of the tale, for example, Jennings is “stepping down as RenCap’s CEO, but will remain chief executive of Renaissance Group, the parent company, which will focus on asset management.” The innuendo in the FT version is that the doughty battler Jennings has been squeezed almost to death by the heavy hands, not of Kerimov’s bodyguards, but of the Kremlin’s banks. “Since 2008, Sberbank and VTB have made further inroads into Russian investment banking with Sberbank this year buying one of the few other remaining independent investment broking companies, Troika Dialog.”

In the Bloomberg version, “Stephen Jennings, who founded Russia’s Renaissance Capital 17 years ago, will step down after billionaire Mikhail Prokhorov rebuffed his requests seeking more cash for the money-losing investment bank, said two people with knowledge of the talks. Prokhorov’s Onexim Group, which purchased almost 50 percent of the lender for $500 million four years ago, received two approaches for additional funds in the past year from Jennings, said the people, who requested anonymity because the talks are private. The billionaire instead sought full control and plans to return the securities unit to profit, the people said. RenCap lost market share to domestic competitors with state backing during the past four years. They include VTB Capital and OAO Sberbank (SBER), which in January purchased Troika Dialog, Moscow’s oldest securities firm. Jennings’s company responded by eliminating jobs and cutting costs by 47 percent this year, one of the people said.”

Bloomberg allows insiders to trade and profit on anonymous claims. What is missing from this lot is that Prokhorov’s group has extended $650 million to Jennings since the partial takeover of 2008, and as Jennings’s far from successful African businesses continued piling up more losses. The declared loss of the RenCap group last year was $94 million. A RenCap source acknowledges that there were more losses in the first, second and third quarters of this year. There has been no public disclosure of how much.

“The Russian side was losing money”, reports one witness. “The African side wasn’t making money. The Russians didn’t believe in the African model. They made a coordinated play to oust [Jennings]”. Yet another witness claims that Jennings’s outlays on his African investment banking and real estate ventures triggered an earlier showdown with Prokhorov in August of 2011. The outcome then was that although no word of the confrontation spilled out publicly, it was decided Onexim would take additional group assets away from Jennings. These included the Russian forest and Ukrainian agricultural businesses referred to in the recent Onexim statement. As for what has been happening to assets and cashflow inside the RenCap group, one witness says “there were a lot of spinning plates”. This means something quite different to each of those who claim to own them.

The version in New Zealand – where Jennings has been one of the country’s richest nationals – is that a NZ rugby star has been beaten for the ball in a Russian scrum. The NZ business press has been downgrading the size of Jennings’s fortune. It was reputed to be NZ$1.3 billion before the crash of 2008; then NZ$900 million before last month’s events. It may be much less if one insider’s version is true that the Oxfordshire home is now on the market.

In the Japanese versions, Rashomon is the name of the town gate where the witnesses to the foul deeds are sheltering from the rain. The bad stuff happens in the forest beyond. The film has leant the name to psychologists who call the Rashomon Effect what happens when an apparently obvious sequence of events is given multiple, contradictory, and equally plausible interpretations, according to the self-interested motivation of those involved, either as witnesses or as participants.

Jennings was invited to give his own version, as were Prokhorov and Razumov at Onexim. Mum’s the word from all three.

Kerimov was asked for his version through his New York lawyer and spokesman, Eliot Lauer, and his two Russian spokesmen, Alexei Krasovskiy at the Federation Council, where Kerimov is a senator representing Dagestan; and Anton Averin at Nafta-Moskva, Kerimov’s holding. Krasovskiy said he has “no idea” of the story. Averin said: “This information is not true. Nafta Moskva has never suffered any loss in connection with the operation of IC Renaissance. We have had and continue to have excellent business relations with the company and with Mr. Jennings. We are always fully trusted by and trust Mr. Jennings and his team’s abilities to manage the bank. When the company had problems with liquidity (due to trading losses caused by the decline in ratings), Mr. Jennings entered into negotiations to withdraw from the business and to sell his stake to his partner, ONEXIM Group of Mikhail Prokhorov. We are well acquainted with Mikhail Prokhorov, he is our business partner in Polyus Gold.”

“Mr Kerimov and Jennings met recently only once – at the office of Mr Kerimov – to discuss the future of Renaissance Capital in the light of possible changes in the list of shareholders; they have never met after that, especially not in public places. Mr Kerimov and Mr Jennings maintain excellent relations. Operating contacts with management of IC Renaissance, which works with the same staff, in spite of changes in shareholders, occur at the level of management of the Group Nafta Moskva.The leadership succession at IC Renaissance, as well as the possibility of providing additional liquidity by ONEXIM Group, adds to the bank’s certainty of its relations with foreign financial institutions. Nafta Moskva plans to continue and expand business relationships with IC Renaissance, as it considers it one of the most efficient investment companies in Russia.”

Several hours after the Nafta-Moskva reply, Lauer responded for Kerimov from New York as follows:

“1. Mr. Kerimov did and still maintain trading positions with Renaissance Group. He lost nothing. 2. Our client placed full trust and confidence in Mr. Jennings’ ability to manage the bank. 3. When the company got into trouble with liquidity (due to trading losses and reduced credit ratings, which led to a credit/trading lines cut outs with major Western banks), Mr. Jennings negotiated the decision to exit the business with the sale of his portion of ownership to his 50% partner Onexim Group of Michael Prokhorov. Our client knows Mr. Prokhorov quite well for many years and he is our client’s business partner in Polyus Gold International plc. 4. Mr. Kerimov met with Mr. Jennings only once in his (Mr. Kerimov’s) office to discuss the business perspectives of Renaissance in light of the change of shareholding structure of the bank. They did not meet after that, especially in public places. Mr. Kerimov still maintains good relations with Mr. Jennings, however, the operational contacts with him and his managers are carried out by Nafta Group’s management. 5. Now, the business relations with Renaissance is handled by the same existing management team, but under the ownership of Onexim Group. This has added additional confidence in the bank by foreign financial institution, since Onexim promised to provide sufficient liquidity to the bank to maintain its business operations. 6. Our client plans to continue and expand the trading business with Renaissance Group, since it is considered one of the most efficient trading houses in Russia today.”

The New York and Moscow statements are almost identical. You don’t have to be Akira Kurosawa to detect the differences.