By John Helmer, Moscow
The arrest and indictment of Suleiman Kerimov in Nice last week on charges of tax fraud and money laundering have begun loosening the tongues of international bankers and commodity trade financiers who have done business with Kerimov in the past, and who have been guests at his Cap d’Antibes villa parties.
They say Kerimov’s wealth is illusory and exaggerated by the press, because his assets are heavily leveraged by bank loans which can be called in by material changes in borrower condition; Kerimov’s arrest may be one of them.
The sources also believe the money for Kerimov’s villa purchases in Cap d’Antibes, which are the target of the French prosecution, originated from Russian state banks. “The international banks largely dropped Kerimov’s business after 2008 when the share value securing his borrowings collapsed, and he had to sell up,” comments a source who was involved in financing for Kerimov before the crash. “Since then he’s been a dependent of Sberbank. The Sberbank officials knew he was high risk, and they treated him like a slave. Kerimov had to kiss their feet.”
Investigations in Nice, Moscow and Switzerland, where Kerimov’s asset holdings are managed, confirm that Kerimov’s chief creditors today are the state banks, Sberbank and VTB, run by German Gref and Andrei Kostin. A smaller line of credit has been extended by a third state lender, Gazprombank. The international bankers say they don’t know whether Russian state bankers are also beneficiaries of the villas at Cap d’Antibes.
In Moscow there is nervousness over what Kerimov’s telephone conversations, tapped by French prosecutors, have revealed already; and what he will admit under interrogation about who may be the owners of the real estate, if not himself. An international bank source believes the real villa owners aren’t Russian bankers. “They don’t like people like Kerimov,” the source says. “Certainly not [Sberbank chief executive German] Gref and [VTB chief executive Andrei] Kostin. They are independently rich; they don’t need guys like Kerimov. They would not put themselves into Kerimov’s hands. These houses are never worth what the papers are reporting but they are all Kerimov’s stuff. That’s been his business style. He buys assets in bagloads – bank shares, commodities, real estate. But now the market has turned like it did for his other assets. You can’t sell a house on the Cote d’Azur at the price Kerimov paid. His business is show business. That’s caught up with him now.”
Kerimov’s financing methods have been well known for years. CNN  reported in 2012 that “oligarchs like Kerimov often obtain access to such leverage by pledging shares as collateral. The returns on such business — called margin lending — can be tantalizingly lucrative, but dangerous in default.”
Weeks earlier in the same year, the Financial Times published an interview with Kerimov and his investment manager, Allen Vine, a US national. The newspaper reported Kerimov’s net worth was impossible to calculate after his debts were counted . “None of the stake-building has ever been reported, say Kerimov associates, because the positions were created with the help of huge loans, mostly from western banks, and hedged through put and call options. ‘The majority of exposures were hedged through derivatives and so the overall net positions were significantly less,’ said one. “For every one dollar of investment, about 80 cents was pledged to other banks as collateral for loans. The leverage averaged 75 per cent.’ ”
Today a London finance source says Swiss banks have been cautious about Kerimov and reluctant to lend him more than 40 or 50 cents on asset value. By contrast, he adds, “the US banks would give him 110 cents.” Leverage like that has triggered speculation in the markets that, according to the Financial Times, Kerimov “sometimes invests funds for other silent partners – in particular, the Kremlin. ‘There were times when I wondered whether it was a front for the Kremlin,’ said one banker.”
A Moscow source adds: “The state bankers aren’t incautious. They just execute orders.”
Kerimov doesn’t answer questions in public, parliament, or the press. His annual income and asset disclosure required from him as a senator for Dagestan in the Federation Council reveals a car and part-shares of two small apartments; of foreign assets or income, none at all. Kerimov claims to have placed his offshore assets and income in a Swiss foundation in order to comply with the Russian law of 2013 which has been explained here . Kerimov claims his principal income-earner and corporate asset, the Polyus goldmining group, is owned and controlled by his son Abusaid (Said) Kerimov, who is a university student aged 22. His wife Firuza used to be a shareholder in his mining assets, as well as a borrowing agent for the group through an entity called FK Capital; click  for details. Their daughter Gulnara currently sits on the Polyus board as a director.
Left to right: Suleiman Kerimov; Firuza Kerimova; Said Kerimov; Gulnara Kerimova (June 2014). Forbes continues to list Kerimov as having “real time net worth” of $6.9 billion based on Polyus -- “Forbes assumes Kerimov is the true owner”. https://www.forbes.com/profile/suleiman-kerimov/ 
A prospectus for the Polyus group issued in London on June 30 is the latest financial disclosure available for Kerimov senior. It claims: “Mr. Suleyman Kerimov does not own or in any way control or influence the shares in the Company held by his son, Said Kerimov. Mr. Suleyman Kerimov has no current involvement in the Company and has no intention to be involved in the future with the Company or in relation to the shares held by his son.”
This put the asset at a further remove from Kerimov senior’s Swiss operations, which were vulnerable to US and European Union sanctions. “In 2013,” writes the US law firm Debevoise and Plimpton in the latest prospectus, “Suleyman Kerimov (who was the then beneficiary of 40.22 per cent of the shares in PGIL [Polyus Gold International Limited] under a trust arrangement), transferred his beneficial ownership of PGIL to the Suleyman Kerimov Foundation (the “Foundation”), a Swiss charitable fund. In 2014, Said [aka Abusaid] Kerimov was named as a second beneficiary under the trust arrangement. On 28 November 2016, the relevant trust arrangements were amended, such that the Foundation ceased to be a beneficiary and Said Kerimov remained the sole beneficial owner of PGIL.” Currently, 85% of Polyus is under Kerimov family control.
Kerimov senior’s financial operations in Switzerland are now under investigation in France because he is alleged to have employed a Swiss nominee, Alexander Studhalter, to act as the registered purchaser of the Cap d’Antibes villas. Based in Lucerne, Studhalter, his father, mother and brother, have had a long history acting for Kerimov. Read the backfile on them. The French evidence is also to be examined by Swiss and Russian prosecutors.
Gulnara, Kerimov’s daughter, is described in the Polyus prospectus as “currently work[ing] at the representative office of JSC MG International AG. Prior to this, she was employed by Credit Suisse Group’s representative office in Russia. Ms. Kerimova graduated from the Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs of the Russian Federation, International Business and Business Administration Faculty.”
When Credit Suisse employed the daughter, the bank had been the principal financier for the father’s stakes in Lucerne office buildings, as well as his motor-yacht Ice, an aircraft, and other real estate assets. Swiss sources claim there was a falling-out when the bank issued loan repayment calls and Kerimov defaulted .
Swiss company records show the daughter’s current employer, MG International AG , is a front company operated since 2009 at Hirschmattstrasse 62, Lucerne, by Philipp Studhalter. MG stands for Millennium Group , one of Suleiman’s Swiss asset holdings. The Studhalter headquarters for these operations is at Matthofstrand 8, Lucerne.
Also registered as operating at the same Matthofstrand address is Swiru Holding, another Kerimov asset holding. Next door, at Matthofstrand 6 (pictured below), is the office of the Suleiman Kerimov Foundation .
The nine Polyus board members include two Americans and a Canadian, who are reported as independents. Apart from Kerimov’s son and daughter the remaining Russian directors have all been his employees for years.
The prospectus is for the sale of ordinary shares and Global Depositary Shares (GDS) for Public Joint Stock Company Polyus, a Russian entity, which is listed on the London and Moscow stock exchanges. Read the document in full here . The corporate structure, controlled from Jersey and including its operating mines and prospects, looks like this:
CLICK ON IMAGE TO ENLARGE
Source: Polyus prospectus , page 98
The most recent of the gold acquisitions is Sukhoi Log, the largest unmined gold deposit in Russia. The 20-year fight over control of that asset was won early this year by Polyus in partnership with the state asset holding Rostec, controlled by Sergei Chemezov. That story can be read here .
The June prospectus reveals that four North American banks – Goldman Sachs, JP Morgan, Morgan Stanley and Bank of Montreal – cleared their underwriting with the sanctions office of the US Treasury. It also confirms Kerimov senior’s dependence on the three Russian state banks, Sberbank, VTB and Gazprombank (GPB), as financiers and creditors.
In addition to this underwriting, the prospectus reveals that Sberbank is the dominant lender for Polyus. VTB is also a major lender, and Gazprombank a minor lender. The state sovereign wealth fund known as Russian Direct Investment Fund has also become a small shareholder. Foreign bank borrowings have been small; those remaining from Société Générale (France), ING (Netherlands), and Unicreditbank (Italy) were paid off a year ago.
The Russian state banks are also the dominant buyers of Polyus’s mined gold.
RUSSIAN STATE BANKS BUY MORE THAN 90% OF POLYUS GOLD BULLION
Source: Polyus prospectus , page 252; Otkritie and MDM are now under bankruptcy management by the Central Bank, and the Bank of Moscow is part of VTB. Sberbank holds most of Polyus’s cash.
As of March 31, Polyus reports its total borrowings amounted to $4.6 billion, 80% of which is denominated in US dollars. Forty percent of the borrowings are from Sberbank. VTB has extended a Rb40 billion credit line, and Gazprombank a credit of Rb6.1 billion. VTB is also the custodian of the newly issued Global Depositary Shares (GDS).
KEY RUSSIAN BANKERS EXPOSED TO KERIMOV’S BUSINESS RISK
Sberbank lineup, left to right: German Gref, CEO; Vadim Poletaev, first deputy chairman in charge of corporate business and wealth management; and Lev Khasis, first deputy chairman in charge of international operations. Source: http://www.sberbank.com/investor-relations/corporate-governance/sberbank-executive-board 
VTB lineup, left to right: Andrei Kostin, CEO; Yury Soloviev, first deputy president and chairman of the management board and Denis Bortnikov, deputy president and chairman of the management board. Click to open their bios: https://www.vtb.com/group/management/guide/Soloviev/ 
With the exception of Gref, none of these individuals has ever been photographed with Kerimov.
Another group exposed to the outcome of the French prosecution is the Chinese conglomerate known as Fosun, which is controlled from Shanghai by Guo Guangchang (right).  The Polyus prospectus confirms that at the end of May of this year, the Polyus holding company in Jersey agreed to sell Fosun 12.6 million shares of the new Polyus issue (10% of the share capital), making the Chinese company the only significant investor to be counted outside the Kerimov family. Fosun paid $70.60 per share ($35.30 per GDS). It has also agreed to buy an option for another 5% of Polyus, making 15% altogether, on or before next May. The extra shares are priced at $77.66 ($38.83 per GDS).
Despite Kerimov’s troubles in France, the GDS price in London has continued to climb, so the Chinese can already count for themselves a sizeable paper gain.
POLYUS – TRAJECTORY OF GLOBAL DEPOSITARY SHARE PRICE
One ordinary share equals 2 GDSs. The dollar price shown is for one GDS. The Chinese buy-in price was equivalent to $35.30. At the current GDS price of $42.80, the value has increased by 21%. The market capitalization has climbed from $9 billion to $11 billion. Over the same period, Fosun itself jumped sharply in share value, only to drop by 13% in November. Source: https://www.bloomberg.com/quote/PLZL:LI  and https://www.bloomberg.com/quote/656:HK  Fosun’s market cap is 64% greater than that of Polyus.
The Chinese have reserved the right to exit, according to the Polyus prospectus. “The completion of the Initial Stake transaction is expected to occur before the end of 2017 and remains subject to certain conditions, including receipt of governmental approvals. The Consortium has already obtained preliminary approvals from certain governmental authorities. There is no assurance that the transaction will be completed.”
At Moscow headquarters Polyus was asked this week to say if the Chinese have gone through with their deal. The company refuses to reply.