By John Helmer, Moscow

Not even the two people usually familiar with the matter were able to convince Bloomberg that there has been genuine demand in the London market for Megafon shares at Alisher Usmanov’s asking price. Instead, as the company and its underwriters tried to sign buyers before the subscription book closed this afternoon, brokerage sources claimed the initial public offering (IPO) was anchored by an order for $170 million. That’s 10% of the shares on offer – if the company is following its undertaking to sell 15% at a base valuation of $11 billion.

While speculation of the identity of the “anchor investor” focused on major investment funds, a source really familiar with the matter claimed that she “wouldn’t be surprised if it is ‘friends and family’. That seems to be the tactic these days.”
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by John Helmer - Tuesday, November 27th, 2012
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By John Helmer, Moscow

The International Trade Administration (ITA) of the US Department of Commerce has revealed that the new reference prices it set early this month for imports to the US of Russian-made rolled steel products will rise by 47% over the prevailing regime. However, the US evidence suggests the impact on Russian exporters will be slight.

According to Mara Lee, a spokesman for ITA, through September 30 just 257,445 tonnes of Russian hot-rolled steel subject to the reference pricing were imported, at a value of $168 million. That represents an average landed price of $652.55 per tonne. The spokesman said her agency will not speculate on what impact the hike in the reference prices will have on the volume of Russian shipments after the new price controls take effect on November 15. But depending on the category of the steel product and the US demand, there remains enough margin in the new pricing to allow some Russian exports to squeak through. At the same time, most of the surge of Russian steel sales to the US over the past two years has come in the form of semi-finished products, and they aren’t affected at all by the price controls.
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by John Helmer - Tuesday, November 27th, 2012
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By John Helmer, Moscow

For a country of Russia’s physical size, trains are an obvious strategic necessity. So it’s peculiar that there is a monopoly for pulling and pushing those trains from place to place, and that this monopoly for building locomotives should be held by a single man, who, with Kremlin approval, has buried his interest in a secretive private company in The Netherlands. That company is called Breakers Investments. The man who controls it is Iskander Makhmudov (image), otherwise known as the heir to Mikhail Chernoy’s (Cherney) copper and coal businesses.

Through the procurement of locomotives by state-owned Russian Railways (RZhD), money is moved from state-regulated transport tariffs collected by the rail operating units and from the state-subsidized RZhD investment budget through the Transmash group of companies; then in the form of dividends from Transmash’s profits it is paid into Breakers Investments. What remains a mystery is how the large profits declared by Transmash disappear when the balance-sheets of Breakers Investments show a loss.
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by John Helmer - Monday, November 26th, 2012
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By John Helmer, Moscow

Corruption is a global problem.

That’s one of the opening lines in the US Department of Justice’s guide to the Foreign Corrupt Practices Act, the law enacted in Washington in 1977 to prohibit US individuals and companies from offering inducements of value to the officials of foreign governments. “Corruption impedes economic growth,” says the guide, “by diverting public resources from important priorities such as health, education, and infrastructure. It undermines democratic values and public accountability and weakens the rule of law… International corruption also undercuts good governance and impedes U.S. efforts to promote freedom and democracy, end poverty, and combat crime and terrorism across the globe. Corruption is also bad for business.”

When the US Congress was defining the corruption the statute was meant to prevent, it sought “to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payor or his client, to obtain preferential legislation or regulations, or to induce a foreign official to fail to perform an official function.”
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by John Helmer - Thursday, November 22nd, 2012
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By John Helmer, Moscow

The deadline for Canadian shareholders to accept or reject Alexei Mordashov’s takeover terms for High River Gold (HRG) is fixed for next Tuesday, November 27. The latest count to be released to the market suggests he will fail because the holdout shareholders are convinced the offer price is too low. The price point isn’t news. The shareholder count may be.

According to Chris Charlwood, one of the coordinators of the HRG minorities, “we have collected confirmations from shareholders with approximately 90.2 million shares (10.73% of total HRG shares and 43% of the minorities rremaining) that they will not tender to Nord Gold’s offer. This includes shares owned in funds managed by Eric Sprott (HRG’s largest minority shareholder). Nord Gold would have needed 90% of minority to tender to the current offer in order to squeeze the rest out. With 43% of the minority indicating they will not tender, this should prevent this from happening on the Nov. 27th expiry date.”
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by John Helmer - Wednesday, November 21st, 2012
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By John Helmer, Moscow

Going or coming, Russian users of private jet aircraft think they are screwed.

If they fly on foreign-made planes which are registered in Russia, they are obliged under the current tax regulations to pay 18% value-added tax (VAT) on the customs-declared value of the aircraft, plus 2.2% annual property tax. If they try to avoid the VAT, and fly foreign-owned, foreign-registered aircraft, and if they are individuals, then their right to fly in style is subject to special permits issued by Rosaviatsia, the Russian aviation authority. Its rules require that the use of the aircraft is private, not commercial, and this is defined in government decrees as meaning that the flier isn’t aiming to derive income from his use of the aircraft. In addition, Russian Customs, which must issue permits for these aircraft to fly into Russian airports and pick up or drop passengers, requires that individual aircraft don’t operate inside Russia for more than 30 consecutive days; don’t accumulate more than 180 days of operation in a calendar year; and don’t carry more than 19 passengers at a time.

So what’s a Russian oligarch, or individual wealthy enough to prefer private jetting to regularly scheduled commercial airlines, to do?
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by John Helmer - Tuesday, November 20th, 2012
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By John Helmer, Moscow

If you are a steelmill owner working at safe distance when the bombs, rockets and body-packs explode in your market, the more destruction the better for demand, sales, and profit margins, especially at this point in the current cycle of the steel trade. Magnitogorsk Metallurgical Combine (MMK), the Russian steelmaker owned by Victor Rashnikov (right), has a near front-seat on the battlefield now extending from Iraq to Iran and Syria, because it is the sole owner of MMK-Metalurji (aka Atakas), a 2.3-million tonne capacity steel complex, in Turkey. In addition to losing revenues from direct sales to Iran because of US and European sanctions, MMK has been losing money hand over fist at Metalurji. In response, MMK’s management has been issuing contradictory signals of what it aims to do next.

This week MMK suspended crude steel production at MMK-Metalurji, leaving the rolling lines to continue working with stockpiled semi-finished steel. But the company doesn’t want to admit it. There has been no public announcement on the MMK website. Polina Rudyaeva, a spokesman for MMK headquarters in Moscow, said the company isn’t commenting on the issue for the time being.
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by John Helmer - Friday, November 16th, 2012
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By John Helmer, Moscow

The November 15 announcement by Megafon, the telephone property of Alisher Usmanov and Andrei Skoch, reveals a discount on last month’s valuation targets of up to 20%, depending on how the assets for sale are counted. To attract buyers for shares at bargain-basement prices, the company is promising to pay out more than 50% of its net profit in dividends, a temptation which wasn’t enough in last month’s offer to convince investors to buy into Megafon at the bottom of the valuation range of $11 billion. So uncertain is the future that the minority Swedish shareholder, TeliaSonera, confirms that it has agreed to retain its Megafon shares for no longer than next May, and may then sell out entirely.

Megafon says it has commenced a roadshow of presentations to investors today, and plans to start selling shares and General Depositary Receipts (GDRs) on the London Stock Exchange on November 28. The company has issued an Intention to List (ITL) document, but it is refusing to release the prospectus, or provide details of what it claims in that document about the risks the company faces, and what it reveals of the business practices and litigation record of Usmanov and Skoch.
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by John Helmer - Thursday, November 15th, 2012
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By John Helmer, Moscow

The rising cost line in the latest loss-making financial report of United Company Rusal, the Russian state aluminium monopoly, is under investigation as Rusal’s Latvian bank operations are probed, as well as tax payments in Cyprus. The evidence is being gathered in Cyprus; and by lawyers in London and New York, where Rusal and its chief executive Oleg Deripaska have been accused in court papers of violations of the company’s shareholder charter and management violations.

Deripaska denies the claims, while the company reports that as of September 30, it is counting provisions for possible lawsuit awards of $203 million.

In its report for the September quarter, released on November 12, Rusal says its revenues dropped to $2.5 billion, a decline of 19% compared to the second quarter. Cost of sales came to $2.3 billion, almost unchanged on the quarter. Over the 9-month period, revenues are down 13% to $8.3 billion, while cost of sales has grown 7% to $7 billion. The bottom-line for the latest quarter is an operating loss of $27 million, and an after-tax loss of $118 million. Rusal has now moved from profit-making at the half-way mark of the year into the red. A statement by chief executive Deripaska, posted on the company website, explains the company was “seriously hit by the bottomed LME aluminium price as a result of investor sentiment. The period under review has seen RUSAL continue to focus on cost controls as well as increase production of value added products.”
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by John Helmer - Thursday, November 15th, 2012
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By John Helmer, Moscow

The value difference and profit opportunity between a genuine piece of art and a fake are so large, there’s no deterring entrepreneurial forgers. Until now, the cleverest schemes have, ethnically speaking, been the specialty of Englishmen, Americans, and well-known art auction houses, museum curators and experts in connoisseurship. That last term is upper-class slang for hucksterism.

But when American Tom Wolfe (centre, right), exponent of what was called the New Journalism fifty years ago, exposes a Russian oligarch for a plot to make hundreds of millions of dollars in fakes through donating some to a Miami art museum, and selling others on the side, he has created a 700-page scapegoat for many things, including the loss of Wolfe’s talent.
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by John Helmer - Tuesday, November 13th, 2012
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