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Business Pages
// Business Book of Records
Vlast publishes another issue of Business Book of Records for the third quarter of 2005. Readers will learn from the new chapters of the book about the deal between Gazprom and Sibneft and its political and economic significance, and also about who has been strictly punished for swindle, who of the media tycoons receives the biggest salary, what losses can be caused by flu, and whether electrification of the entire country can be of any danger.
Gazprom Is With You, My Dear Man!
At the end of September Gazprom reached a deal with Sibneft on buying 72.663% of its shares for $13.091 billion. This is the biggest deal on the Russian market in the entire history of its existence. The conditions of the deal, as Vladimir Putin said, were of a market nature, but its motives were definitely political.
During the entire third quarter of the year Gazprom was preparing for setting two records in Russian business: in the size of the deal and in the size of the credit drawn. At the end of September Gazprom announced that it would spend $13 billion received as credit on buying 72.663% of the shares of Sibneft, which is administered by Millhouse Capital Co. and belongs to the governor of Chukot Region, Roman Abramovich, and his partners.
In early July Vladimir Putin said that he heard about the intention of Gazprom to acquire the controlling block of Sibneft shares and expressed the hope that if this deal materialized, it would be made on market conditions. The hopes of the President have been fully justified. At the end of September Gazprom and Millhouse Capital announced that they signed the necessary documents for acquring 72.663% of Sibneft shares and the sum of the deal was $13.091 billion. Gazprom also announced that it already bought 3.106% of Sibneft shares from Gazprombank affiliation which had been bought earlier on the market for $500 million. The purchase of Sibneft is Russia's second biggest deal (after the purchase of Yuganskneftegaz by Rosneft for $9.35 billion last December).
It is expected that the deal will be completed by the end of the year. The new owner of Sibneft will by the Gazprom affiliation Gazprom Finance B.V. registered in the Netherlands. Experts on international law and international financial law note that the Dutch legislation allows the creditor banks to take back Sibneft shares in case of delays in repaying the credit. Thus the banks crediting Gazprom reduce their risks to a minimum.
The bank syndicate includes ABN Amro, Dresdner Kleinworth Wasserstein, Citigroup, Morgan Stanley, Goldman Sachs and Credit Suisse. Part of the money received Gazprom will return by the end of the year thanks to getting some of the means from the state-owned Rosneftegaz for its own shares sold previously, which enabled the state to increase its share in the gaz concern to controlling one. The remaining sum (about $8 billion) Gazprom will receive in the form of an ordinary credit divided into three portions, depending on the deadline of their repayment (18 months, three years and five years).
Along with Sibneft shares, its shareholders will sell other oil assets, which the company consolidated in its records on US GAAP. This includes half of the shares of Slavneft and 36.84% of the voting stock of the Moscow oil refinery.
It is possible that in the near future Millhouse Capital will succeed in buying up from YUKOS another 20% of Sibneft shares which can later be obtained by Gazprom. At present these securities are under arrest on the claims of the General Prosecutor's Office presented to Mikhail Khodorkovsky and Platon Lebedev.
The confrontation between Rosneft and Gazprom as the main instruments in the hands of two Kremlin groupings has passed from the stage of active rivalry to the stage of mustering strength. Evidently, these two groups strive to obtain new assets before 2008, wishing to avoid an open struggle. The reprivatization of the strategic oil industry is effected with the help of two state-owned companies, which promises a serious intrigue in the fight for presidency. The attempts of the opponents of state monopolization of the industry (the President's adviser Andrey Illarionov, the Minister of Economic Development Herman Gref and the Minister of Finance Alexey Kudrin) to express their dissatisfaction are simply ignored.
Herman Gref was very close to thwarting the deal, which is a record for Russia, but his opposition continued for less than a week. And the deal was finalized by all parties concerned.
It is indicative that the curator of Gazprom Dmitry Medvedev, the head of the presidential administration, and his deputy Igor Sechin (the chairman of the board of directors of Rosneft) have different approaches to the problem of replenishing assets. Whereas Gazprom spends billions on buying Sibneft, Rosneft, via Yuhanskneftegaz, wishes to acquire not simply separate assets of YUKOS, but the entire company. In September the Moscow Court of Arbitration satisfied the claim of Yugansneftegaz to draw to the case the main shareholder of YUKOS, the Cyprus company Hully Enterprises Ltd., as a defendant.
Besides, Rosneft may become the owner of Surgutneftegaz within the next two years. If Rosneft acquired control over YUKOS and Surgutneftegaz, then state-owned companies will control more than half of the entire oil extraction of Russia.
Gazprom in its turn, can also buy half of TNK-BP from the Russian shareholders of this company. Besides, its Russian co-owners are bound by shareholder agreement forbidding partners to sell their shares prior to the autumn of 2007.
The strengthening of the state's presence in the oil industry of Russia will also take place through the development of new projects started by state-owned companies, and first and foremost, working on sea shelves. Gazprom can count on partnership with Russia's biggest oil company LUKOIL. Its head, Vagit Alekperov, stated earlier that LUKOIL and Gazprom intended to jointly take part in the tenders for working the “Sakhalin-3” deposit.
As to Roman Abramovich, he can feel relatively free after selling his last biggest Russian asset. The only condition which he will have to fulfil is to continue to work as the governor of the Chukot Region. It is evident that he will not share the fate of YUKOS co-owners.
The only company which can theoretically block the acquisition of Sibneft by Gazprom is Rosneft . However, it looks rather fantastic. Rosneft is interested in not giving YUKOS the opportunity to sell 20% of Sibneft shares. After Rosneft succeeds to establish control over YUKOS, it will hardly return to the deal on the merger of Sibneft by YUKOS, but it may not give Gazprom a chance to seriously entrench itself in the oil industry.
by Denis Skorobogatko
Biggest Purchases of Companies in Russia
| Place |
Date of purchase |
Purchaser |
Subject of the deal |
Sum ($bln) |
Circumstances |
| 1 |
September 28, 2005 |
Gazprom |
Sibneft |
13.1 |
Gazprom and Millhouse Capital Co. announced the signing of the necessary documents for the purchase of 72.663% of Sibneft shares. |
| 2 |
December 19, 2004 |
Baikalfinance Group |
Yuganskneftegaz |
9.352 |
RFFI sold at an auction 77% of the company's shares for tax arrears of YUKOS. In a day's time Baikalfinance Group was bought by Rosneft. |
| 3 |
June 26, 2003 |
British Petroleum |
TNK |
6.15 |
The main shareholders of TNK – Alpha-group and Access/Renova signed a deal with BP on setting up a joint company TNK-BP, in which the latter got 50% and Russian companies also 50%. |
| 4 |
October 3, 2003 and October 21, 2004 |
Bazovy Element |
50% of Russky Alyuminy |
3.5 |
Rusal shares were sold by Millhouse Capital (which is in charge of R.Abramovich's assets) in two packets, 25% each. This deal made Bazel the complete owner of Russia's biggest aluminium company (the world's third). |
| 5 |
April 15, 2005 |
Dixons |
Network of Eldorado supermarkets |
1.9 |
This deal selling Eldorado to a European investor presupposes the preservation of Eldorado brand and the development of joint projects of consumer crediting. The purchase of 100% of shares is planned for 2011. |
| 6 |
July 25, 1997 |
Mustcom Ltd |
25% plus one share of Svyazinvest |
1.875 |
The company set up by George Soros bought the blocking packet of the holding at a privatization auction. |
| 7 |
December 18, 2002 |
Sibneft and TNK |
Slavneft |
1.86 |
74.95% of the oil company were sold at the privatization auction of “Invest-Oil” which belonged on a parity basis to Sibneft and TNK. |
| 8 |
December 2004 |
Gazprom |
Sevmorneftegaz |
1.7 |
Rosneft sold to Gazprom its share in Sevmorneftegaz (69%). The means received were used for buying Yuganskneftegaz through Baikalfinancegroup Co. |
| 9 |
May 2001 and August 3, 2001 |
TNK |
SIDANCO |
1.25 |
TNK bought 40.3% of SIDANCO shares from the Cyprus offshore company Kantupan ($600mln) and 44% from Interros holding ($650 mln) |
| 10 |
September 19, 2000 |
TNK |
ONACO |
1.08 |
Euro-TEK firm owned by TNK shareholders won the investment bid for purchasing 85% of ONACO shares. |
The Biggest Merger
Last July the companies Nextel Communications Inc. and Sprint announced their merger and the setting up of the third biggest American operator of mobile communication. According to Nextel and Sprint representatives, a quarter of all owners of mobile phones in the United States are now the customers of the amalgamated company. The sum of the deal was estimated at $35 billion. More than six months were required to bring the deal in line with the American anti-monopoly legislation. On August 12 the completion of the deal and the creation of Sprint Nextel Corp. were officially announced.
The Biggest Compensation
$1 billion was paid by the bank JP Morgan Chase as a compensation to those who lost money as a result of thercollapse of the Enron power giant four years ago.
The Strictest Punishment
In the middle of July a sentence was passed in the case of Berny Ebbers, the head of the Worldcom Corporation, accused of swindle and giving false information to investors. The bankruptcy of Worldcom was just one of the chain of spectacular corporative scandals which shocked the United States in 2001 – 2002. The authorities demanded life sentence for the 63-year-old businessman who was admitted guilty on nine charges and sentenced to 25 years in prison. This is the strictest sentence ever passed on persons guilty of corporative swindles in the United States in the beginning of 2000. Besides, Ebbers lost practically all his property, which would be sold to compensate the losers. The expected sum is from $25 to $50 million.
The Most Highly-paid Media Tycoon
$1 million a week is received by Richard Desmond, the chairman of the board and the chief shareholder of the Northern & Shell Co. owning the newspapers Daily Express, Daily Star, the magazine OK! and a network of erotic TV channels. For comparison's sake, one of the most influential media tycoons, Rupert Murdock, as the general director of the News Corp. receives only 193,000 pounds a week.
The Most Sectual Marketing
One of the July issues of the German journal Freizeit Magazine was sold out within several hours. It was due to an ad of a brothel in one of the Austrian towns. The ad was supplemented by a coupon for “free 30 minutes of sex with a girl of your choice”. Many readers were indignant, some of them even complained to the police, but it was explained to them that there was nothing unlawful in the ad. Besides, there were no indecent photos added to it. But prostitution and brothels are officially allowed in Germany and Austria. As to the brothel's owners, they were very pleased with the ad, for the number of customers increased considerably after its publication.
The Most Bitter Fight for a Company
Throughout the summer the struggle for the British motor company MG Rover was going on, although it actually ceased to operate last April, after its owners announced its bankruptcy, stoppage of production and dismissal of over 6,000 employees. The temporary manager of PricewaterhouseCoopers held negotiations with three tentative buyers of MG Rover: the British businessman David James and the Chinese automobile companies – Shanghai Automotive Industry Corp. (SAIC) and Nanjing Automobile (Group) Corp. The struggle has not ended even after the managers chose the Nanjing Corp. The losers tried to secure the repeal of the decision through court, but failed. The rights of Nanjing, China's oldest automobile producer, have been confirmed and now the name of the British firm is GB Sports Car Company.
The Most Unusual Product
Traders of tinned air have ceased to be a rarity. One can buy tins of the air of Montmartre in Paris, and in Nice there are tins with the sea air on sale. However, until now no one has sold exhaust fumes. The first such person is Torsten Jan in Berlin. He offers customers tins with exhaust fumes of the Trabant car, a symbol of the former GDR. The cost of one such tin is 3.98 euros. Those feeling nostalgia for the old regime willingly buy the commodity.
The Biggest Dividends
$2.29 billion (practically the entire net profit) were recommended to be paid as dividends for 2004 by the board of directors of Sibneft Co. on July 4. Gazprom paid $978 million as dividends for 2004, LUKOIL -- $827 million, and MTS -- $398 million. Experts regarded this as a sign of the forthcoming selling of the company, and they proved right.
The Most Unprofitable Disease
The Ministry for Emergency Situations has estimated the loss from bird flu in Russia at 37.98 million roubles. This without the expenditures on vaccination and quarantine measures. The expert evaluation of the losses of paultry farming is about $6 million.
The Most Radical Decision
On August 3, the first vice premier of Chechnya, Ramzan Kadyrov, issued an order banning the operation of all gambling facilities in the republic. This concerns, first and foremost, the one-arm bandit halls. He substantiated this decision by stating that gambling contradicts the norms of Islam and negatively influences the upbringing and education of the younger generation.
The Most Considerable Redivision of the market
On July 18, the world's biggest producer of beer, the holding INBEV S.A., represented in Russia by the company Sun Interbrew, officially announced the purchase of the Tinkoff Brewery belonging to Oleg Tinkov. (the company's turnover amounted $42.5 million in 2004, it sold 1.7 decalitres of beer). The sum of the deal was $201 million. In the middle of August it was announced that the Dutch brewery Heineken would purchase the group of companies Pivovarni of Ivan Taranov (in 2004 its turnover amounted to more than $200 million, 290 million decalitres of beer were produced). The sum of the deal comprised $560 million. Thus Heineken has completed its regional expansion, its share on the Russian market reaching 15%.
The Most Principled Company
In the beginning of August the construction of the Mega supermarket in Kazan (Tatarstan) undertaken by the IKEA company was suspended. The reason was the inadequate quality of the concrete used by the contractor, the Turkish company Ural-Insaat. Claims and complaints of this type have been presented to IKEA in some cases previously. The management of IKEA Co. has stated that pressure is brought to bear on it with a view to extorting bribes, and it officially announced that it would not work according to such Russian traditions.
The Most Short-lived Ban
On August 22, after the closing of the airshow MAKS-2005 in Zhukovsky, Moscow Region, the Rostransnadzor (Russian Transport Safety Inspection) banned the flights of the Il-96-300 planes (300 passengers, distance 8,500 kilometres, speed 828 km/h). The main reason was “failures in the work of the braking and hydro systems”. But the main cause of the ban was the thorough examination of the braking system in the presidential liner Il-96-300PU during Vladimir Putin's visit to Finland in the beginning of August. However, on October 3 the flights of the Il-96-300 planes were to be resumed, for the “drawbacks were eliminated.” The losses of the planes' idle time were estimated at $20 million.
The Most Essential Price Rise
Petrol became more expensive by 7.9% in September. For the sake of comparison: consumer prices rose by 0.3% , and paid services to the population were higher by 0.9% in September.
The Biggest Tax Claim
On September 21, the Federal Tax Service presented its claims to Mosenergo to a sum of 7.154 billion roubles, on the results of chacking the company's activity during 2002 – 2004. Experts believe that similar claims can now be presented to each affiliation of the RAO EES Rossii.
The Most Spectacular Resignation
On September 30 the board of the Russian Union of Industrialists and Entrepreneurs (RSPP) accepted the resignation of its head, Arkady Volsky and elected him Honorary President for life. Alexander Shokhin, the head of the Council of IG Renaissance Capital, became its new president. He promised a new programme for drawing greater investsments in the Russian economy.
Russian Companies Most Often Mentioned
Vlast presents the rating of the world popularity of Russian companies for the third quarter of 2005. The rating is based on their mentioning in the world press.
| 1(3) |
Gazprom |
3107* |
| 2(2) |
Rosneft |
2851 |
| 3(11) |
Sibneft |
2671 |
| 4(1) |
YUKOS |
2528 |
| 5(14) |
MENATEP |
2209 |
| 6(6) |
Renaissance Capital |
2003 |
| 7(22) |
LUKOIL |
1555 |
| 8(9) |
Surgutneftegaz |
1359 |
| 9(13) |
Bazovy Element |
1045 |
| 10(15) |
Troyka Dialog |
1035 |
| 11(8) |
Transneft |
905 |
| 12 (4) |
MiG |
901 |
| 13(26) |
Russky Alyuminy |
827 |
| 14(5) |
Yuganskneftegaz |
744 |
| 15(25-26) |
Aeroflot |
734 |
| 16(7) |
Siloviye Mashiny |
700 |
| 17(12) |
TNK-BP |
677 |
| 18(10) |
Tatneft |
625 |
| 19(25-26) |
Norilsky Nikel |
578 |
| 20(20) |
Sukhoi |
575 |
| *Number of publications mentioning the company's name. |
Information about the former and present shareholders of YUKOS and MENATEP remained popular with foreign correspondents, which guaranteed these two companies places among the first five of the rating. YUKOS and MENATEP were the most frequently been written about by American and German newspapers. Meanwhile, we should note the less frequent mentioning of YUKOS (from first to fourth place) after the end of the trial of Mikhail Khodorkovsky and Platon Lebedev.
The real “hero” of the past quarter of the year was Gazprom. Correspondents of German and British newspapers were especially interested in its deals. British newspapers and magazines are especially interested in all aspects of the activity of the governor of Chukot Region, Roman Abramovich.
The high rating of the aircraft-building firms MiG and Sukhoi was maintained by publications in the newspapers of South Asian and Southeast Asian countries, primarily Indonesia, India and Malayasia.
by Khakim Ibragimov
The rating is based on materials published in the 100 leading newspapers and magazines of Australia, Britain, Germany, India, Spain, Italy, Canada, Malaysia, New Zealand, Pakistan, Singapore, the United States, France and Japan. The rating does not take into account information of news agencies and TV and radio companies. Articles mentioning companies' names with the words “Russia” or “Russian” are only counted. Their place in the previous rating is in brackets.
The Most Active Advertisers
Television
| Place |
Company |
Brands |
Volume of ads (000 mins) |
| 1 |
Procter & Gamble |
Pantene PRO-V, Blend-a-med, Tide |
19.2 |
| 2 |
Unilever |
Dove, Sunsilk, Rexona |
13.7 |
| 3 |
Pepsi Co. |
Pepsi, Lay's, Aqua Minerale |
9.5 |
| 4 |
Danone |
Danone, Prichuda, Yubileinoye |
8.1 |
| 5 |
Sun Interbrew |
Klinskoye, Sibirskaya Korona, Stella Artois |
7.9 |
| 6 |
Reckitt Benckiser |
Vanish, Cillit, Bosch |
7.4 |
| 7 |
Vimm-Bill-Dann |
Neo, J7, Chudo |
6.5 |
| 8 |
Mars-Russia |
M&M's, Kitekat, Pedigree |
6.2 |
| 9 |
Coca-Cola |
Coca-Cola, Bonaqua, Burn |
5.7 |
| 10 |
Nestle |
Nescafe, Maggi, Nestle, Nuts |
5.2 |
Press
| Place |
Company |
Brands |
Volume of ads (page A2) |
| 1 |
L'Oreal |
Garnier, L'Oreal, Vichy |
74.56 |
| 2 |
Inkom-nedvizhimost |
Inkom-nedvizhimost, Residentsiya, Riverside |
61.96 |
| 3 |
Toyota Motors Corporation |
Toyota Motors Corporation, Toyota, Lexus, Total |
60.5 |
| 4 |
Samsung Electronics |
Samsung, Intel Inside |
59.17 |
| 5 |
Mercury |
Mercury, Patek Philippe, Breiling |
55.92 |
| 6 |
Bifree |
I-free, Jamago, Hacker |
47.44 |
| 7 |
Mobilniye Telesistemy |
Mobilniye Telesistemy, Jeans, MTS. Komanda |
45.22 |
| 8 |
Don-stroi |
Don-stroi, Sedmoye nebo, Aliye parusa |
43.47 |
| 9 |
Vympelkom |
Beeline, Prostiye veshchi, Chameleon |
43.29 |
| 10 |
Miel |
Miel, Privat-square, Grand-park |
40.96 |
Street Ads
| Place |
Company |
Brands |
Volume of ads ($mln) |
| 1 |
Samsung Electronics |
Samsung |
2.5 |
| 2 |
LG Electronics |
LG |
2.3 |
| 3 |
British American Tobacco |
Pall Mall, Kent, Viceroy |
2 |
| 4 |
Mobilniye telesistemy |
MTS GSM |
1.8 |
| 5 |
Vympelkom |
Beeline |
1.5 |
| 6 |
Philip Morris Products Inc. |
Marlboro, Muratti, Chesterfield |
1.4 |
| 8 |
Megaphone |
Megaphone GSM |
1 |
| 9 |
Gallaher |
Sovereign, Sobraie, LD |
1 |
| 10 |
Motorola Inc. |
Motorola |
0.8 |
Most Advertised Types of Commodities
Television
| Place |
Type |
Volume of ads (000 mins) |
| 1 |
Mobile communication services |
32.189 |
| 2 |
Beer |
23.6 |
| 3 |
Soft drinks |
16.8 |
| 4 |
Detergents |
15.06 |
| 5 |
Dairy products |
14.6 |
| 6 |
Hair care products |
8.7 |
| 7 |
Chewing gum |
7.5 |
| 8 |
Mobile communication equipment |
7.05 |
| 9 |
Mass entertainments |
6.6 |
| 10 |
Groceries and prepared food |
6.3 |
Press
| Place |
Type |
Volume of ads (page A2) |
| 1 |
Services in real estate operations |
560.76 |
| 2 |
Motor transport |
506.78 |
| 3 |
Services in tourism and rest and recreation |
332.46 |
| 4 |
Services in mobile communication |
294.34 |
| 5 |
Trade organizations |
223.28 |
| 6 |
Furniture |
208.08 |
| 7 |
Construction units |
180.56 |
| 8 |
Medical services |
164.04 |
| 9 |
Bank services |
158.45 |
| 10 |
Specialized services |
154.3 |
Street Ads
| Place |
Type |
Volume of ads ($mln) |
| 1 |
Supermarkets |
7 |
| 2 |
Cigarettes |
5.6 |
| 3 |
Mobile phones |
4.6 |
| 4 |
Mobile communication services |
4.5 |
| 5 |
Beer |
3.4 |
| 6 |
Bank services |
3.3 |
| 7 |
Cars |
2.9 |
| 8 |
Housing |
2.4 |
| 9 |
Films |
2.4 |
| 10 |
Car sales |
2.1 |
| Ratings have been compiled on the basis of the data provided by TNS Gallup Adfact Co. (ads on 19 TV channels and in 290 newspapers and magazines) and ESPAR-Analytic (street ads in the 50 biggest cities of Russia). |
The results of the third quarter of the year were unsatisfactory for the Russian market of street ads. On January 1, 2005, street ads became more expensive (by 25 to 30%). Besides, a higher tax was imposed on imputed income.
Stricter rules were adopted on September 1 for placing street ads along motor roads which meant that up to 80% of ads could be removed from there.
The mayor of Moscow, Yuri Luzhkov, demanded that more ads be dismantled in the city; which concerns primarily 3x6 metre ads. As a result, the price of placing ads in the capital will rise considerably and will only be available to big advertisers.
Timur Bordyug
All the Article in Russian as of Oct. 17, 2005
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Photo: Yury Martyanov
