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July 16, 2007
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The Book of Business Records
Vlast has compiled the next issue of the Book of Business Records, this time for the second quarter of 2007. From the book's new chapters, you will learn who is an emerging player on the world aircraft construction market, which city is a leader among business capitals, how it is hemmed in by the terrestrial equivalent of the Strait of Malacca, and the degree to which investors can get around it.
Unidentified Financial Object

The record deal closed in the second quarter of 2007 by the little-known company Prana immediately wins a place in several record categories. It was a record sum for the worldwide real estate market: the packet of assets, the most important of which was the Yukos office in Moscow, was purchased for almost $4 billion. It was also a record of secrecy: until now, no one anywhere in the world had succeeded in keeping such a massive deal under wraps throughout the entire process.

Several records in Russian business, including this one, were set anonymously. There is still no credible information about who is behind the mysterious Prana, the first half of this year's record-breaking company that purchased a whole array of assets, the largest of which appears to be the company Dubininskoye, the owner of the Moscow headquarters of Yukos on Dubininsky Street, at a Yukos property auction on May 11, 2007. This office building is undoubtedly some of the most interesting real estate in Moscow: in 2001, Mikhail Khodorkovsky's company spared no expense and spent around $40 million building the largest "smart home" in Russia. But that's not the main point. Prana, which paid a little over 100 billion rubles for the office and for more than a dozen other legal entities that were once part of the managing structure of Yukos, thus set a world record for the largest price paid for real estate. No one anywhere else in the world has ever paid more than $500 million for an office center, high-tech or not.

The assets acquired by the mysterious firm in the May 11 auction are officially known as N13: this was the 13th group of Yukos assets packaged for sale during the company's bankruptcy. Overall, no one expected that the sale of lot N13 would lead to a record. The sale of the previous lots had shown that, to a significant degree, the auctions were a formality: the Yukos assets were more or less already divvied up, and the proceedings were basically an appropriation by Rosneft of the majority of the property formerly belonging to Mikhail Khodorkovsky and his partners, with the corresponding repayment of Yukos' debt to the government. In any case, Rosneft succeeded largely without any competition to acquire the assets of the fallen company that it had previously expressed interest in.

But at the sale of lot N13, competition appeared for Rosneft. The company Prana, which is registered in Moscow, has an ownership structure that is extraordinarily difficult to clarify. Ninety-nine percent of Prana, which has registered capital of 10,000 rubles, is owned by some offshore company called Parson Consulting that is registered in the Seychelles, while the remaining 1% belongs to the Moscow lawyer Vladimir Yesakov. Mr. Yesakov categorically refuses to have anything to do with the media, and even his place of work remains entirely unknown. All that is known is that he previously worked with a team of people from Gazprombank and Deutsche UFG who are now creating an undistinguished investment company called United Capital Partners.

The Russian Federal Antimonopoly Service spent a fairly long time investigating Prana's bid for lot N13, but the service apparently finally got exhaustive confirmation that the deal would not violate the principles of competition. Well, and what violation of the principles of competition could there be, anyway? On the one hand, the sale by auction of lot N13 appeared to be a celebration of the principle of commerce. The bidding went on for more than an hour, and Rosneft clearly gave up when the imperturbable representative of Prana indicated that the company would pay more than 100 billion rubles for the lot. It was conceivable that if Rosneft had continued to bid up to 200 billion rubles, Prana would have coolly matched that sum as well.

Initially, investment bankers who heard about Prana's move joked that the managers of Yukos must have buried treasure in the basement of the Dubininsky building. Then they decided that such a deal must have an economic rationale. But what that might be, no one can say.

First of all, in the current political climate in Russia only very few companies, primarily Gazprom and Rosneft, have the ability to spend unlimited amounts of money on such exotic deals. It is hardly likely, however, that Rosneft would haggle with itself at the auctioning of lot N13 and then turn around and strike a deal for the purchase of the Dubininsky building (at the beginning of July Rosneft announced that it had bought some of the Yukos assets from lot N13 from Prana, including the office building).

The logical primary suspect in the case of the mysterious buyer is the most expensive Russian company: Gazprom and its group. It is known that Prana has an account at Gazprombank, so it is possible that the company got the money from Gazprom's own bank.

Where these funds came from and why they turned up on that account is another issue. The basic version is that the 100 billion rubles in Prana's accounts that allowed it to bid so effectively for lot N13 came from Gazprom and entities affiliated with it. So far, however, confirming that version is impossible, even though it would be fairly difficult to conceal four billion dollars in the accounts of even as large a company as Gazprom. In any case, Gazprom's account records will not be available until August-September 2007.

Yet another version exists concerning who transferred the money to Prana and why, one that is wrapped up with the history of lot N13 and of the last of the failed mergers of Yukos and Sibneft. In 2001, one of Roman Abramovich's companies got involved in a deal to merge Yukos and Sibneft, in which Yukos paid $3 billion for a 20% stake in Sibneft. The merger never took place, and Sibneft was sold to Gazprom and renamed Gazprom Neft. According to this version, which has yet to be either confirmed or denied, Roman Abramovich returned that $3 billion to Yukos: refusing to return the money is purported to have threatened the oligarch with a loss of face in the billionaires' club.

This version looks credible from an outside point of view. Verifying it, however, is impossible. Abramovich himself has long been in the habit of not commenting on those of his activities, intentions, and motivations that do not have to do with the players belonging to his Chelsea football club. With regard to the motive – who can say for certain whether those in the circle of billionaires believe that Roman Abramovich was obliged to return the $3 billion to save face after the deal with Yukos fell through?

However, the identity of whoever gave Prana the money the buy N13 is not really that important, since the mysterious financier is not the real record-breaker. The real record in the second quarter of 2007 was set by the Russian economy as a whole. It was previously believed that, all the lack of transparency aside, the Russian economy did not have the capacity to easily conceal a $4 billion payment so that information about the owners of the money did not become public knowledge until a week or two after the deal. The sale of lot N13 of assets belonging to Yukos showed it yet again: we know that we know practically nothing about the corporate sector of the Russian economy. And that means that Prana's record is not the last, that financial miracles will happen, and that the essence of unidentified financial objects like the company Prana will undoubtedly be fodder for much discussion by researchers.

   &
Russian Records

Most Impressive Rent: At the beginning of April, the audit company PricewaterhouseCoopers rented 32,500 square meters in the Belaya Ploshchad business center that is under construction on Moscow's Lesnaya Street, setting a record in the market for office real estate. According to experts, the company's rent could be anywhere between $600 to $800 per square meter.

Most Astronomical Contract: The contract signed by Roskosmos and NASA in the middle of April is worth $719 million. The contract, the largest for the last ten years between the US and Russia in the sphere of space exploration, involves the transportation to the International Space Station and return to Earth of 15 astronauts between 2009 and 2011. NASA is also paying for the delivery to the station of 5.6 tons of cargo for work on the American segment of the ISS.

Tastiest Deal: On May 21, the Polish operator of the restaurant chain AmRest Holdings announced a merger with the Russian Pizza Hut franchise Pizza Nord. The deal was worth $48 million, a new record for the restaurant market. In addition, AmRest will pay off $21.5 million in debts owed by Pizza Nord, which manages 41 Pizza Hut and Rostik's-KFC restaurants in Moscow, St. Petersburg, and Kazan. In 2006, Pizza Nord began managing restaurants owned by American Restaurants, thus becoming the company's lone Russian franchise. AmRest Holdings operates 202 restaurants in Poland, the Czech Republic, and Hungary, including franchises from KFC, Pizza Hut, and Burger King, and it is developing its own chain of Fresh Point and Rodeo Drive restaurants. Until now, except for the creation of the Rostik's-KFC joint venture, foreign operators have not taken an interest in Russian fast food. The plan is to double the number of AmRest restaurants in Russia in the next three years. The legal paperwork for the merger is expected to be completed this July. It is interesting that the Polish operator decided to venture into a deal in the Russian restaurant market under the cloud of a political-manufacturing conflict between Russia and Poland: Poland is demanding that Russia repeal a ban introduced in November 2005 against the import of Polish meat products for what Russia claims are hygiene reasons. The ban has cost Polish businessmen millions in losses. In reply to the Russian sanctions, at the end of 2006 Poland blocked talks aimed at drawing up a new partnership agreement between Russia and the EU.

Most Noncommercial Corporation: At the end of June, a group of United Russia deputies introduced legislation in the State Duma concerning a Russian nanotechnology corporation. The Russian president had already talked about the necessity of creating such a government institute in an address to the Federation Council on April 26. At that point, it was also announced that Rosnenotech can expect to receive 130 billion rubles from the federal budget. Of that, the corporation will receive 30 billion rubles in 2007 from funds transferred to government coffers after the bankruptcy of Yukos. According to the legislation, the corporation will become the largest noncommercial organization in Russia. Rosnanotech will be given the right to undertake any kind of enterprise or other activity "that brings in revenues" for the development of innovations in the field of nanotechnology, and the government will be allowed to directly finance Rosnanotech from the federal budget. The property of Russia's largest noncommercial organization will be paid for by property taxes, but other potential participants will also be allowed to invest funds in the corporation. Profit from Rosnanotech's activities will not be subject to appropriation by the government, and the corporation will be given the right to create its own subsidiary noncommercial organizations within its own organizational structure. Four people on the Rosnanotech board of directors (two will be recommended by the president, and two by the government) will not be government officials, and there will also be one representative each from the Russian White House, the presidential administration, the State Duma, and the Federal Council. The bill was taken up for a third and final reading in the Duma in the first week of July.

Most Unbusinesslike Capital: In the middle of June, MasterCard released a study that shows Moscow in last place out of the world's fifty leading business centers. First place in the list went to London, followed by New York and Tokyo. The report from MasterCard is the largest such compilation of rankings to come out for several years. Unlike the majority of similar rankings (those made by Mercer, Human Resources, etc.) this study, which was begun in October 2006 by a group of scholars from universities in the UK and the US, as well as from Centennial Group and the Beijing National Center for Economic Research, is based on statistical data instead of on expert assessments and polls. The methodology of the rankings is based on six factors: political and legal environment (10% weight in the rankings), economic stability (10%), business climate (20%), financial infrastructure and importance in international trade (22%), convenience of business centers (22%), and informational and scientific infrastructure (16%). These six indicators, in turn, are calculated on the basis of 111 sub-indicators that measure the contributions to the rankings made by a wide variety of factors, from accessibility by transport to the number of daily newspapers and scientific researchers per one million residents in each city. Analysts believe that Moscow does not have enough business centers, transportation infrastructure, and scientific and research organizations to attain the status of one of the world's leading business centers.

Most Significant Merger: On June 24, Russian president Vladimir Putin signed a decree investing the government's shares in the Novorossiisk Shipping Company in Sovkomflot, thus giving a nudge to the concluding stage of the merger of the two largest maritime oil shipping companies in Russia, which are under the control of the government. The resulting company will be the world's fifth largest fleet by tonnage and will be worth more than $5 billion. According to the decree, 67.1% of shares in Novorossiisk Shipping Company, which belong to Rosimushchetvo, will be invested in Sovkomflot (in which the government owns a 100% stake). The plan is that Sovkomflot will issue additional shares (the exact number will be decided upon after consultation with Rosimushchestvo), and the government will pay not with money but with shares in Novoship, which will become a daughter company of Sovkomflot. Nine months have been allocated for the presidential directive to be realized, but Sovkomflot CEO Sergei Frank hopes that "this can be done faster, so that we go into the new year as a unified company." According to Sovkomflot's plans, the new company's assets will be worth $4.6 billion, its net wealth will be $2.3 billion, and its sales volume will be more than $1 billion. The company's management hopes that after 2009, when worldwide freight shipping rates are expected to fall, the new giant player will begin to swallow up foreign competitors. Analysts, however, having evaluating the risks involved in the new company, emphasize that "managing the creation of a giant won't be easy."

Most Often-Mentioned Russian Company: Vlast is continuing to publish its quarterly ratings of the worldwide popularity of Russian companies, and here we offer our ratings for the second quarter of 2007. The ratings are calculated on the basis of how often each Russian company is mentioned in the global press.

In the second quarter, Gazprom remained the Russian company most often mentioned around the world: energy security remains a priority everywhere. In Europe it is almost impossible to find an article about this topic that does no mention the Russian gas giant, and it is a rare mention of Russian foreign policy that fails to bring up its name. Other than that, foreign journalists apparently prefer to write about companies that they know well, given that there are only two "novices" in the top twenty: Russian Railways and UES. As is the case with Gazprom, journalists remember them not only for their business activities but also because of their politics. For example, Russian Railroads is mentioned, particularly by the European press, in conjunction with the story of the Bronze Soldier in Tallinn, and UES is commonly represented by the figure of its head, Anatoly Chubais.

A typical example of how much business activities give a boost to public exposure is Aeroflot. Interest in the Russian airline grew after the company announced its desire to buy the Italian airline Alitalia. Since the story of the sale of the Italian airline turned out so scandalously (without any effort on Aeroflot's part), the company was featured in so many articles that Aeroflot made it into the top five of the most often-mentioned Russian companies for the first time in the history of the rankings.

Company Name, # of Articles That Mention the Name of Each Company

1 (1) Gazprom 11,210
2 (11) Troika Dialog 6984
3 (2) Rosneft 6780
4-5 (13) Aeroflot 6408
4-5 (8) Severstal 6408
6 (3) TNK-BP 5244
7 (7) Alfa Group 4828
8 (22) Sistema 4705
9 (15) Sukhoi 4211
10 (21) VTB 4096
11 (6) LUKOIL 4091
12 (24) MiG 4001
13 (4) Yukos 3320
14 (14) Norilsk Nickel 2895
15 (10) Tatneft 2798
16 (16) Novolipetsk Metkombinat 2604
17 (12) Rosbank 2400
18 (28) RZhD 1988
19 (31) UES Russian 1816
20 (18) Evrazholding 1815

The rankings are based on material from 100 leading journals and newspaper from Australia, Great Britain, Germany, India, Spain, Italy, Canada, Malaysia, New Zealand, Pakistan, Singapore, the USA, France, and Japan. The largest national newspapers in the US were used, as well as leading state newspapers. The other countries are represented by newspapers and journalists with circulations within 5% of the total number circulation of newspapers and journals in each given country. The rankings do not include reports by information agencies and television channels. Finally, only articles in which the name of the company is mentioned together with the words Russia or Russian are included. Each company's position in the rankings last year is in parentheses.


See Also
Russia to Register iPhone to Teach ... // News (July 20, 2007) Germans to Sell Ads in Moscow // News (July 19, 2007) Electronic Arts Registers in Russia // News (July 19, 2007) De Beers Gets Russian Diamonds Back // News (July 12, 2007) Gazprom Media Watches RuTube // News (July 09, 2007)
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