Oleg Shvartsman, head of the Finansgroup financial-industrial group. The assets owned and managed by the company are worth around $3.2 billion.
Photo: Dmitry Dukhanin
“For us, the party is represented by the power bloc headed by Igor Ivanovich Sechin”
// Finansgroup head Oleg Shvartsman tells about new voluntary-coercive ways of consolidating assets in the state’s hands
Oleg Shvartsman, head of the Finansgroup financial-industrial group, told about the business which he heads and which involves relatives of the presidential administration’ power bloc members, about the ‘velvet re-privatization’ idea, and about the possible creation of Social Investments state corporation as that idea’s embodiment. Kommersant’s observer Maksim Kvasha had nothing to do but to write it all down at the conference in Palo Alto (USA).
“Finans-Trast company which you head has recently become one of the three winners of the Russian Venture Company (RVC) competition, and will soon receive budget co-financing for venture investment. How is the venture fund’s capital formation going on?”
“Finans-Trast is forming several venture investment funds: one jointly with the RVC, and five regional ones. The regional funds are the Ministry of Economic Development and Trade (MEDT) plus regions. The MEDT provides 25 percent of the capital; 25 percent more comes from the regions, and we draw 50 percent from the market. We have five regions: Volgograd, Voronezh, Samara, Chuvashia, and Bashkiria. We will close them in December. This story began earlier than the RVC, supervised by the MEDT State Regulation Department’s head Andrei Sharov.
We will bring our money into the RVC-joint fund before November 30, 2007. Then, the RVC will transfer its half to us. Our Israeli colleagues [Tamir Fishman financial group.—Kommersant] signed corresponding commitments with the remaining investors. The fund is ‘closed’ on November 30.”
“What is the situation with project portfolio? When can we speak of first closed projects (the projects where agreement on investments has been reached)?”
“For choosing investment projects, we have launched a special project prepared by us in advance, -- Venture.Ru website. It is our property, and we are making it similar to London’s AIM. Indeed, it is a market for high technologies. We don’t think the website will automatically bring projects. However, projects will not come at all if we don’t invest in marketing. We are going to create the largest pipeline [system for projects’ flow implementation in Russia.—Kommersant], the widest tube [synonym for pipeline.--Kommersant] by means of various instruments. Finansgroup’s basis organizations cover 68 regions, where regional flows are now being formed.
Besides, we bought a project base from the Ministry of Education and Science, -- unofficially, of course. These 4,000 projects are what we began our work with. Moreover, we are trying to entangle anything which moves or doesn’t move on the market into Venture.Ru. There is a real opportunity to position it on western markets: the website’s English version is ready, and we are now working on German and Japanese versions. We will be gathering projects in Russia and positioning them for foreign venture investors.”
“Who and how will be assessing the projects?”
“Project flow formation is a multistage process: it is done through scientific institutions, through universities, and through Venture.Ru. Later on, the work will be taken over by expert and investment committees. The expert committee consists of Russian specialists who will assess a project’s scientific attractiveness regardless of commercialization. The investment committee will estimate commercial prospects. The expert committee includes scientists from the Biochemistry Institute and the Kurchatovsky Institute (nanotechnology is one of our strategies). I don’t want to name these people yet, especially as I simply don’t remember everyone. My functions in the company are strategic: business planning, creating new business strategies, i.e. where we are headed and with whom we work. Our Israeli partners are in charge of operational functions.”
“One would think that choosing projects is a strategic task for a venture fund…”
“It is. Yet, I’m the president of our company, and a member of the investment committee. We have a director general who is a technical figure to be soon replaced by a candidate about to be approved by the European Bank for Reconstruction and Development. I can’t disclose names yet. There are several candidates; they worked for Delta-Capital and for Renaissance; they have European and US backgrounds. However, it is up to our Israeli partners to choose: they have their own criteria for assessing experts.”
“Was it only the Israelis who gathered private money for Finans-Trast’s venture fund?”
“Right, initially it was so. And there is just no Russian money in there. All the money is European, Israeli, and US.”
“What are Finans-Trast’s functions? How will you share it with Tamir Fishman?”
“Our functions were to secure winning the competition, to form an operating team at the initial stage, which will be partially replaced as soon as money comes in. That is, we had to form a bag like a rocket’s first stage, to take it to the near-space orbit. Then, technical functions are passed on to professional managers, and we just develop the strategy.”
“So, it was not the team which is actually going to work, that was presented to the MEDT?”
“Why, it was that very team. Tamir Fishman’s director Eldad Tamir and potential managers to be involved were present. Certainly, Eldad won’t be Finans-Trast’s director general. It was obvious from the very start, because he manages far more impressive structures. In fact, we launched Finans-Trast as a project company. Undoubtedly, it will undergo staff changes, but they won’t be drastic.”
“Finansgroup financial-industrial group is not very well-known. When the RVC competition results were announced, we at Kommersant did not understand much about you. For instance, we were surprised at finding the traces of political activity. Who controls it, what financial parameters of your company’s activities are you ready to disclose?”
“Finans-Trast is our subsidiary, but venture investment is not our main sphere. I am co-owner and president of Finansgroup financial-industrial group. What we own and manage is estimated at about $3.2 billion. However, I am never involved in operational management. I deal with strategy, policy, and social projects.”
“It is very impressive for a little-known company. So, do you own or manage it all?”
“Both. Yet, it is much intertwined: we are closely affiliated with some political figures, and we manage their assets. We are related both to the presidential administration and to its power bloc. We have some very serious oil assets like Russian Oil Group (I am its co-owner and president), and other assets like Russian Diamond Group and Russian Instrumental Technologies. By the way, Russian Business Group is a very important holding.”
“The true ownership structure is not disclosed, isn’t it?”
“There are various off-shores, in Cyprus and other countries. These are not the presidential administration members; these are their relatives, high-placed people. There are individuals among them, all relatives, from FSB or SVR.”
“What are other political connections involved?”
“We have a political organization called the Union of Social Justice of Russia. I have always been responsible for the union’s economy and finances, and I financed it. It was created in 2004, after President Putin had said that large business should be socially responsible to the state. So, our colleagues from FSB decided there should appear an organization which would bend, bow, torture, and impose social responsibility on all sorts of Khodorkovskys…”
“A kind of ‘collective wringer’?”
“Right. It has all power ministries among its trustees: the Defense Ministry, the Emergency Situations Ministry, and the Interior Ministry. However, executives and directors changed because there were conflicts and feud. For instance, someone would press down a major businessman. He would make a phone call or two, and everyone would say: “Stop, wait”. So, it became clear the instrument isn’t working, because every tycoon has relations with the same power agencies. Consequently, the concept was altered; no one wanted to argue, and we were asked to find a new function for the organization.”
“What did you do when that structure was handed over to you, after they found the scheme wasn’t working?”
“When they told me that other forms of financing should be found, we claimed $80 million for implementing social projects in 2005. Seventy percent of our social activities falls on power ministries – support for widows and orphans. It is a public organization, but we spend money on social purposes inside power ministries. Because we are supported by power structures…”
“So, where did you eventually draw funds from?”
“We developed a concept which implies establishing partnership with those companies which were earlier subject to bending and bowing. We started visiting them and making various offers; joint business was the outcome. For instance, Russian Oil Group is the fruit of our alliances with Rosneft, TNK, and LUKOIL. First, in trading, and then we began buying small and medium oil-producing enterprises. In other words, these companies shared their sales with Russian Oil Group.”
“What was the margin to the market value?”
“It was just 7-10 percent. Yet, that was enough to earn money, and then we spent that money on our development. Besides, state banks work with us, and due to political reasons as well.”
“What is the direction in which you plan to develop?”
“We now develop a structure which is to transform into a state corporation soon. It will be called Social Investments. It is based on the ‘velvet re-privatization’ concept which we developed together with the Russian State Service Academy and the National Economy Academy. We are doing it in Rosoboronexport’s interests as well. It is a market type of strategic assets acquisition in budget-supported regions. It concerns budget-forming or town-forming assets which are caught in wrong tax regimes.”
“What does it mean – wrong regimes?”
“Profits are taken away from those regions, or the management is amiss, or there is a conflict inside an enterprise. These are enterprises with their profits settling somewhere abroad or in Russia. They use various tax optimization schemes. The state considers it wrong, especially as we have so many budget-supported regions. One of our tasks is to expand taxable base in such regions, so that pensions and public-sector salaries are paid on time.”
“What does it look like?”
“Like a vacuum cleaner, that gathers the assets for a structure which later becomes a state corporation. Later on, they will be officially, via tenders, passed over to asset management companies, to professional teams that will generate profits.”
“So, you have actually received a sort of authorization for carrying out corporate raids with using the power factor?”
“These are not raids. We do not take enterprises away. We minimize their market value by means of various instruments. As a rule, these are voluntary-coercive methods. There is the market value, the mechanism to block its growth, and, certainly, various administrative levers. However, people usually figure out where we come from…Yet, these are mostly glowing conflicts in the limelight of existing financial-industrial groups. In cases like that, we have to agree with our older comrades and to find a consensus. As a rule, it is the market value’s lowest level. However, it does not concern the YUKOS takeover: people are getting quite good money for it.”
“Are these people satisfied… or do they object?”
“No, why should they. We all live without bodyguards. In fact, everyone understands that it is our state task, that we’ve been commissioned with doing it. Unless we do it, others will come, and they will be carrying out the function of consolidating assets in the state’s hands just like we are doing it now, because it is the current state policy.”
“Who ‘did not object’ in recent cases?”
“We are now busy with overtaking a chrome-producing enterprise in the Orenburg region. It is one of the best producers of Russian chrome, first-rated by EBITDA, and second in the world by its output. There are some assets like that still left in Russia. They are of interest for, let’s say, Rosoboronexport (usually, the industrial assets), and for other companies regarded as affiliated with the state, such as ALROSA.”
“The assets bought out at minimal prices, are they purchased in the interests of Rosoboronexport as well?”
“Yes, they are. However, they are so far being consolidated inside Social Investments corporation which will later become a state corporation or will be affiliated with Rosoboronexport. Its assets might be worth around $800 million now. It is the money invested at the purchasing price, while the true market value of the assets in much higher. Many assets will be five or six times more expensive at the upcoming IPOs. All IPOs are to be held in Russia.”
“Name a few companies please.”
“The chrome enterprise will go for $700-800 million, while we are now buying it for $300 million. Instrumental Group, unless we sell it to Siemens… It consists of five enterprises producing tools, screws, keys, drills. It now controls 60 percent of the market.”
“Where did the people dealing with these takeovers come from?”
“Many of them have come now. First of all, the Moscow market of corporate raids reduced, and there is nothing to do there. Someone came from Rosbilding, another one from somewhere else... We motivate the people by salaries and bonuses, as other companies. We do not provide them with a share in the profits, because it is part of the trend: the tasks are not commercial, but are state tasks. However, everyone earns well.”
“How does the state help you solve these tasks?”
“We have some unclaimed resources, like the Council of Interior Ministry Veterans, former officers of the Economic Crimes Department and regional departments against organized crime. There are 600,000 of them all over the country! They carry out watchful analytical work, finding out which companies in which regions go through which stages of corporate relations. They look for opportunities to oust owners disloyal to the authorities by means of greenmail or cooperation with minority shareholders.
Together with them, we are now building a collector structure which should cover at least 30-40 percent of the market in all regions of the country. It will be preventing financial crimes, i.e. the issue of credit non-payments. In other words, hard collection. When it becomes clear that someone is not going to repay a credit, and that it is necessary to interfere, it won’t be people with clubs. It will be former members of the Interior Ministry with broad experience in investigative measures and interaction, which will help greatly.
The project of creating the most powerful collector agency in the country has already been approved by the Interior Ministry Veteran Council’s head, retired Colonel-General Ivan Shilov. Our task within the framework of this project is to prevent former Interior Ministry officers from sinking into criminal structures, and to help them find jobs.”
“Who set this task for you?”
“The party! (Laughing.) For us, the party is represented by the power bloc headed by Igor Ivanovich Sechin. It is a burning issue: 600,000 people who just f*** about looking for where they can make some money. It is a huge threat. A threat to security and social stability. And with our program, they’ll be busy working.
The Interior Ministry itself admits that its former officers, with their huge experience in investigative activities, might be used by criminal structures for all kinds of affairs and purposes. Although there remained almost no criminals in their classic type, there still exist money laundering, terrorism, economic crimes – primarily.”
“It is quite surprising that your activities are so much wider than just venture investment. So why do you need venture then?”
“Venture is not very important for us… However, we have a state task -- to develop the innovation sector, to turn Russia from a raw materials producer into a progressive innovation power. We are taking part in implementing this task.”
“Do the Israelis from Tamir Fishman mind your parallel business?”
“It has nothing to do with them. On the contrary, it is easier and more pleasant for them when we give them much freedom to operate. They work, and we create the opportunities.”
“What are your other plans?”
“We face competitions for managing investment resources, the state investment fund assets. I think that Finans-Trast will take part in it, creating direct investment funds. We have a few ideas about consolidating branch enterprises, but it is mainly the same buying up of companies along the same schemes as for Social Investments. Yet, our older comrades will decide it for us.”
“Is it your ideas or the tasks ‘set by the party’?”
“It isn’t that we get a task. Rather, I come and write a report that it would be advisable to secure our company’s participation in this or that project within the framework of implementing a national project or initiative.”
“Do you send these reports directly to Igor Sechin?”
“There are other people there, like Valentin Ivanovich Varennikov. He is a State Duma deputy, president of the Council of the Union of Heroes of Russia, and holds a lot of other positions. For us, he is intermedium in our communication with Sechin. Besides, Varennikov is a man of principles; he has a strict position... He is the spiritual leader of the Union of Social Justice. He supports our idea of ‘velvet re-privatization’. Completely.”
// Personal record
Born on September 23, 1972, in Ufa. Studied in the University of Ulan-Bator in 1989-1991. Graduated from the Moscow State University’s biology department in 1996. Graduated from the Moscow State University’s philosophy department as Ph.D. fellow. Also studied in the All-Union State Institute for Cinematography, the Surikov Moscow State Academic Institute for Arts, and the Russian Academy of State Service. Became member of the council on investing savings for providing army officers with housing in 2005. Research fellow at the Sternberg State Astronomic Institute since 2006.
Member of the supreme council of Grazhdanskaya Sila (Civil Force) political party. Ran in the State Duma election in that party’s list. According to Grazhdanskaya Sila website, he is the economy and finance director of the Union of Social Justice all-Russia pubic organization, the president of Social Investments corporation, the co-owner and president of Finansgroup financial-industrial group.
Shvartsman owns shares in the following companies: Nemo Group (51 percent), Greenspace (51 percent), Megainvest (50 percent), Prodvinutaya Volna (50 percent), Congressman (20 percent), Russian Oil Group (25 percent), Russian Diamond Group (10 percent), Russian Dimonds (50 percent), Russian Energy Company (34 percent), Rustorgtekh (26 percent). He heads most of these companies.
All the Article in Russian as of Nov. 30, 2007