Business Day (South Africa) May 3, 2004 Writing in the snow for Norilsk Nickel By John Helmer
In the snow, Russian peasants still say, the law is like a sleigh. A clever judge can steer it either way.
Vladimir Potanin, controlling shareholder of Norilsk Nickel, Russia's largest mining group, should know. In the decade after he acquired the assets that comprise his multibillion-dollar holding Interros he has had his share of success in the courts fighting off legal challenges to his takeovers.
His methods, which were accepted by former president Boris Yeltsin, and the size of his wealth, combined with his political clout, have led Potanin to be publicly dubbed one of Russia's oligarchs.
And last week he got the message that he might be on the receiving end of Kremlin investigation.
A powerful rumour swept Moscow and international markets that he had been called for questioning by the procurator-general, the federal law-enforcement arm of Russian President Vladimir Putin.
Rumours about the Russian oligarchs are common, but investigation of their business activities by the prosecutors are rare.
In two days of share trading, Norilsk Nickel lost more than $2bn in market capitalisation. In the past two weeks, it has shed $4,5bn.
The federal prosecutors first issued a refusal to confirm or deny the rumour. Then one said in carefully chosen words that "currently we don't have information that Potanin has been in our office". That left open a map of other geographical possibilities for the get-together, and it left an ominous warning for Potanin as well as CEO Mikhail Prokhorov and Norilsk Nickel.
Not that this was the first warning they have received. In February Putin intervened to halt the implementation of a law, which he had earlier signed into effect. If implemented, it would have allowed Norilsk Nickel to declassify hitherto state secret data on reserves, production, sales and stocks of platinum group metals.
This data release, promised for early this year, is one of the requirements for Norilsk Nickel and its two controlling shareholders to offer the company shares on western stock exchanges, or for Potanin to swap his shares for another internationally listed company.
But state opposition to opening up the company to foreign buyers blocked the legislative move. It was rushed through parliament. But the president was preoccupied at the time with parliamentary and presidential elections. When Putin later learned what was at stake he changed his mind.
When the law was suspended, Potanin was warned that a major cash-out transaction that would transfer sizeable wealth in Norilsk Nickel to foreign hands in return for the offshore enrichment of Potanin would not be permitted.
Potanin evidently did not listen. Nor did he pay attention to a second warning, also in February, that blocked the planned issue of a $1bn convertible bond by Interros. That move would have allowed Potanin to take the cash, and leave in the hands of foreign bondholders the right to claim Norilsk Nickel shares.
Undeterred, Potanin got the idea of buying into Gold Fields, using mostly borrowed funds; and then later, he told banking associates in Moscow, to merge their gold assets in Norilsk Nickel into a majority takeover of Gold Fields shares.
The first deal was thought to be a boon for Anglo American, which had been looking to sell its stake for months.
If the Kremlin's shadow falls on Potanin, and he is obliged to sell out of Gold Fields so he can return the money to his motherland, it is unlikely another bank would be keen to agree to join a lending syndicate after Citibank's six-month deadline is reached. If such a scenario unfolded, Citibank may have to demand its money back, and if the scenario unfolded it could lead to a situation where Potanin may have no alternative but to sell out of Gold Fields, quickly.
Over the next month, the prosecutors do not have to say any more to make credible their warning that Potanin may not be permitted a cash-out deal.
Framing a charge sheet against Potanin, and then compiling a multicount indictment is not necessary for this warning to stick.
Besides, there simply are not enough staff to prepare such documents, so heavily are they already committed to the prosecution and coming trials of the two leading Yukos oil group shareholders in prison since last year, Platon Lebedev and Mikhail Khodorkovsky.
They are in prison because they tried to cash out a stake of about 40% in Yukos by selling it to ExxonMobil or ChevronTexaco. Putin warned them not to; they ignored the warnings. The charges against them, and against Yukos, relate to a myriad of shareholding and cash transfers, tax-avoidance schemes, fraud, and forgery.
Since February it seems Potanin may have been courting the same fate. Potanin's biggest concern now is to find out what Putin is really thinking, and whether last week's rumour and reports were started to test Putin's will, or Potanin's nerves.
In this game, as in last year's Kremlin attack on Lebedev and Khodorkovsky, there is no telling what Putin intends until after he has moved, and the oligarch's assets are publicly in danger.
So the Gold Fields transaction may be no more than a trigger. What is near certain is that the Russian authorities are looking closely at Potanin's control of Norilsk Nickel.
Vladimir Litvinenko, rector of the St Petersburg State Mining Institute, and an adviser to the president on resource policy, said recently he favoured giving the state a "golden share" in Norilsk Nickel. He has yet to elaborate on that.
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