[lbo-talk] [Pen-l] The pressure on Russia to settle

Jason Hecht jayhstata at gmail.com
Tue Mar 18 19:09:22 PDT 2014

Ken -

Not sure you can short specific issues of Russian corporate debt. I imagine there might be CDS market for Russian sovereign debt - don't know. The problem for the German banks is that they've probably got many loans to Russian and Ukraine companies that may have to be marked down. Not a good time for German banks.


On Sat, Mar 15, 2014 at 11:04 AM, ken hanly <northsunm at yahoo.com> wrote:

> Wouldn't the oligarchs have seen this coming and sold short and are now
> not only covering the shorts but buying more since there are valuable
> assets now available at fire sale prices as western investors unload their
> investments?
> cheers, ken
> On Saturday, March 15, 2014 6:43:49 AM, Marv Gandall <marvgand2 at gmail.com>
> wrote:
> Russian Richest Face Margin Calls With Billions at Stake
> By Robert LaFranco and Alex Sazonov
> Bloomberg News
> March 14 2014
> Alexander Lebedev is concerned.
> "Russian businessmen are very scared," the 54-year-old former billionaire,
> who served in the Soviet embassy in London during the Cold War and owns
> Russia's National Reserve Corp., said by phone. "There are risks to the
> Russian economy. There could be margin calls, reserves might be drawn down,
> exchange rates may fall and prices will rise. This worries me."
> Billionaires in Russia and Ukraine risk further losses as market
> volatility and the threat of Iran-style economic sanctions intensify
> following Russia's incursion into Crimea. Since Feb. 28, the day
> unidentified soldiers took control of Simferopol Airport in southern
> Ukraine, Russia's 19 richest people have lost $18.3 billion, according to
> the Bloomberg Billionaires Index, a daily ranking of the world's 300
> richest wealthiest people.
> "The instability caused by the situation in Crimea could be a problem for
> the oligarchs," Yulia Bushueva, who helps manage $500 million at Arbat
> Capital in Moscow, said in a telephone interview. "If a billionaire pledged
> their stakes in publicly traded companies as collateral for a line of
> credit, they could face margin calls and have to re-negotiate with banks."
> The U.S. and the European Union are threatening sanctions against Russia
> if it doesn't back down from annexing the Black Sea province, which is
> holding a referendum in two days to join Ukraine's former Soviet-era master.
> "All sides now understand each other's positioning and understand the
> constraints each other face," Michael O'Sullivan, chief investment officer
> of Credit Suisse Private Banking, said in a telephone interview. "It's now
> clear as well that an escalation would have negative consequences on pretty
> much all the players."
> The European Union last week froze the assets of 18 Ukrainians, including
> "hundreds of millions of euros" in the Netherlands controlled by former
> PresidentViktor Yanukovych and his son, Oleksandr, Dutch Finance Minister
> Jeroen Dijsselbloem said March 6 on the television show Pauw & Witteman.
> Dmitry Firtash, a 48-year-old Ukrainian billionaire who made his fortune
> importing Russian natural gas, was arrested in Vienna Wednesday by an
> organized-crime unit of the Austrian police on a warrant issued by the U.S.
> Federal Bureau of Investigation, according to a statement by the country's
> Interior Ministry.
> He is alleged to have paid bribes and formed a criminal organization,
> according to the warrant, issued after an FBI investigation that began in
> 2006, the ministry said.
> One Russian billionaire, who asked not to be identified because of the
> sensitivity of the situation, said he was concerned about the effect
> potential sanctions might have on business. He said he'd consider buying
> assets outside of Russia if sanctions were imposed.
> Dmitry Peskov, a Kremlin spokesman, said in a March 11 telephone interview
> that "there were no consultations" with Russian businessmen and that they
> "have not expressed any concern" over the situation.
> According to a March 13 report in the Wall Street Journal, a spokesman for
> President Vladimir Putin acknowledged that business leaders in Russia have
> been in "constant contact," and that Putin had not met with any of them.
> The report said a recent meeting between the country's industrialists and
> high-ranking government officials turned "tense" when the subject of
> sanctions came up.
> Doing business under sanctions might not be all bad for Russian
> entrepreneurs, according to South African billionaire Natie Kirsh.
> "There are opportunities that come out of sanctions," the 82-year-old, who
> started building his $5.9 billion retail and real estate empire during
> apartheid, said by phone from Johannesburg. "Sanctions can be broken. It
> always depends on the extent of the sanctions and how they take."
> F.W. de Klerk, South Africa's last president during the apartheid era,
> said the country and businessmen were able to work around the sanctions
> levied by the U.S. beginning in 1986.
> "The sanctions delayed change in South Africa because it made us look for
> ways to evade them," de Klerk, 77, said in a telephone interview from Cape
> Town. "We worked with the business community to find ways to keep companies
> going. In the end, not many factories shut down, they just changed
> ownership."
> Kirsh said the Cold War could reemerge out of Russia's incursion in
> Ukraine, and energy suppliers outside of Russia will benefit if sanctions
> are levied.
> "It's a different story with Putin," Kirsh said. "South Africa doesn't
> supply 30 percent of Europe's oil and gas. There will be some people
> outside of Russia that will see a huge benefit. Some people who supply oil
> and gas for Russia will not believe how busy they will be."
> Rinat Akhmetov, Ukraine's richest person, has lost more than $550 million
> since Feb. 28. The 47-year-old billionaire, who owns Donetsk, Ukraine-based
> conglomerate System Capital Management Group, expanded his business with
> help from Yanukovych. Akhmetov's DTEK Holdings BV was the only bidder in
> two of five auctions of state-owned energy assets, which were organized by
> the former president's government.
> The billionaire no longer supports his longtime ally and has committed to
> rebuilding the government of Ukraine, according to a March 10 report in
> London's Telegraph newspaper. Elena Dovzhenko, a spokeswoman for Ahkmetov,
> said the billionaire wasn't immediately available to comment.
> "He understands that the previous state of things is over," Ihor
> Burakovsky, head of the Board of the Institute for Economic Research and
> Policy Consulting in Kiev, said by phone. "He will try to maintain
> relations with all the significant players in the country."
> Ahkmetov on March 9 met with Vitali Klitschko, leader of Ukraine's UDAR
> party and a potential candidate for Ukraine's presidency, to discuss the
> situation, according to a statement from UDAR.
> "The use of force and lawless actions from outside are unacceptable," the
> billionaire said in a separate statement on March 2. "I state with all due
> responsibility that SCM Group, which today employs 300,000 people and
> represents Ukraine from west to east and from north to south, will do
> everything possible to maintain the integrity of our country."
> The 19 Russian billionaires on the Bloomberg ranking have businesses,
> homes and bank accounts scattered around the globe valued at more than $208
> billion. Some of that wealth was accumulated through government ties that
> enabled them to acquire former state assets during privatization in the
> 1990s, transactions Putin called "unfair" in 2012. They have since moved
> control of the assets out of Russia and into the West.
> Alisher Usmanov, the country's richest person, controls his most valuable
> asset, Metalloinvest Holding Co., Russia's largest iron ore producer,
> through three subsidiaries, one of which is located in Cyprus, an EU member
> nation. The 60-year-old also owns a Victorian mansion in London that he
> bought in 2008 for $70 million, according to a May 18, 2008, Sunday Times
> newspaper report.
> He's lost $1.5 billion since the crisis began, according to the Bloomberg
> ranking.
> "We are concerned with the possible sanctions against Russia but don't see
> any dramatic repercussions for our business," Ivan Streshinsky, CEO at USM
> Advisors LLC, which manages Usmanov's assets, including stakes in Megafon
> OAO and Mail.Ru Group Ltd., said in an interview at Bloomberg's offices in
> Moscow today.
> "Mail.Ru and Megafon revenue is coming from Russia and people won't stop
> making calls and using the Internet," he said. "Metalloinvest may face
> closure in European and American markets, but it can re-direct sales to
> China and other markets."
> Transferring ownership abroad may prove problematic if sanctions are
> imposed. The U.S. Securities and Exchange Commission and other regulatory
> authorities may tell U.S.-based banks to exhibit greater compliance with
> the existing Foreign Corrupt Practices Act, Standard Bank (STAN) Group Ltd.
> said in a March 11 report.
> The report also said the U.S. might investigate Russia's compliance with
> theFinancial Actions Task Force on Money Laundering and Terrorism Financing
> in an effort to push the country onto a black list, a move that would
> prevent global banks from dealing with Russian lenders.
> The third escalation would be actual asset freezes, which perhaps would be
> "the nuclear blow, as it would risk countermeasures from the Russian
> authorities," according to the Standard Bank report.
> "Currently, there is no clear link between events taking place in Ukraine
> and any steps that might be available to freeze assets of wealthy Russian
> citizens overseas," Marta Khomyak, a partner of London-based PCB
> Litigation, said in a telephone interview. "However, given the pace of
> events and the underlying political tensions, I would not rule out attempts
> being made to attack various Russian interests overseas."
> Sanctions related to the Crimea crisis so far have been levied on
> individuals the EU said were responsible for the "misappropriation of state
> funds" and "human rights violations," according to the regulation passed by
> the Council of the European Union on March 5. President Obama echoed the
> language in a briefing with journalists at the White House the next day.
> "Russians who are making bank transactions and opening new accounts will
> now be confronted with increased suspicion," Valery Tutykhin, an attorney
> with John Tiner & Partners, a Geneva-based law firm that specializes in
> wealth management, said in an e-mail.
> The crisis also threatens to derail the relationship between the West and
> the Russian businesses the billionaires control. Among the companies
> potentially affected is OAO Novolipetsk Steel (NLMK), the country's
> most-valuable steelmaker, which is controlled by Vladimir Lisin, Russia's
> 13th-richest person. The company derived 21 percent of its $12.1 billion in
> 2012 revenue from Europe, according to data compiled by Bloomberg. Sergey
> Babichenko, a spokesman for NLMK, declined to comment.
> "In the event of a European and U.S. ban on exports of the metal, NLMK's
> position would be weakest among Russian steelmakers, because it ships steel
> slabs to its own mills in Europe," Kirill Chuyko, head of equity research
> at BCS Financial Group said. "We see such actions as unlikely for the time
> being."
> With its stock market falling and interest rates rising, Russia has
> suffered most of the financial pain the crisis has inflicted.
> "To the extent that they can, the businessmen in Moscow will be making
> their sentiments and voices heard," said Credit Suisse (CSGN)'s O'Sullivan.
> "I'm not sure the Kremlin will listen to them."
> Billionaire Naguib Sawiris, Egypt's second-richest person, who's done
> business with North Korea, Russia and Pakistan through his
> telecommunications companies, said he's concerned about potential sanctions.
> "Putin has proven that toward the end of any crisis, he always goes back
> to reason and finds compromises," Sawiris, 59, said in a March 14 e-mail.
> "Therefore, I bet this crisis will end amicably."
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