PROFILE: Is the party over for Russia’s ‘Great Gatsby’ oligarch?

PROFILE: Is the party over for Russia’s ‘Great Gatsby’ oligarch?
Mikhail Prokhorov is a Russian billionaire, politician and owner of NBA team the Brooklyn Nets.
By Jason Corcoran in Moscow June 8, 2016

Mikhail Prokhorov may still have a net worth of $7.6bn, but the perennial party-loving bachelor has fallen out with the Kremlin and may have to manoeuvre quickly to avoid being cast aside.

The Russian oligarch, whose fortune has more than halved since 2011, is having a bad crisis. Last time Russia’s economy tanked, he fortuitously cashed out of large stakes in mining and metals assets just before the global financial crisis struck in late 2008. This time around, his companies have been raided by the Federal Security Service (FSB) and his investment group Onexim is having to dump its 20% stake in potash producer Uralkali to raise cash.

The bachelor Prokhorov, 51, is something of a Great Gatsby-like figure – renowned for his wild parties and an elusive love life.  In 2007, he was arrested on suspicion of arranging prostitutes for guests at a party he hosted in the posh French Alpine resort of Courchevel. The case was later dismissed and Prokhorov was cleared.

Like the F. Scott Fitzgerald literary creation, Prokhorov is somewhat of a dilettante; his interest in politics, media and electrical cars all seem to have been passing fads. His love of basketball may be genuine, but his acquisition of an American NBA team seems to have been more about making a buck from real estate and rubbing shoulders with New York’s gilded gliteratti, such as rapper Jay-Z and former Mayor Michael Bloomberg. His team, the Brooklyn Nets, have gone from “contender to laughing stock”, according to a June 2 analysis by isportsweb.

But it’s Prokhorov’s dabbling in media that has put him firmly in the Kremlin’s doghouse. On April 14, Masked officials from the FSB and tax inspectors swooped on the offices of Onexim and several of its subsidiary companies, including investment bank Renaissance Capital.

A source close to one of Onexim's structures tells bne IntelliNews that the group believes the searches were authorized by President Vladimir Putin himself after Prokhorov’s media holding RBC reported on the business dealings of his daughter Ekaterina and her husband Kirill Shamalov. “You can imagine the reporting on such a sensitive issue for the president must have gone down like a lead balloon in the Kremlin,” says the source. “It stirred the hornet’s nest.”

RBC, which used to have reputation for running paid reporting, had been transformed in the past two years into an independent media organization with a penchant for hard-hitting investigations into high-level corruption. The media group, which claims to have a combined monthly audience of 22mn across its newspaper, website and TV channel, for example went big on the Panama Papers, which showed Putin’s cello-playing childhood pal, Sergei Roldugin, had stashed significant wealth offshore. It also ran a story about an oyster farm that it claimed had opened conveniently near a huge stately pile – known as “Putin’s Palace” – on the Black Sea.

In an apparent attempt at damage limitation, Prokhorov has dismissed the senior editorial team at RBC, but there is still speculation that the media group will now have to be sold at a massive loss to a Kremlin-friendly holding.

Stranded assets

The Russian press have suggested that RBC’s aggressive coverage of Putin stemmed from Prokhorov’s anger at the Kremlin-controlled lenders for refusing to agree on bailout terms for Quadra, his utility formerly known as TGK-4. Prokhorov is said to be irked by rival tycoons receiving more favourable terms and had hoped to use the media spotlight as leverage.

Reuters reported on June 6 that Prokhorov is now preparing to sell Quadra for about RUB9.5bn ($145mn), although a spokesman for Onexim has denied the report. Prokhorov acquired a controlling stake in Quadra in 2008 for RUB26bn, but the value of the utility has tumbled along with commodity prices and Russia’s economy.

The raids on Prokhorov’s businesses also triggered a run on his MFK bank. Wealthy individuals withdrew almost RUB10bn from the lender in the same month as the FSB inspections, according to a report by the financial daily Vedomosti.

As well as Prokhorov’s stakes in RBC and Quadra, his 20% share of potash giant Uralkali is also on the block. Onexim is seeking to get back the $4bn it originally invested in Uralkali, but that’s unlikely given the current market value is about $1.5bn.

Onexim and Uralchem acquired shares in Uralkali from billionaire Suleiman Kerimov and other investors in 2013 after the potash-maker terminated a sales joint venture with Belarus. The unwinding of the alliance upended the global market for potash and sent prices spiralling downwards.

Denis Vorchik, an analyst at Uralsib Capital, says the stake could be bought by Uralkali or Uralchem, which already owns about a 20% stake. “It is no surprise that the remaining stake held by Onexim is also for sale,” Vorchik writes in an emailed report. “But we see no reason for bidders to pay a premium to the market for Onexim’s below blocking-level stake, as time is on Uralchem’s side.”

Prokhorov, nicknamed the giraffe in his youth due to his height of 6 feet, 8 inches, may have some short-term liquidity issues, but he isn’t on his uppers yet. “The possible sale of his other assets is probably linked to his view of where we are in the cycle and the likely money to be made from commodities in the near future,” Tom Adshead, chief operating officer at consultancy Macro Advisory, tells bne IntelliNews. “Chinese production of potash is strong and it's apparently no longer buying seaborne cargoes, just using its own production and that of the Russians and Belarusians. So the market for potash is likely to stay soft.”

Prokhorov’s political capital is on the wane, but he probably has enough in the ledger to survive. Perhaps he will exit Uralkali, RBC, Quadra and other assets and re-invent himself again.

Eight-year itch

Prokhorov once said he completely overhauls the scope of his business activities every eight years. Exactly eight years ago, his life took a big change when he split with former business partner Vladimir Potanin and became interested in politics and the media. President Putin is understood to have helped broker the bitter divorce settlement with Potanin.

In 2011, he caused a sensation by becoming leader of the pro-Kremlin Right Cause party and inviting Alla Pugacheva, a Russian singer with the fame and baggage of Madonna, to join his group,

His rapid rise in politics and decision to stand in the 2012 presidential elections was widely perceived as part of a Kremlin ploy to have a loyal party secure the liberal vote and soak up some of the public dissension stemming from the rigged parliamentary elections and the subsequent protests. Prokhorov finished third with less than 8% of the vote and later withdrew from politics, calling his own party “senseless”.

Raids on oligarchs are nothing new on Putin’s watch. Media mogul Vladimir Gusinsky had his offices raided in 2000 as part of fraud investigation before he fled to exile in Israel. In 2004, tax officials raided the offices of oil firm Yukos in a politically-contrived case against its owner Mikhail Khodorkovsky, a Putin critic who was later jailed. In 2014, billionaire Vladimir Evtushenkov spent several months under house arrest on suspicion of money laundering before being released and seeing his oil asset nationalised.

Sources close to Prokhorov’s companies hope the raids are just a shot across the bows and a warning to desist from reporting on Kremlin corruption and to sell the media holding. “The raids on his businesses were meant to stir him into action over RBC, which has happened, and I don't expect any further repercussions,” says Adshead. “No doubt he has his enemies, but he's been a loyal participant in the Russian political process, and has a role to play, so I don't think he'll be persecuted over a relatively minor issue.”

Prokhorov usually hosts a swanky party every year on the sidelines of the St Petersburg Economic Forum in Putin’s hometown. It will be interesting to see if he holds a do this June and if anyone important turns up – it would be a good gauge of whether the Russian Great Gatsby’s social standing still has its fizz or is running flat.