LONG READ: Alisher Usmanov, the path of a game-changer

LONG READ: Alisher Usmanov, the path of a game-changer
Russian billionaire Alisher Usmanov started his career in the last years of the Soviet Union making plastic shopping bag that made his his first million. Fast forward to today and Forbes just named him as Russia's most generous donor to help in the fight against the coronavirus.
By Ben Aris in Berlin May 11, 2020

Russian billionaire Alisher Usmanov is internationally recognised for his ground-breaking investments in Facebook and Alibaba, his longtime shareholding in Arsenal FC, as well as for his many charitable actions, including the purchase and return of a Noble Medal to its recipient, James Watson, and the restoration of cultural monuments in Rome. Last February, news spread across the world about the donation by Usmanov of Pierre de Coubertin’s Olympic manifesto to the Olympic Museum, and this spring his multi-million donations to fight against coronavirus and help tackle the consequences of a massive flooding in Central Asia were announced. A native of Uzbekistan, Usmanov uniquely combines personal humanity, Eastern wisdom and a genuine business acumen, which often helps him to predict global trends, while he sees his business activity as a means to invest in charitable causes globally.

Ever the innovator, Usmanov’s latest venture is a revolutionary digital labelling system that aims to make Russia a pioneer in digitising the flow of goods and commodities on its market.

In an attempt to close the gap with most technologically advanced nations, the Russian government wholeheartedly embraced the idea of digitising the economy several years ago. This included putting public services online and introducing an advanced tax service’s IT system, among other things. As one of the most high profile and successful investors into the tech sphere, Usmanov was invited by the government to jointly implement the digital labelling system which was soon to become the biggest nationwide public-private partnership in the IT sphere.

The labelling system allows the tracking of any merchandise through a publicly available app, as it makes its way down the supply chain, from the point of manufacture to the final consumer. It is expected to help curb illegal trade and counterfeits.

Usmanov owns 50% of the venture which pledged to invest a whopping RUB220bn ($3bn) in the project. As it is about to enter its main development phase, the system will make Russia the first in the world to be able to analyse its retail trading in real time. Currently only South Korea and Singapore have anything similar.  

The early days

Usmanov has had a very long career and has always been good at spotting opportunities. Rather than making his money from a particular business or sector, Usmanov made investments across a broad range of businesses.

Born in 1953 in the Uzbek city of Chust, Usmanov graduated as a lawyer from the prestigious Moscow State Institute of International Relations – a steppingstone that usually prepared the way to join the Soviet elite. A professional fencer in his youth, Usmanov could also have made a successful diplomatic career, but eventually the Perestroika of Gorbachev’s USSR turned things upside down. The chaos of the Soviet Union’s disintegration threw up vast opportunities for those with business acumen. 

Usmanov may have made most of his money well after the wild days of the 1990s, but he had already made himself a dollar millionaire in the years before the Soviet Union collapsed.

The story started in the heyday of Perestroika. Usmanov found himself in hospital with a broken leg where he borrowed a book on polymer chemistry from a friend to pass the time.

“For me it was something extraordinary: high-density polyethylene, foamed polyurethane," he later recalled of his sojourn in hospital.

It was not the chemistry that interested him, but the fact you could sell 30,000 plastic bags – which were in high demand in those days – for one ruble each, but could buy a tonne of the raw material needed to make them for only RUB437.

As soon as he was fit again, he set up a cooperative – the Soviet equivalent of privately-owned for-profit companies – which were introduced as part of Gorbachev’s economic reforms of the late ‘80s.

Usmanov immediately demonstrated his prowess for deal making. He cut supply deals with the “red directors” of Russia’s plastics manufacturers and managed to persuade the West German producer of the machinery, Plastik-Maschinenbau from Kelberg, to sell him the equipment at a knock down price. Making plastic bags doesn't sound very exciting, but in the very late days of the Soviet Union and on into the early days of post-Soviet Russia, plastic bags, with their diverse art, western-style adverts and slogans, was Russia’s introduction to the free market. Everyone who went shopping bought a bag.

The business boomed. In a market of some 300mn people Usmanov and his partners quickly became dollar millionaires. By 1992, when he dived into new businesses, he was already a wealthy man.

Usmanov arguably stands apart from many Russian tycoons who made their fortune in the 90s, as he accumulated his wealth through open market deals or by launching new businesses, many of which were in the tech sector.

“Never in any situation was I what you could call an oligarch. All the assets my partners and I bought in Russia were from the secondary market, not in any so-called privatisation processes. No one ever gifted anything to me,” Usmanov said in a recent interview with The Financial Times.

A new world

By 1992, Russia had become a free-for-all. The Soviet Union had collapsed, and the economy was in ruins. But there was still a lot of value amongst the rubble.

This was the era of “wild cat” banking when anyone with a pocket full of change could set up a bank and play the arbitrage created by hyper-inflation to make millions: banks would take on ruble debt obligations like a company’s payroll functions, convert the rubles to dollars and delay the payments for as long as possible. When the banks finally paid, they converted the dollars back into massively devalued rubles, settle the bills and pocketed the difference (in dollars) to make a handsome profit. Inflation at the time was running at over 1000% a year, or about 5% a day. Many would have made their first money this way.

Usmanov opted for a different strategy. In the chaos that created a plethora of opportunity for the fleet of foot, he dived into the market as an investor. Together with his long-time partner and friend, the British-Iranian businessman Farhad Moshiri, Usmanov began investing in international markets which was a virgin territory for many others.

By the end of the 90s, he had come to the attention of Rem Vyakhirev, the CEO of state-owned gas monopolist Gazprom, who appointed Usmanov as head of Gazprominvest, the investment arm of the gas giant.

This was Gazprom’s heyday. Gas exports were one of the few secure foreign exchange earners for the government, and a company that employed hundreds of thousands of people – widely known as the “state within the state” – reached down into most regions of Russia. Entire cities were dependent on Gazprom for everything - from schools to care for pensioners. Usmanov became one of Vyakhirev’s financial advisors to run this empire.

Vyakhirev was eventually sacked by Russian President Vladimir Putin in 2001, as part of the new president’s effort to assert his control over the chaotic Yeltsin-system. But it is a testament to Usmanov’s genuine talents that he was retained by the new head of Gazprom, Alexey Miller, and remained at the helm of Gazprominvest for more years to come.

Metal magnate

When Usmanov joined Gazprom, he sold the company a stake in the metal producer he had acquired, partly so that he had no conflict of interests. When Gazprom decided they were noncore, he bought the asset back paying the market rate for the shares.

This was the start of his move into the metallurgical business. By 2002, Russia was already on an eight-year boom that had started two years before, with economic growth running at 6-8% a year and the stock market started returning 50% a year. Russia’s companies started to rerate towards fair value compared to their international peers, and obviously raw material producers were in the front line of that process.

Usmanov started to invest into metallurgical companies. He bought up mines and steel plants, and through this string of acquisitions he built up the Metalloinvest group – one of Russia’s leading metallurgical companies that is still a major part of Usmanov’s business empire today.

The boom was not yet under way when Usmanov invested in the loss-making Anglo-Dutch joint venture Corus Steel. His partners called him crazy for buying the struggling steel plant, but he persuaded them to go ahead. Usmanov made another fortune as Corus’s share price soared in the next few years.

Tech days

The economic boom in Russia radically transformed the country: the economy doubled in value; a middle class emerged; and a decade of 10% wage rises closed the gap between those that worked in the private sector and those that were employed by, or at least connected to, the state – about half of the population.

With this change came a new world of opportunities. Most of the wealth in the 90s came from businesses connected to raw materials, but by the noughties, companies working in sectors such as retail and services emerged as the big money spinners. After all, Russia has by far the largest population of any European country and remains a major consumer market. Usmanov latched onto the potential of tech early on.

That interest came to its cusp in the midst of the global financial crisis in 2009 when he decided to bet his billion on buying a stake in Facebook.

“You’re crazy!” his fellow business partners told him again of his risky proposition. The crisis had cost him, like everyone, a lot of money.

The idea of buying into Facebook was brought to Usmanov by Yuri Milner, who suggested buying a small stake in the company.

By that time, Usmanov had realised that Facebook would become a phenomenon in its own right. “Milner's dream was to get from 0.5% to 1% of shares, and I said that if we are to go there, we need to get more,” Usmanov said. In the end Usmanov and his partners accumulated circa 8% stake in Facebook several years ahead of the company’s eventual IPO.

Milner was dispatched to do the deal with Facebook owner Mark Zuckerberg in the depths of the global financial crisis, and the rest is history.

Reportedly, Usmanov invested around $460mn directly in Facebook through his company USM and another $420mn through DST, a venture that held stakes in several major Russian tech companies in which he had partnered with Milner.

Usmanov won’t say just how successful the deal was, but when he was asked by The Financial Times how big his return on the investment was, he answered: “More than five-fold.”

Usmanov continued to buy into tech companies for many years on. In Russia, he bought stakes in the telecom company MegaFon, the email provider Mail.ru, and the social media site VKontakte, Russia’s answer to Facebook.

VKontakte was partly owned by DST, and Milner told bne IntelliNews in emailed comments: “This man uniquely combines a spacious mind, business acumen and integrity.”

Usmanov’s particular interest in tech has been also reflected in his successful investments into Apple and many of the world’s tech unicorns: Alibaba, JD.com, Twitter, Spotify and Uber among others.

Charity

When more than 100,000 people were left homeless due to flooding caused by a burst dam in the border areas of Uzbekistan and Kazakhstan in early May, Usmanov immediately sent $15mn to mitigate against the consequences of the disaster, providing assistance to both countries. In his letter to the President of Uzbekistan Shavkat Mirziyoyev, Usmanov noted that “he learned with great pain about this tragedy” and that he cannot “remain indifferent to the fate of his people.”

Earlier this year, Usmanov donated $25mn to help equip Uzbek hospitals amid the Covid-19 pandemic that had not spared his native country.

The billionaire and his partners also allocated $26mn of personal funds to fight the coronavirus in Russia, and the additional spending by the companies related to Usmanov, both financially and in the form of various discounts, has risen to a total of $100mn, according to a USM spokesperson. Usmanov leads Forbes magazine’s list of most generous donors in Russia and the overall sums make him, along with Jack Dorsey and Bill Gates, among the top three donors worldwide during the current crisis.

Usmanov has been one of Russia’s richest businessmen for many years with an estimated fortune of $15.4bn. Two years ago, he was named a “businessman of the year” by Forbes, but since he turned 60, Usmanov started reducing his stake in USM that controls most of his businesses. Usmanov is following in the footsteps of George Soros, Warren Buffet and Bill Gates, who donated large proportions of their wealth to worthy causes, but Usmanov is the first of Russia’s superrich to become a full-time philanthropist.

Unlike most of the Russian oligarchs holding onto their wealth and eager to stay in control, Usmanov announced several years ago that he would be leaving business altogether.

Last January, he announced he would split his shares in USM - a company that was set up eight years ago to unite most of his business assets in Russia - between his family and top managers.

“Many people have helped me, so I want to help my family and my management by giving them my shares”, he said.

According to Usmanov, he now dedicates most of his time to doing what he truly loves: promoting sport and charity. He is a long-standing president of the International Fencing Federation and the founder of the charitable fund “For the Future of Fencing”. Earlier this year Usmanov bought the original Olympic Manifesto for $8.8mn – the highest price ever paid for a piece of sports memorabilia – and donated it to the Olympic Museum in Lausanne where the Fencing Federation is headquartered. Even his personal life has strong sporting ties: he has been married for 28 years to Irina Viner, the legendary head coach of the Russian rhythmic gymnastics team and the president of the All-Russian Federation of Rhythmic Gymnastics.

Usmanov is motivated by his deep religious convictions, and entering one’s 60s is a significant age for any Muslim.

“For a Muslim, 63 is the age that the Prophet Muhammad lived to. Beyond this age, I don’t want to deal with self-interest. This is why when I turn 63 I will finish my “lucre story,” Usmanov was saying eight years ago. “Today, in principle, I feel that I am no longer a businessperson. I now feel more like a public person who is engaged in charity work, which fascinates me. And since this requires a lot of money, I will maintain my position as a shareholder in businesses,” he added later.

And he is putting his money where his mouth is: according to Forbes, Usmanov has already given away $2.6bn in the last fifteen years and $400mn last year alone, including “hundreds of millions” to Uzbekistan.

In his native country, Usmanov donated to, among other things, the establishment of a large Islamic Centre in Tashkent and is involved in a World Bank-supported housing development programme in various Uzbek regions. He also supports sports in Uzbekistan.

In Russia, Usmanov is known for returning a collection of works of art by Mstislav Rostropovich and Galina Vishnevskaya to Russia, for purchasing Frans Hals the Elder’s iconic painting “Saint Mark” for a leading museum, and for returning a collection of Soviet cartoons to the homeland, as well as for many other charitable actions. He set up a charity foundation “Art, Science and Sport,”one of the biggest in Russia.”

Russia and Uzbekistan are not the only countries benefiting from Usmanov’s generosity. He has made contributions worldwide. The preservation works at the Basilica Ulpia, the Hall of the Horatii and Curiatii, and the fountain in Piazza del Quirinale in Rome, as well as the restoration of the tea clipper Cutty Sark in London – all of these projects have been implemented under his active involvement.

“If you are given something by God or by fate, I feel that you have to share it,” Usmanov says. “When it comes to charity, it is just as important not to give sparingly. The Qur'an states that one must give the fifth part. The second level of charity is when your relatives and friends have everything they need for happiness. At the third level, if you receive more than what you expect, you must give half of what you earn.”

According to people familiar with Usmanov, “charity is in his nature.” Usmanov’s approach to charity is perfectly reflected by the story of James Watson’s Nobel prize medal. Along with Francis Crick and Maurice Wilkins, Watson shared the 1962 Nobel prize in medicine for discovering the double helical structure of DNA, and sold the medal to raise money for his Cold Spring Harbour Laboratory in Long Island, where he used to work for years. The anonymous buyer, who paid $4.1m for the medal at an auction at Christie’s in New York city, was later revealed as Usmanov. He said that “a situation in which an outstanding scientist has to sell a medal recognising his achievements is unacceptable… and his award for the discovery of DNA structure must belong to him.” Usmanov returned the medal to the recipient.

But there is perhaps something more important that makes Usmanov a very rich person. As an ethnic Uzbek born in a country where large families are the norm, he says he counts himself lucky to have more than a dozen nephews, nieces and grandchildren that have a strong place in his heart and also add to his immense fortune.

 

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