Hundreds of Russian oligarchs have been hit with sanctions and their yachts and luxury homes abroad seized by the authorities, but rather than crushing their businesses, the oligarchs added a collective $13.7bn to their wealth in the first three months of this year, according to the Bloomberg billionaire index published on April 3.
The index uses the value of their company shares and other metrics to calculate the wealth of Russia’s top businessmen, and despite the extreme sanctions imposed on Russia following the invasion of Ukraine just over a year ago, the Russian stock market has shown some signs of life recently.
The dollar-denominated RTS Russia index broke through the psychologically important 1,000 mark last week – a level it traded at for years following the first round of sanctions imposed in 2014 following the annexation of Crimea. (chart)
But the market began to boom again from about 2000 onwards as a four-year recession came to an end and foreign investors enthusiastically piled back into the Russian equity market. In 2021 alone there were a dozen Russian IPOs that raised billions of dollars, and another 24 companies were in the IPO pipeline for 2022.
The RTS hit a two-decade-long peak of 1,934 on October 26, a week before the US State Department gave a press conference warning that Russia could invade Ukraine “any day now” that sent the stock market into a tailspin.
Likewise, the ruble-denominated MOEX Russia Index reached an all-time high of 4,292.68 in October of 2021, before following the RTS down into the abyss.
Foreign portfolio investors used to make up half of the investment volume in Russia’s stock market, which has typically been either amongst the best performing markets in the world each year, or the worst – depending on whether Russia was going through one of its regular crises or not.
However, since the appearance of sanctions, Russia’s exclusion from the SWIFT international money transfer system and the strict capital controls imposed by the Central Bank of Russia (CBR), the market has been locked up and investors who were holding Russian shares on February 24 last year now have billions of dollars trapped in the Russian market they are unlikely ever to see again.
However, Russian domestic investors are still actively buying and selling stocks and the market is open to investors from “friendly” countries, some of whom have been bottom fishing in the last year.
As bne IntelliNews has reported, after the initial shocks of sanctions passed, Russia’s economy has started to stabilise again and that has put money back into the pockets of the oligarchs. One of the factors that has reignited the interest of investors is that many of Russia’s blue chip companies feel comfortable enough to restart paying dividends; for several years Russia’s leading corporations have been paying the most generous dividends in the world, typically at least twice the benchmark MSCI Emerging Markets average.
The founder and majority owner of Russia’s biggest privately owned oil company Lukoil, Vagit Alekperov, has earned the most, after he added $3.17bn in just the last two months, bringing his fortune up to $18.5bn, according to Bloomberg’s calculations.
In second place is his peer, Leonid Mikhelson, who owns Russia’s LNG champion Novatek and who also has made $1.65bn in eight weeks, and his fortune now stands at $26.3bn, according to the index, thanks to the valuation appreciation of his stocks.
Since the beginning of the year, Vladimir Lisin, chairman of the board of directors of NLMK and several times ranked as Russia’s richest man, has earned $1.17bn, raising his net worth to $21bn.
Meanwhile, the fortune of banking and fertiliser tycoon Andrey Melnichenko, who exited his cash cow EuroChem after he was sanctioned, saw his wealth fall by $571mn to $12.6bn. Melnichenko received more than $500mn from dividends and the sale of shares in public companies, Bloomberg reports.
And the oligarchs’ fortunes are likely to continue to grow this year, although sanctions are unlikely to be lifted for a generation, even if the war ends tomorrow.
After contracting by 2.1% in 2022, the IMF predicts that Russia’s economy will expand by 0.3% this year – faster than Germany and the UK – as many sectors start to recover, especially those in raw materials, which is where most oligarchs have companies.
Russian investment bank BCS just upgraded the Russian equity market to a “buy” with a 45% upside for 2023, the bank said in a note on March 27, which will collectively earn the oligarchs tens of billions of dollars more if it happens. The mood has improved so much that the Moscow Exchange said last month it expects to hold 10 IPOs this year.
Sanctions have been designed to cut Russia off from the international market, but they have proved too difficult to implement as Russia has turned to its friends in Beijing, Sofia and Budapest among others to circumnavigate the restrictions with a lot of success. Last week, the CBR reported that Russia’s gross international reserves have grown some $60bn since the low point last year to just shy of the $605bn the central bank had in reserves on the eve of the war, up $9bn in a week last week alone.
At the same time, the EU has been struggling to find and freeze the oligarchs’ wealth on deposit in Western banks or tied up in luxury real estate in London, Nice and other trendy locations. And the EU also can’t find most of the CBR’s $300bn of reserves it froze at the start of the war. Indeed, so far the EU has found and frozen only $22bn of sanctioned oligarch money.
The West is now trying to do something about the leaky sanctions regime. Western and Russian diplomats have been travelling the world recently trying to shore up support for their respective positions. Western officials are trying to bully Russia’s friends into complying with the sanctions regime, with some success. There have been ten rounds of sanctions so far, but European Commission President Ursula von der Leyen announced in March that work on the eleventh package is now under way; it will not introduce many new measures, but will focus on making the existing sanctions work better.