Interview transcript: Vladimir Potanin

Staff writer Nadia Popova interviewed Vladimir Potanin, president of the Interros Group, at his office in Moscow on Thursday, June 5, 2008. Below is an edited transcript.

THE MOSCOW TIMES: What are your investment plans, now that your business divorce with Mikhail Prokhorov has been concluded?

VLADIMIR POTANIN: Currently, as a company without partners, Interros has its strategy mapped out for the next five to seven years. We want to attract new partners now and diversify geographically and industrially, as we are currently overexposed on metals and in the Russian market. Our foreign investments currently are about 10 percent. We have to increase that level to 20-25 percent, but we will not reduce our business in Russia. It would be illogical, now it's a good time for the Russian economy.

We haven't used loan financing before, and our operations leverage has been quite low. Now we will attract more loans, which will demand more transparency from us, so we are planning consolidated accounts to international accounting standards by next year.

Over the next 18 months to two years we are going to work more in asset management. It's a good time to do this, as the financial activity and savings of the population are growing.

MT: What is your new partnership with Alisher Usmanov's Metalloinvest based on?

VP: It is based on our common thinking that we can build a big international company on the basis of the assets of Norilsk and Metalloinvest.
The Interros strategy toward various assets generally depends on the stage of their development and level of their maturity.
In such a big company as Norilsk Nickel we have to form partnerships. To try to get more than 50 percent in the company would be unnecessary. In chess there is a term for this - overprotection. No overprotection is needed in Norilsk. That is why we got the idea of forming a partnership with Usmanov, and inviting Oleg Deripaska's United Company RusAl to join us.
So far Norilsk Nickel is valued at $50 billion to $60 billion. To create a big company you need more partners, as it is hard to handle such a project alone. Such projects bring access to the expertise and management resources of the partners, and their connections above all.

Another group of companies are those who are developing from scratch, or are in an early stage of development, or are going through an active period of development where a serious level of influence and management control from Interros is needed, as with Prof-Media or Open Investments. These are companies that need a significant level of control, attention and managerial resources.

Until a strategic partner appears for such companies, they fully rely on Interros' financial and managerial resources.
 
A good example of the transfer from dependency to strategic partnership is Rosbank. Interros created Rosbank after the 1998 crisis - we took care of it and then attracted Societe Generale as a high-profile strategic investor. We shared considerable responsibility for Rosbank's day-to-day business management with Societe Generale. In such situations you can use the technologies and strategic, managerial and financial resources of such a strategic investor.

MT: You and Mr. Usmanov invited United Company RusAl to join the proposed three-way merger in late May. Have you received an answer?

VP: Deripaska may need some time to analyze the situation and understand it. The difference between the companies, their maturity and people's personal ambitions will make the negotiations harder. But in the end there will be an understanding that profitability is the most important issue.

MT: Was the possible triple merger approved in the Kremlin?

VP: It is inevitable, and quite correct, that the Kremlin will give its approval for the three-way merger. Such things are not done in any other country without the government's approval.

MT: Was the announcement that Mikhail Prokhorov would sell his 25 percent blocking stake in Norilsk unexpected?

VP: It came as a surprise to me. It came as a revelation that such a prominent businessman would do something like that, breaking all our previous agreements. Prokhorov had promised Usmanov and me to sell us Norilsk, and buy Polyus, but he avoided doing this. A businessman of such a level should be very coherent and predictable, not be a showman, or a Vladimir Zhirinovsky in business.

MT: You have gone through a complicated business divorce with Mr. Prokhorov. When did it all go wrong?

VP: We agreed that I would buy out his interest in Norilsk and that Misha would take the energy assets. The consolidation of the Norilsk energy assets was a part of this strategy. Last fall, Prokhorov changed his mind. He said he didn't want to buy those assets anymore and questioned their efficiency.

In my opinion, Norilsk's management and board explained very well to the minority shareholders how those assets would be separated, and they came to like the assets. For the majority of the shareholders, judging on the voting results, it was a big disappointment that those assets were not separated.

MT: Prokhorov's Onexim Group offered in May to buy a 6.54 percent stake in Polyus Gold, another company that you jointly control. The bid was rejected. How do you interpret Mr. Prokhorov's actions?

VP: It's evident to me that the argument of Polyus management, that the company didn't want the money, is absurd.

Even a child would understand that Prokhorov is controlling Polyus and that Yevgeny Ivanov, the general director, is his man, so that when he makes such an offer and Ivanov says no, it means that the offer was made not with the aim of a purchase but with some other private aim - PR for the minority shareholders.

If the minorities understand that the stake is being manipulated, they will very likely not support the current management.

The shares being talked about will play a key role at the shareholders' vote on a new board, and it is clear that the management wants to use the stake in its own interests. There are no deals on Polyus between Prokhorov and me now.

MT: What is your strategy in Polyus?

VP: Polyus would do better if there were an opportunity to replace the current management with one more competent and less tricky. As for me, there are ways of fighting for your interests. I never do something in business that I wouldn't do in life. I will fight for Polyus, but I will not cross certain lines. Business is a complicated thing, but if one makes mistakes, he should just admit his mistakes, apologize and start again with a clean slate.

MT: You have previously criticized government for getting too involved in the economy. What are your arguments?



VP: The state's role in the economy is increasing. It is a recurrence of the old illness when the state was weak and didn't have control over what was happening in the country. Now the state is strong - even stronger than it would like to be. The state is involved everywhere. It would be good for the state to share some of its functions.

Another trend is a fear of foreign investment. We invite foreign investors and at the same time talk about national security and the strategic sectors that foreigners should not invest in. I look at it this way: When the state defends its interests through owning property, that means that it is not skillful enough in using other, more suitable, tools. Property management is not the function of the state.

The private sector should be more efficient than the state not only in services and the production of basic necessities. Private business has to prove that it is efficient in the strategic sectors too. Consolidation in this regard is very useful.

Where the government should get involved is in the issue of public dislike of businessmen. I always remember Confucius' saying: "The well-managed country is ashamed of its poor, and the poorly managed country - of the rich."

We have to prove to society that our work is useful, like that of the fireman or the teacher. We're the engine of the economy. Some officials criticize us businesspeople but they should not forget that they live on the taxes paid by business, from money that could be paid out to pensioners and the disabled. Officials should remember that they are living at someone else's expense; that they work not for themselves, but for society.

MT: How does business actually interact with the Kremlin?

VP: They are quite reasonable people there in the Kremlin, and they understand how things work. The Kremlin usually says: "You negotiate and arrive at a conclusion, then come and discuss it with us. If we like it, we will support it. If not, we will tell you exactly what we don't like." It's all very clear. It's not very different from in any other well-managed country.

But business consults with the Kremlin only when it is a really big deal. For instance, when I met Vladimir Putin some time ago, I told him about Norilsk Nickel's deal on LionOre. It turned out that he didn't know about it, and he was very interested.

MT: What is your take on what is happening at TNK-BP?

VP: I do not look at the conflict in a political way. Vladimir Putin is absolutely right - there should be a very well worked-out procedure and exit strategies in the 50-50 partnership, or someone should have a controlling stake.

If some board members of a company represent a shareholder that is itself a big company in the same sector, a conflict of interests arises.

For shareholders, it's a question of corporate governance.

The way out, as First Deputy Prime Minister Igor Shuvalov said, is to give board members more responsibility, so that they vote in the interests of shareholders. Then there will probably be an opportunity for TNK-BP to solve the conflict.

Any of us can face this situation at any moment: for example, if someone invests in a foreign company that is his competitor on the Russian market. Mikhail Fridman's Alfa Group turned out to be the first to face this on such a scale.

MT: What do you think are the hottest sectors of the Russian economy to invest in today?

VP: For us, retail and entertainment media are very interesting. We have consolidated our 100 percent stake in Prof-Media and we will actively develop in this sector. Moreover, we look forward to holding an IPO for Prof-Media. These sectors are the least politicized - the problems of our political system do not generally affect them.

MT: You are known to be a devoted football fan. Are you going to travel to watch Russia play in the Euro 2008 matches?

VP: I will watch Euro 2008 on television and support our national team. I am very worried that some key players have found themselves out of the team: Pavel Pogrebnyak is out with an injury, Andrei Arshavin is serving out a ban and Vladimir Bystrov hasn't recovered from his injuries. But given our team's level, it should qualify from its group. We'll be ashamed if we don't.

Read the article Potanin Puts His Passion Into Metals Plan http://www.moscowtimes.ru/article/600/42/368217.htm