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. Last Updated: 07/27/2016

Potanin's Successes No Proof of Bank Power

Uneximbank's controversial victory in two major privatization auctions in the past month has raised speculation that its president, Vladimir Potanin, has the government wrapped around his finger.


Potanin's uncanny success in winning big stakes in Norilsk Nickel and Svyazinvest appears to run counter to the government's promises to cut its ties with big banks.


But despite appearances, analysts said Monday that the government is still moving in the right direction. While Potanin may have won the last two rounds, the government is still moving to cut its support to the bankers, including the Uneximbank chairman.


While the bankers are still trying to pull political strings, the government is now more concerned about the need to find extra sources of revenue to pay off a massive backlog of public sector wages by the end of the year.


"The government's first aim is to receive money as soon as possible to pay off wage arrears," said Sergei Kolmakov, an analyst at the Fond Politika think tank. "The general mood of the government is to squeeze the financial groups, including Uneximbank."


In one sign that the government is trying to keep Uneximbank and Norilsk Nickel deals agreed that Uneximbank had profited but said that in each case there were good reasons for the bank's victory.


In the case of a 25 percent stake in telecoms holding Svyazinvest, the government may have appeared to favor Potanin's consortium, which won the auction, but in reality it was merely selling to the highest bidder in an effort to raise cash. Analysts regarded the sale, which netted $1.9 billion, as fair and open by Russian standards.


"Potanin does not have excessive influence over the government," said one Western market analyst who asked not to be identified. "He simply realized sooner than the others that the rules of the game have changed."


The sale of a 38 percent stake in metals giant Norilsk Nickel, on the other hand, has been sharply criticized as an insider deal which was rigged in favor of Uneximbank. Analysts have said the sale was sold for as much as 25 percent below the market price of the shares. Prime Minister Viktor Chernomyrdin at one point tried to halt the Norilsk auction last week, ordering an investigation into whether the terms of the tender were legal. The deal was signed Friday, and Russian news agencies reported that the inquiry had found no major irregularities with the sale.


Yet, analysts said the government's favoritism of Potanin in the Norilsk sale was the unavoidable continuation of the disastrous shares-for-loans deals concluded in late 1995.


These deals, which handed shares in Russia's biggest oil and industrial companies to pro-government banks at bargain prices in exchange for loans, were biased in favor of the banks. Given the conditions written into these contracts, the government would have struggled to get a better deal for Norilsk.


"Norilsk was really a hangover from the previous round of privatizations," said Anthony Thomas, emerging markets economist at Kleinwort Benson in London.


Uneximbank first won the right to manage the 38 percent stake in Norilsk for a $170 million loan to the government in 1995.


Under the shares-for-loans deal, the bank had a major head start because it was the official organizer of last week's auction, allowing it to turn its management control into full ownership.


And despite its head start, to retain control Norilsk in an auction held last week Uneximbank paid $250 million, above the starting price of about $140 million. In a recent interview with The Financial Times, Potanin said this was proof that he had been under pressure to pay a fair price for the stake. "Am I some kind of nut that I would pay so much more than the other bidder if it were a rigged auction?" he said.


Not only was the government tied by the terms of the shares-for-loans deals but there was little interest in bidding for Norilsk. "For Norilsk, there were no real buyers besides Uneximbank," said Andrei Yashchenko, a banking analyst at United City Bank in Moscow.


While two companies did register bids at last week's auctions, Kommersant Daily newspaper reported Saturday that the other bid, lodged by an obscure company called Advanced Industrial Technologies, was in fact orchestrated by Uneximbank. Two bids were needed to made the auction legal.


The only other company to express interest in Norilsk was Trans-World Group, which attacked the terms of the tender as unfair.


Analysts said that future auctions are likely to be modeled more on the Svyazinvest tender, where the highest bidder takes all.


Eyes are now set on this fall's planned auction of a 51 percent stake in the state oil company Rosneft. Potanin already has thrown his hat into the ring, while corporate magnate and deputy Security Council chief Boris Berezovsky also is reportedly interested in the stake


While Rosneft would be another huge prize for Potanin, Uneximbank, with total assets of only about $3.5 billion, may face an uphill battle to raise funds for the purchase.


However, Potanin has been successful in tapping international sources of funds for his bids, such as enlisting financier George Soros to raise nearly $1 billion toward Svyazinvest.


"There is going to be a big fight over Rosneft," said one analyst. "The winner of Rosneft will have huge implications for the country's power structure."