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. Last Updated: 07/27/2016

Berezovsky & Co. Buy Up 3 Smelters




In what looks to be a power play to buy a large slice of Russia's aluminum industry, it was announced Friday that three major aluminum producers have been snapped up by companies with firm ties to tycoon Boris Berezovsky.


A group of shareholders in oil major Sibneft has acquired controlling stakes in two of the world's largest smelters - the Krasnoyarsk and Bratsk aluminum plants - from British-based metals trader Trans-World Group, a Sibneft spokesman said Friday.


A spokesman for metals mogul Lev Chyorny, a large Bratsk shareholder and once a leading figure at Trans-World Group, confirmed that TWG's shares had been transferred to Sibneft shareholders.


It was unclear exactly what sort of transactions had taken place, with none of the participants willing to reveal what kind of deal had been struck.


Sibneft's ownership structure is opaque, but some 80 percent of the firm's shares are controlled by a series of front companies associated with both Berezovsky and fellow oil tycoon and State Duma Deputy Roman Abramovich.


Officials with TWG, which is believed to have held a majority stake in Bratsk and a blocking stake in Krasnoyarsk, said they were not prepared to comment.


"A group of Sibneft shareholders bought controlling stakes in the plants," a Sibneft spokesman said Friday. "It is not Sibneft itself, but some of its shareholders."


"Trans-World is currently in discussions with interested parties concerning certain interests that it holds in the CIS," said a TWG spokesman in London. "Because of the confidential nature of the discussionswe cannot make any further comment at this time."


He and other official s familiar with the deal declined to describe the size of the stakes or the terms of the deal.


The third aluminum plant to be sold this week, Russia's fifth-largest aluminum producer Novokuznetsk, has been sold to Russian car dealership LogoVAZ, a chain of car dealerships that Berezovsky set up that became the foundation stone for the tycoon's broad-ranging business empire.


The car dealership bought a controlling stake in Novokuznetsk from the MIKOM industrial group for an undisclosed sum.


"LogoVAZ bought a controlling stake from shareholders, but we don't have the details," MIKOM spokesman Alexei Stupin said Friday, in remarks reported by Reuters.


He declined to give details. MIKOM formerly held a 70 percent stake in Novokuznetsk, Prime-Tass reported


If Berezovsky and Abramovich have managed to grab control of all three aluminum plants, then the old allies have gathered together an impressive amount of aluminum capacity.


Between them the three enterprises churned out 1.98 million metric tons in 1999, almost two-thirds of total Russian production of 3.1 million metric tons. Bratsk Aluminum Plant produced 870,700 tons in 1999, while the Krasnoyarsk Aluminum Plant made 836,500 tons and Novokuznets produced 273,500 tons.


All told that is about half of what was churned out of the entire United States - the world's largest aluminum producer. The United States produced 3.77 million metric tons in 1999.


With world aluminum prices rising over the past six months, renewed interest in the aluminum industry would be understandable right now. And the Krasnoyarsk facility just became especially attractive after the administration of Krasnoyarsk Governor Alexander Lebed included it last month in a free-economic zone - exempting the enterprise for 10 years from almost all local taxes, including profit taxes. Lebed's 1998 election campaign was, by many media accounts, funded by Berezovsky.


While LogoVAZ has always been straightforwardly accepted as a Berezovsky-controlled firm, Sibneft's ownership is significantly less clear cut. The company has long been split between four firms: Financial Oil Corp., Runicom, Sins and Rifain Oil.


Abramovich - who burst from obscurity last year amid talk that he, like Berezovsky, wields influence in the Kremlin itself - reportedly controls all of these firms, some directly, some through a convoluted series of front companies. Although Berezovsky was the main buyer when Sibneft was privatized in 1995, he later distanced himself from the oil major, and Abramovich - originally seen as Berezovsky's prot?g? - came to play a greater role there.


Berezovsky's spokesman declined comment Friday, saying he could not confirm the LogoVAZ purchase of Novokuznets.


As part of a planned issue of American Depositary Receipts this year - ADRs are instruments that trade on Wall Street as "proxies" for Russian shares - Sibneft owners have transferred stakes of about 20 percent each to ING Barings, Deutsche Bank and ABN AMRO, according to Interfax.


The division of shares in the Bratsk and Krasnoyarsk plants is also unclear. Various media reports have said that shares in Bratsk are mainly split between Lev Chyorny, TWG, Vash Finansovy Popechitel, and the plant's directors. Krasnoyarsk's shares are said to be owned by the Anatoly Bykov Aluminum Group - run by controversial businessman Anatoly Bykov - Transnational Aluminum Co. and a number of small companies.


Bykov was arrested in Hungary last year at the request of Russian authorities, who had issued an international warrant charging the Krasnoyarsk businessman with murder, money laundering and gun running. On Friday, a Hungarian court ruled that he could be extradited back to Russia; however, he has sought refugee status, The Associated Press reported, and so his deportation is on hold.


News of the aluminum smelter acquisitions caught industry analysts off guard Friday, leaving some of them scratching their heads.


"There are more qu estions than answers," said one metals insider, who asked not to be identified.


"Whose money paid for the stakes, Sibneft's or the owners? If the money was from Sibneft, then that would mean that Sibneft was the owner. Also, could Trans-World be getting out of something, or are the Chyorny brothers dividing up stakes?"


Meanwhile, observers could not say what the deal meant for the Trans-World Group and the two Chyorny brothers, Lev and Mikhail. The Chyorny brothers headed a Monte Carlo-registered firm, Trans-C.I.S. Commodities Ltd. - associated with the Trans-World Group - which came to dominate the aluminum business in the former Soviet republics by 1992.


In 1997, then-Interior Minister Anatoly Kulikov told the State Duma that official investigations had uncovered evidence that in 1992 and 1993 Trans-C.I.S Commodities Ltd. had used false bank payment orders to finance contracts with a number of major metals enterprises - including the Bratsk, Krasnoyarsk and Novokuznetsk aluminum factories.


The Chyornys are also described as involved in organized crime in some Russian media reports, and also in confidential law enforcement documents belonging to the U.S. FBI and to Interpol. Those documents have been described by the Center for Public Integrity, a U.S.-based agency of investigative journalism.


But despite much talk, the Chyorny brothers are not known to have ever faced formal criminal charges.


Other observers said they felt the deal was only about Sibneft's owners adding wealth to their portfolios, and not about the oil giant diversifying into metals.


"I believe it is nothing to do with Sibneft," said James Henderson, oil analyst at Renaissance Capital. "It is just a group of shareholders."


"They may be trying to do the same thing as they did at Sibneft - pick up some assets, install a new management team to run the company in a more efficient style, and then possibly in the future issue ADRs," he said.


The metals analyst said any change in the ownership structure of the aluminum plants would probably have little effect on the businesses.


"I don't think it would have any effect on the plants as it is a good business," he said. "Bratsk had Western management with Trans World, even if it was a traders style of management."