Liquidity crunch hits Russian tycoons

The falling price of oil and increased political risk following the conflict in Georgia played a prominent role in driving Russia’s stock market to new lows on Wednesday.

But bankers and traders said that the underlying reason for the selling was a liquidity crunch of the kind that affected western markets a year ago but has only recently appeared in Russia - a serious cash shortage that is forcing banks and funds to sell otherwise attractive assets.

Analysts said the market was being forced down as leading Russian businessmen and funds had to liquidate positions due to margin calls as they were unable to raise cash elsewhere.

Traders and bankers would not disclose the names of Russians facing margin calls. But a handful of the country’s richest tycoons have made fortunes borrowing money from Russian banks to buy shares, pledging some of the shares back as collateral. Many have also pledged shares to raise funds for expansion.

Suleiman Kerimov, one of Russia’s richest men, gathered a windfall spending billions of dollars in loans in 2004 and 2005 from Sberbank, the state-controlled savings bank, to amass a 6 per cent stake in the institution and 5.5 per cent in Gazprom, the energy major, pledging some of the shares back as collateral.

This practice was phased out as particularly risky after German Gref, Russia’s former economic development minister, took over management of Sberbank this year. Mr Gref told reporters in June the biggest minority shareholders had all reduced their stake from as much as 6 per cent to 2 per cent at the most.

Mr Kerimov is believed to have reduced his positions in Sberbank and Gazprom ahead of the market fall. His holding company, Millennium Group, did not deny this. A senior banker familiar with the matter said Mr Kerimov’s group had transferred cash to cover positions before facing margin calls.

Another big shareholder in Gazprom and Sberbank coming under the spotlight is Russia’s richest woman, Yelena Baturina, who is married to Moscow’s mayor at the same time as running the capital’s biggest development company, Inteko.

She had also made a fortune borrowing cash to buy shares in Sberbank and Gazprom. According to disclosures by Ms Baturina’s Kontinental fund, she reduced her stake in the bank as of the end of June. The fund reported she held Rbs35.7bn ($1.4bn, €980m, £790m) of Gazprom shares and Rbs6.2bn of Sberbank shares. Ms Baturina could not be reached for comment.

Bankers said some of the country’s biggest metals tycoons were probably facing margin calls as share and commodity prices fell.

Oleg Deripaska - who is, on paper, Russia’s richest man - pledged shares in Norilsk Nickel for a $4.5bn (€3.2bn, £2.5bn) loan to acquire a 25 per cent stake in the world’s biggest nickel miner this April, bringing the total debt of his UC Rusal up to $14bn, analysts said. Norilsk shares have been the hardest hit by the market fall, tumbling from $275 to about $120.

Bankers said they believed Vladimir Potanin, Norilsk’s largest shareholder, might also have been hit by falling prices after accumulating Norilsk shares over the summer to fend off a takeover attempt by Mr Deripaska.

Market insiders said the practice of raising cash by pledging shares had become ubiquitous in the Moscow market. ”Out of the 35 to 40 billionaires in Moscow, there are a number of them who have a decent amount of money in the stock market and pledged those shares.”