March 27, 2012 10:41 pm

Kremlin mired in Gazprom deal

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The family of Igor Shuvalov, Russia’s first deputy prime minister, bought nearly $18m in Gazprom shares through an offshore company as the government prepared to liberalise share trading, a reform which greatly increased their market value, documents show.

The offshore holding company, Sevenkey, would have made more than $100m in gains by 2008 from the shares, which were bought in mid-2004 when Mr Shuvalov was an economic aide to President Vladimir Putin. The share purchase, documented in letters seen by the Financial Times, was carried out via a vehicle belonging to Suleiman Kerimov, one of Russia’s richest men.

A government decision in December 2005 to lift a ban on foreigners investing in the domestically traded stock fuelled a strong surge in Gazprom’s share price.

The disclosure raises fresh questions about close relations between Russian government officials and the country’s wealthy businessmen, and underlines the lack of clear regulations governing investments by state officials at the time.

Mr Shuvalov, one of the government’s most liberal faces who has often championed the rights of foreign investors, said he had been scrupulous in avoiding conflicts of interest and had always declared his own and his family’s income as required by Russian laws.

“As a lawyer, I have without fail followed the rules and principles on conflicts of interests. For a lawyer, this is sacred,” he said. “I welcome rigorous journalistic and legal scrutiny. I am confident of my record as both a private businessman and subsequently a government technocrat.”

Other documents seen by the FT, and first reported by Barrons late last year, show that Mr Shuvalov also co-invested in a steel project led by another Russian tycoon. Sevenkey, which is registered in the Bahamas, invested $49.5m in April 2004 on behalf of Mr Shuvalov to help fund the acquisition of a 13 per cent stake in Corus Steel by Alisher Usmanov, a tycoon with close connections to the Kremlin. By 2007, after Mr Usmanov had sold his stake, Sevenkey had received $119m back from Mr Usmanov, who had benefited from a surge in Corus’s share price.

A letter from a director at Sevenkey Limited, the fund that was registered as being run on behalf of Olga Shuvalova, Mr Shuvalov’s wife, refers to a “fiduciary agreement” under which “$17.7m was granted in June-July 2004 to Nafta Moskva [Mr Kerimov’s investment vehicle]” to buy Gazprom ordinary shares.

The letter, dated December 18 2007 and seen by the FT, instructs Nafta Moskva to sell $30m in Gazprom shares from this investment to pay off a $20m loan from Amsterdam Trade Bank that financed the initial investment and a $10m loan from another structure related to Mr Kerimov, Whittingham Worldwide Ltd.

People close to Mr Shuvalov said there was no conflict of interest for Mr Shuvalov in Sevenkey’s investments because he held no position to influence the Gazprom share liberalisation in 2004 and also had no means of influencing Corus’s share price.

The people close to him said that Mr Shuvalov had never lobbied on behalf of Mr Usmanov or Mr Kerimov, whose fortunes soared via his own investments in Gazprom. Mr Kerimov had benefited from more than $4bn in loans from Sberbank, the state savings bank, to amass significant stakes in Gazprom and Sberbank that earned him more than $20bn by the time he sold down the positions in 2008.

At the time of the Sevenkey investment in 2004, Gazprom’s ordinary shares averaged Rbs55 per share, or $1.90. On December 18 2007, this price stood at $14.57. The rest of Sevenkey’s shares in Gazprom were sold in early 2008, people familiar with the matter said.

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