Russian oligarchs make uneasy partners – both for each other and for other shareholders. The falling out at Rusal, the world’s largest aluminium group, isn’t the first such row, and it won’t be the last.

Viktor Vekselberg resigned as Rusal chairman late on Monday, declaring that the company was in “deep crisis” because of bad management and heavy debt. On Tuesday, Oleg Deripaska, Rusal’s dominant shareholder, hit back: the company announced that Vekselberg had “failed to perform his functions”, and not turned up to a live board meeting for a year.

This is polite stuff in comparison with the insults that have been exchanged in the London courts recently in the $6.5bn legal battle between Roman Abramovich and his former mentor Boris Berezovsky. Each side repeatedly accused the other of lying in a dispute over the Sibneft oil company.

And even that battle may be over overshadowed when Rusal itself has its day before a British judge. Deripaska is being sued by Ukrainian-born billionaire Michael Cherney, who claims to be a former partner, and is seeking a stake in Rusal on the grounds that Deripaska allegedly defrauded him out of a big chunk of his metals empire. Cherney, who lives in Israel, will give evidence by video since he cannot set foot in the European Union as the Spanish authorities have issued a European arrest warrant for him over money-laundering allegations. Deripaska denies that they were ever partners.

All this matters to minority shareholders since warring parties account for the bulk of Rusal stock: Deripaska owns 48 per cent through his En+ holding company, Vekselberg 15.8 per cent through Sual Partners, and Cherney is claiming 13.2 per cent. To add spice, an even more famous oligarch – Mikhail Prokhorov, who ran in Russia’s presidential election – controls 17 per cent. That makes nearly 81 per cent for the oligarchs.

The minorities would probably be happy to turn a blind eye to the risks if they were making money. But they are not – Rusal, which was floated at HK$10.80 on the Hong Stock Exchange in January 2010, now trades at HK$6.12, including a fall of HK$0.08 on Tuesday. That’s a 43 per cent loss.

Minority shareholders have only themselves to blame. The oligarch-related risks at Rusal were spelt out in the offer documents, legal disputes and all, as were the dangers posed by the company’s heavy debts.

To be fair, Rusal shares are largely a geared bet on aluminium prices. While aluminium prices are volatile they are now at roughly the same level as at Rusal’s flotation – $2210 a tonne for three-month metal on the London Metal Exchange now, compared to around $2250. Alcoa, Rusal’s great global rival, has seen its stock drop 26 per cent over the period, which is hardly great for shareholders, but a lot better than Rusal.

Not all oligarch-run companies are wracked by arguments. Vladimir Lisin’s NLMK, the steelmaker, is cited as a model by some investors, who like the determined way Lisin is developing the business without generating critical headlines. Outsider investors – including foreigners – secure the benefits of co-investing with an oligarch – access to Russia’s prime industrial assets, political connections and a long track record. Another oligarch-run group which has avoided headline-making disputes is Alexei Mordashov’s Severstal, also a steel company. But in metals, it’s not a long list.

This is no accident. In the wild days of Russian capitalism, ruthless business people focused on natural resources as a quick way to get rich. Former state assets were grabbed at a time when the law was, to put it mildly, struggling to keep up with events. Disputes were often settled by threats and sometimes by brute force, notably in the killings in the so-called “alumium wars”.

The result was patterns of ownership that can’t always be supported by a perfect documentation. In energy, the arguments were largely swept aside by Vladimir Putin’s determined drive to reassert state dominance in the sector (although the Sibneft row reached the London court). But in metals, the battles are by no means over.

Vekselberg’s departure from Rusal doesn’t appear to have anything to do with ownership per se. But it does highlight how difficult it is for the extraordinary men who made their fortunes in the extraordinary conditions of Russia in the 1990s struggle to adapt to the more ordinary circumstances of the 2010s.

Related reading
Rusal chairman Vekselberg resigns, beyondbrics
Oligarchs pick London to do battle, beyondbrics

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