Prokhorov Puts His Bets on Debt
Billionaire Mikhail Prokhorov said the best place to invest during the crisis is in debt restructuring, a niche that has so far gone largely unfilled.
Prokhorov, Russia’s richest businessman, also said a government goal to halve inflation to about 6 percent was realistic, and he criticized the authorities for cutting investment in infrastructure.
Prokhorov, who spoke in a wide-ranging interview with The Moscow Times, voiced hopes of turning the New Jersey Nets into a profitable basketball team in three years and appealed to the government to allow heating generators to redirect their investment from constructing power stations to building grids. (Stories, page 2.)
“We want to help the state by participating in the restructuring of the bad debts of banks and companies,” Prokhorov said last week, sitting in his penthouse office on Tverskoi Bulvar.
“State-owned banks and big private commercial banks are dealing with their own problems, so there is no one to deal with the problems of other banks or the complex problems of the banks’ clients,” he said. “That is the job MFK plans to do.”
MFK Bank, which is controlled by Prokhorov’s Onexim Group, said Sept. 24 that it would help debt-saddled developer Mirax Group restructure its debt of $743 million. The bank, whose assets total 17 billion rubles ($565 million), said it had switched its business strategy from corporate banking to debt restructuring because of changes in the market.
Problem loans could soar to 40 percent of banks’ assets, Standard & Poor’s said late last month. But Russian officials said nonperforming loans would amount to 10 percent to 12 percent this year and have called for a scaling back of state support for the sector.
“The problem with bad debts is wider than the banking sector,” Prokhorov said, nibbling on chocolate and sipping black tea in his spacious office, which has a parquet floor and green marble-covered walls.
Onexim Group has estimated Russian companies’ debts to one another at 700 billion rubles.
“There are specialists on our team who went through the restructuring of Oneximbank, Inkombank and MOST-Bank in the 1990s. And our competitive advantages are in Russia, whose market for restructuring debts is limitless now,” he said. “But when we have harvested it, we could think about expanding this business abroad.”
Prokhorov, 44, is one of the few businessmen who has not been hurt by the drop in commodities prices and closure of foreign lending markets. The billionaire, who made his fortune in banking and metals, sold his 25 percent stake in Norilsk Nickel to United Company RusAl for about $7 billion in cash and 14 percent of RusAl in April 2008, just months before the crisis hit Russia. Onexim Group, whose interests range from insurance and media to nanotechnologies, currently has no debt.
Turning to state policy, Prokhorov said the government’s inflation goals were realistic but it needed to increase investment in infrastructure. Prime Minister Vladimir Putin told investors at a VTB forum last week that the government had set a target inflation rate of 5 percent to 7 percent by 2012.
“To get that, we need to make structural changes in the functioning of the economy, but I don’t mean diversification or innovation,” Prokhorov said. “You can build an innovative economy, but it will still be generating the same high inflation. However, if you create competition in the fields currently monopolized by a single state-run market player such as housing services or the distribution of food grown by farmers, the inflation level would drop, as the current monopolists raise prices regardless of market conditions.”
Inflation stood at 13.3 percent in 2008 and is expected to reach 11 percent to 12 percent this year.
“I am not calling for the privatization of all the currently monopolized industries. Some of them should remain state property. But competition should appear in these sectors as well. It could be done through the creation of at least several state-run companies in each sector, which will compete for the consumer,” Prokhorov said.
There are fields that should never be privatized, he added. “Nuclear power stations should not go to private business. The state should also keep a monopoly on gas exports,” he said.
The state also would do well to provide more analytical information to companies, Prokhorov said. “Business is interested in, say, the level of consumption at any moment, but the analysis performed by the Economic Development Ministry does not go deep enough,” he said.
Prokhorov said he would also like the government to collect more comprehensive data on cross-industries’ relationships, similar to what state planners did in the Soviet Union. “I would like to see, say, the connection between the supply of raw materials and the electricity sector, aluminum industry and machinery-building sector at a given moment,” he said. “What I am suggesting is an element of efficient management, not a return to the Soviet economy.”
Prokhorov, a graduate of the government’s Financial Academy, said he did not see a big contradiction between a planned and a market economy. “They are the ends of one stick,” he said.
Asked when Russia might recover from the crisis, Prokhorov said it depended on the country and local businesses and not on anyone else in the world. “It is an absolutely individual case, and it will depend on our market position, competitiveness and the qualification of the state’s and private companies’ management,” he said.
Prokhorov differed with the state over several measures that it is taking to tackle the crisis, saying demand, not supply, should be stimulated. “This is very easy to do. You can build infrastructure: roads and homes,” he said. “But look at the budget for next year. Financing for the sectors whose development could bolster demand has been cut drastically.”
Prokhorov is ranked by Forbes magazine as Russia’s richest man with a fortune of $9.5 billion. But Prokhorov said he could not say exactly how much he is worth. “It’s not my job to count that, and I’m not very much interested in doing so,” he said. “There are always a lot of people who will do that for you.”
Onexim Group CEO Dmitry Razumov said in July that the fund’s assets were worth $12 billion to $15 billion.
Prokhorov is known for his dislike of computers and cell phones, and plates of watermelon slices sat on his mahogany desk instead of a computer.
“The computer brings a lot of unnecessary information,” Prokhorov said. “I am a principal. I order the exact information I need, and I get it. I have a team who works on that for me.”