Evraz Gets A Kremlin-Style Bailout

Evraz Gets A Kremlin-Style Bailout

Moscow gives money to steelmaker so it can pay its taxes.

In a new sign that Russia’s corporate sector is reeling from its own branch of the global credit crunch, billionaire Roman Abramovich‘s Evraz steelmaker said Thursday it would borrow money from the government—to pay its taxes.

Many of Russia’s largest companies, both public and private, are facing the same liquidity squeeze as their foreign counterparts. Sliding commodity prices, a weak ruble and spiraling inflation are part of the reason. But many of Russia’s big firms are also heavily indebted, often to foreign creditors.

While oil prices remained high, investors had little concern that big firms would have the cash to pay back debt. Now, margin calls and failing banks are hitting Russia hard.

To shore up Russia’s corporate sector, the federal government has been freeing up hard-currency reserve funds to help prop up its banks. VTB, 75.0%-owned by the government, has received $7.0 billion of the $34.0 billion the Kremlin has poured into its banks.

Evraz said VTB has granted it a one-year loan of $360.0 million to pay its taxes.

Abramovich, said to be loyal to Vladimir Putin, isn’t the only Russian tycoon getting help from the government. Aluminum magnate Oleg Deripaska, named the richest Russian in March, got $4.5 billion from another government-controlled bank, VEB, to pay back a syndicate of foreign lenders.

Deripaska had arranged the loan to finance his controversial purchase of a 25.0% stake in Norilsk Nickel, one of the world’s largest nickel producers. To keep Deripaska from having to give up his stake, the government extended the loan—but on stiff terms: In return for bailing out Deripaska, the federal government has taken a seat on Norilsk’s board and is installing two government representative on its management team.

Evraz is a sprawling steel and mining empire with operations in Europe, North America, Africa, Ukraine and Russia. In March, Forbes ranked Abramovich as the 15th-richest person in the world with an estimated net worth of $23.5 billion. Like other Russian steel magnates such as Igor Zyuzin (Mechel) and Alexei Mordashov (Severstal) that amount has almost certainly plummeted.

Russia’s main stock exchange index, the RTS, is down 73.0% so far this year.

Forbes, marketscan  11/13/08

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