Kremlin helps Russian business titans resolve devastatingly imminent loan default litigations
MOSCOW, Russia – It seems the growing row over defaults in multimillion-dollar debt repayments between two Russian capitalism titans, caused by the unprecedented damages wreaked by the ongoing global economic crisis on Russian oligarchs’ business activities, has been temporarily resolved by the Kremlin, which has long shifted to active and frequent interventions in the Russian economy and private businesses in the country, since the global financial crunch derailed the normal functioning of the conventional monetary and fiscal mechanisms that usually keep sound economies running effortlessly in normal times.
The evidence confirming that the oligarchs are backing down from the litigation trajectory was contained in a joint official statement underscoring friendly and normal business relations between their business empires was released by Oleg Deripaska and Mikhail Fridman immediately after the latter’s televised meeting with the Russian president in the Kremlin. In this concrete case, this meeting proved timely to quench the budding row over the defaults in payments of hundreds of millions of U.S. dollars to Alfa Bank by companies affiliated with Oleg Deripaska’s gigantic Base Element business empire.
These defaults have put Deripaska and Mikhail Fridman’s Alfa Group — the powerful consortium of companies, which includes Alfa Bank, one of the pillars of the Russian financial banking and financial systems — on an inevitable litigation course that would have had negative ripples across the whole Russian economy. This is because the Alfa Group management had unequivocally threatened to redeem all its debts through court actions that would have included freezing those companies’ accounts for sometime or transferring some of the assets used to collateralize the loans to Alfa Bank, a largely undesirable negative outcome for Deripaska, as such actions would have further seriously complicated his already devastating financial position, following his reported loss of multibillion-dollar assets to the current crisis.
Indeed, the indebtedness of Base Element’s subsidiaries to Alfa Bank are in excess of over half a billion dollars. More precisely, the total sum of debts of Base Element-affiliated companies currently stood at $650mln, according to Andrei Yashchenko, Base Element’s director for corporate financing. It is quite clear that any freezing of this amount or a court order for its immediate payment would have pushed Deripaska’s weakened business empire into a bottomless abyss.
Two events indicated Kremlin’s direct participation in the out-of-court settling of these thorny financial issues in a way that positively favored Deripaska. First of all, President Dmitry Medvedev recently harshly criticized large banks, accusing their managements of unacceptable ‘corporate egoism,’ which is capable of undermining the stable functioning of systemic corporations that form the backbone of the nation’s economy, especially in times of global economic meltdown. Notably, Base Element is one of these ‘special’ Russian corporations. And, secondly, the Russian president later personally met with Fridman. Among the issues discussed at the Kremlin meeting was the impacts of the ongoing global financial crunch on the Russian economy and the roles Alfa Group and its subsidiaries can play to help mitigate the negative impacts on the country.
It is interesting to note that it was after the Kremlin meeting that Deripaska and Fridman issued a joint statement, where they specifically noted that there was no bad blood between them or their companies, adding that they are currently engaged in active searches for positive resolutions of the problems over Base Element subsidiaries’ loan payment defaults. “Some of Base Element subsidiaries have actually defaulted in their payments to Alfa Bank due to the global financial crisis. The companies are searching for the optimum solutions to all problems connected with meeting their credit obligations and they support constructive business relations with their creditors,” the titans of Russian capitalism said in a joint statement released by their companies.
Citing their past successful experiences of business cooperation and also a myriad of mutually beneficial business interactions between their sprawling industrial empires, Deripaska and Fridman specifically expressed their confidence in the joint statement in finding realistic compromises that will satisfy both parties. “It important to note that we, as shareholders of these companies, have good friendly personal relations. Consequently, the information about some conflicts between us or our businesses are completely baseless, and are, therefore, far from reality,” the tycoons noted in the official statement. Currently, Base Element is considering three variants of resolving the debt problems – pay up in cash, explore the possibility of using some liquid assets of its companies to collateralize the loans and finally restructuring the debts through activate negotiations.
Base Element and Alfa Bank are also hoping to reach mutually agreeable solutions through negotiation processes based on a constructive approach, the tycoons reiterated several times in the joint statement. Specifically, Deripaska has reiterated that Base Element will never back away from all its contractually binding loan obligations to Alfa Bank and all other creditors as it is ready to fully honor all of them, irrespective of prevailing circumstances. “However, we believe that the this unprecedented global financial crisis gives us the right to qualify the current situations in the economy as essential changes in circumstances that will enable us to count on our partners’ to make relevant changes to the terms and conditions of the existing contracts as well expect understanding and conscientious approach from our creditors and partners on these and other related issues,” he added. It will be a lot better if all the arising differences will be resolved through open and constructive dialogs.”
From his side, Fridman, as banker extending unprecedented magnanimity to his highly politically connected delinquent client, declared his intention to seek for compromises, noting that he cannot afford to risk the security of clients’ deposits and stable functioning of his bank, which he called one of the pillars of the Russian banking and financial systems. “In this regard, we, certainly, shall do our possible best to support all our partners during this economic crisis,” he added. “And, this means that we are going to be open, constructive and flexible in the searches for mutually acceptable decisions for our group and its partners, particularly such company as Base Element."
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