The International Corporation for Finance and Investment (ICFI), one of Russia's biggest financial groups credited with saving the hard currency holdings for the country after the break-up of the Soviet Union, will unite with the Renaissance Capital Group, one of the pioneers of the Russian securities market, by the end of the year. Potanin is the president of Uneximbank, ICFI's parent.
The link-up is the latest in a dazzling array of deals put together by Potanin this summer placing him at the heart of the his country's economic restructuring. As president of Uneximbank, the bank he founded in 1993 and one of Russia's largest in terms of assets, he is the leader of one of the most powerful financial and industrial groups, Unexim-MFK. This has 24 member companies in industries ranging from oil to metals to publishing. "He makes all the major business decisions," said Andrei Yashchenko, fixed income and banking analyst at United City Bank.
Potanin left Unexmimbank last summer to join the cabinet as economy minister but lost his job in March when President Boris Yeltsin fired his cabinet. His return to Uneximbank heralded an aggressive phase of expansion. In the last five months, Uneximbank and Potanin have been riding a wave of government sales of some of Russia's largest enterprises.
In July, Uneximbank led a group of investors including financier George Soros, Renaissance, Deutsche Morgan Grenfell, and ICFI in a successful $1.88bn (pounds 1.2bn) bid for a stake in RAO Svyazinvest, the telecommunications giant.
In August, Potanin's bank made a successful bid for a controlling stake in RAO Norilsk Nickel, the world's second largest producer of nickel. Uneximbank also holds a 15 per cent stake in the AO Novolipetsk Metallurgy Combine, Russia's largest steelmaker, and controls AO Sidanko, the country's fifth-largest oil producer.
This dynamic capitalist, who is still only 36, had his origins in the old Soviet power elites. He graduated from the Moscow State Institute for Foreign Relations, a school where many of the top communist party officials sent their children. He was trained as a diplomat and from 1983 to 1990 worked in the Ministry for Foreign Trade. These political connections, combined with his wit, enabled Potanin to build one of Russia's largest financial empires. His personal fortune is thought to be $700m.
Married with two children, Potanin spends his spare time playing football or skiing. He also likes chess, which suits a man with an agile mind. One of the secrets of his success is his ability to fit his strategy to the times. In 1993, he was one of several bankers to devise the "loans- for-shares" scheme to provide the government with cash. Under that scheme, Uneximbank and other banks lent the government money and received stakes in companies as collateral.
The government was supposed to repay the loans after about three years. If it did not, the steward-bankers were supposed to sell the shares to recover their principal and split any profits with the government. The trouble was that most of the stakes were sold at prices little higher than the minimum bids, and often to companies controlled by the banks who held the shares in custody. The programme aroused criticism that the state's prize assets were being sold for a song.
That is one reason why the government trumpeted its success in the sale of a 25 per cent plus one share in Svyazinvest, where Potanin's group bought the shares for $725m more than the starting price of $1.15bn. Uneximbank also paid about $110m more than the starting price for a 38 per cent stake of Norilsk Nickel - a tacit acknowledgement that the rules of the game had changed. Even so, the transfer of that stake promised to make Potanin's empire even more formidable, and other businessmen called foul.
Vladimir Gusinsky, whose own holdings included Most Bank and the Most Media group and NTV television, criticised the sale of Svyazinvest, saying the price was still too low. "We don't want to be dramatic, but there is no certainty that Russia has received the maximum profit from the Svyazinvest auction," said Vyacheslav Kostikov, a deputy of Gusinsky's.
The ICFI merger with Renaissance promises to forge a securities powerhouse. ICFI's fixed-income trading will be augmented by Renaissance's prowess in the stock market, which has climbed 186 per cent this year, making it the world's best market for investors. "We want to develop both these areas so the two groups can be leaders," said Potanin. The merger will create a securities firm with $2bn in assets, $400m in equity capital, and control over another $1bn in funds - the largest in Russia according to Potanin.
Potanin will chair the new bank's board and the chief exeuctive will be the American Boris Jordan, who founded Renaissance as a western-style investment firm to serve Russian markets. The combination of the western expertise of Renaissance with the political clout of ICFI is likely to prove a powerful combination.
Some analysts query the strategy and wonder if Potanin is not running the risk of expanding Uneximbank too fast. "It's going in every possible direction there is, trying to create a universal bank. The question is what they're trying to create out of it," said Andrei Arofikin, banking analyst at Credit Suisse First Boston in London.Reuse content