Reports of 20%+ holding having been acquired (575 words)

Published: 3/27/2001

Reports are beginning to emerge that Russian Aluminium controlled by industrialist Roman Abramovich and Boris Berezovsky (50%) and Siberian Aluminium (50%) has been steadily building a stake in Aeroflot, with the suggestion that the buying may have garnered in excess of 20% of the company. Aeroflot, currently trading at 30.8 cents is up by almost 45% since the beginning of the year, (against an RTS index up by only 22%), has seen considerable interest in the last few months with rumours of interest from a number of parties including Russian Aluminium's shareholder Siberian Aluminium, the latter having diversified its holdings into a number of areas including aircraft producer Aviakor and the Gaz automotive producer. Sources within Aeroflot however, report that the interest is coming from Abramovich or a group of investors led by Abramovich via Russian Aluminium. For the airline the buying must have a certain sense of déjà vu given Abramovich's close business relationship with the airline's bête noir, Boris Berezovsky. In addition to the shared interest in Russian Aluminium, they also share ownership of oil company Sibneft, while Berezovsky has recently sold his interest in TV station ORT to Abramovich. The relationship may have also allowed Abramovich to acquire Berezovsky's undisclosed holding in Aeroflot rumoured to be between 4-13%. The question now is what does Abramovich intend to do with the stake if he has in fact acquired the stock. The suggestion in some quarters is that the holding may give him the opportunity to dictate to the government the future passage pf the privatisation of the airline of which the state holds 52%. Abramovich, although considerably less in the limelight of late, with the exception of being elected governor of the remote Chukotka region, is still regarded as wielding considerable political power within the Kremlin through people close to Putin. This leaves the possibility that the holding, which may constitute a blocking 25%, could be used to gain control in any tender of the airline in the future or significantly influence the airline's course. There is also the view that Valery Okulov, General Director of the airline, and in many ways an accomplished survivor in the cut and thrust world of Russian corporate life, may have encouraged the Abramovich buying. The logic being that there have been few cries of foul play from the airline despite the heavy activity in their stock since the beginning of the year. They also appear to be well aware of where the interest in the stock has been coming from. For Okulov, a strong shareholding supporter would secure his position within the airline in the face of reasonably frequent attack from political circles and assure him of a role in the airline after further privatisation. The benefits for Abramovich in financial terms are a little more difficult to identify, other than the fact that he has already made a considerable gain on his investment and that the growth in the Russian economy is beginning to feed through into passenger volumes. Russian high level business dealings are notoriously difficult to analyse given the general lack of transparency, and this situation appears to be par for the course. Abramovitch has, however, demonstrated a taste for cash generative businesses in the past and perhaps like his sometime partner Berezovsky, this is were his interest lies. It should be noted that previous 'cash management ' activities will be difficult to replicate and an investigation into the activities of Berezovsky continues.

Article ID: 2447