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The rise of East European billionaires

UNITED STATES (OBSERVATORY NEWS) — They own great yachts as well as football teams in your favorite leagues. They communicate with movie stars and interfere in politics. They control huge wealth, and sometimes the future of their countries.

The oligarchs, billionaires and business tycoons began to represent eastern Europe as confidently as endless steppes, multi-storey standard residential buildings made of concrete or a Polish plumber who has already become a proverbial one.

In the recent past, separated from us by the life of only one generation, they were not at all. They appeared on the wreckage of communism when centrally-planned economies gave way to the open market and widened differences in people’s incomes.

In 1989, it became clear that there was no turning back. Exactly 30 years ago, the Romanians organized an uprising, and their communist dictator was executed, and at the same time, the former dissident Vaclav Havel became president of Czechoslovakia. In the last days of that year, the President of Poland signed a new economic program that opened the door to capitalism and then became the leadership for a significant part of the transformations in this region. The Soviet Union lasted two more years, but then the Soviet empire fell apart.

When the shackles of communism fell, the countries of the former so-called Eastern Bloc rushed into this new bold world of the open market. Together with him came a new generation of magnates and oligarchs – from Alma-Ata to Prague, from Moscow to Zagreb. Many of them gained legendary fame for their extravagant lifestyle or for their political influence. And even after three decades, the list of the richest people in this region still has a Soviet connotation.

“Many of the people who held power under communism retained it in new structures,” Mark Mobius, a veteran investor in emerging markets who organized Mobius Capital Partners last year, emphasized in his email message Capital Partners LLP) after three years at Franklin Templeton Investments. “The difference is that in the conditions of a market system, some old apparatchiks could not adapt to the new regime and left the stage, and new and young entrepreneurs appeared on it.”

Half of the richest people in this region come from groups that were close to power at the end of communism, or who benefited from privatization — it is also possible that they had both of these advantages. Self-made billionaires are rare, they have less wealth and mostly come from those countries that have less natural resources, and which were politically weaker.

Their rise – and sometimes fall – is a picture of the transformations that have occurred in eastern Europe over the past 30 years. Their biographies provide an insight into this unique period in history.

Late 1980s

Early birds

The economic downturn proved to be the main driver of political unrest – by the end of the 1980s, many countries were forced to abandon generous social programs or went into debt even more to support them. Towards the end of that decade, limited opportunities appeared for private investors who could take advantage of the fact that governments were in dire need of cash. This process, mostly unplanned, was unstructured and spontaneous, and those who knew how to use it benefited from it.

Petr Kellner, Czech Republic

Personal capital – 12.8 billion dollars

Kellner was born in Czechoslovakia in 1964, he studied economics and after the Velvet Revolution and the fall of the Communist Party, he began selling Ricoh photocopiers. His life changed after the new capitalist state began to sell its assets in a unique way: it distributed vouchers among citizens that could be exchanged for company shares. To seize the opportunity, Kellner and his partners formed the company PPF Group in 1991, 99% of the shares of which are today under his control.

Using vouchers as collateral, PPF began to buy up assets and received a 20% stake in Ceska Pojistovna, the largest insurance company, which after a while he made profitable and also the basis of his wealth. In 2013, he decided to sell it, and received $ 3.3 billion from the Italian company Generali.

PPF operates in finance, telecommunications, biotechnology, real estate and engineering. Its Home Credit Group division is a leader in consumer lending in central and eastern Europe and, in addition, it now operates in China, Vietnam, India, Indonesia, Kazakhstan, and the Philippines.

Kellner rarely appears in public. 17 years ago, he gave an interview in which he called the post-communist world “a limited opportunity, which is likely to never happen again.” Here is what Kellner said, answering questions from a correspondent for the Prague newspaper Mlada Fronta Dnes: “I was able to find capable people, assess risks, and then went for short-term hardships for long-term projects.”

Mid 1990s

Asset grab

For young democratic governments, the sale of public assets to private investors has become the cornerstone of the economic program. They really wanted to get foreign currency, idealized Western technologies, as well as reduce the cost of subsidizing aging industrial enterprises. This created unprecedented opportunities for the first wave of accumulation of private assets in this region, and this happened for the first time in almost a century. This process has taken many forms, from direct bidding to stock listing. On the eve of the first presidential election in the post-Soviet period, the government of Boris Yeltsin, who had difficulties, borrowed money from a group of bankers, who were then called oligarchs, and some of the assets of the main industrial enterprises were transferred to them as collateral, which then became their property.

Vladimir Potanin, Russia

Personal capital – $ 28.5 billion

Only a few Russian initial “oligarchs” were able to maintain their positions, and today one of them is the richest man in this country. The 58-year-old Potanin already had sufficient influence during Yeltsin’s reign to determine the country’s economic policy.

Potanin graduated from the elite Moscow State Institute of International Relations, and then worked in the field of international trade, which allowed him to take the first steps at a time when the economy was opening. Its main holding company, Interros, was registered in 1990, even before the collapse of the Soviet Union.

Potanin quickly formed one of the first banking empires in capitalist Russia, and also became the driving force behind the infamous “equity loans” scheme, which resulted in the distribution of key assets among a small group of tycoons in the mid-1990s.

“Private property was supposed to be the cure, the only alternative to the crippled government,” Potanin said in an interview. “Effective owners did not appear out of nowhere, state assets had to be transferred to private hands.”

In late 1995, Potanin and his then business partner Mikhail Prokhorov received most of the shares in Norilsk Nickel, the largest nickel and palladium company, and they paid only $ 170 million for it. Although the privatization process continues to be criticized, what matters today is how these assets are managed, Potanin said. The capitalization of Norilsk Nickel exceeded $ 40 billion, and 35% of the shares of this company account for most of his personal fortune.

The following year, Potanin assisted in the campaign of Yeltsin, who won an unexpected victory over his communist rival, after which this businessman was appointed deputy prime minister in charge of the economy and state property. Less than a year later he resigned.

With the help of his wealth, Potanin was able to survive the financial crises of 1998 and 2008, and, in addition, he adapted to the new reality that developed after the rise of Vladimir Putin to power. These two Vladimirs today sometimes play hockey together in an amateur league promoting the sport. Famous athletes, politicians and business leaders go out on the ice with them.

1990 – 2000

Wild east

Previously closed economies opened their doors to foreign goods and investors, and, in addition, it was allowed to return to those who had previously escaped from the socialist camp. Many began to engage in speculation and trade, because the system within which they were brought up, turned into an open society for all. The arrival of Western companies was welcomed and perceived as confirmation of government policies, as the fastest way to revive a declining industry and to create a business culture. Over time, such views ceased to be unambiguous, and investors began to be looked at as economic colonialists interested in cheap labor and expanding their consumer base.

Zygmunt Solorz, Poland

Personal fortune – $ 2.7 billion

This richest man in the country is not very willing to talk about his youth spent behind the Iron Curtain. According to the existing legend, this is a man with many names – he was born in a city located 100 kilometers south of Warsaw, and for some time earned his living by selling candles in a cemetery. However, this story has not been confirmed.
At the same time, it is known that in his youth he came to Germany through Austria and organized a transport company there. He used the name of his friend Pyotr Podgorsky – friends still call him Petrek – when he registered as a refugee, and this was done so as not to jeopardize the family, who was at that time in Poland, on the other side of the curtain. In the 1980s, he took his wife’s surname and became Soloz, and for some time he was known as Soloz-Jacques, adding a hyphen during his second marriage.

In the 1980s, he sold cars and other western goods to Poland. After the fall of the communist regime, Solozh returned to his homeland and began to build his empire, and in 1992 created the country’s first and largest private television network Telewizja Polsat SA. Today, his holding includes Europe’s largest digital platform Cyfrowy Polsat SA, a retail bank, the second largest mobile operator Polkomtel, which he received as a result of a record merger and acquisition transaction. In addition, he plans to build the most exclusive residential area in Warsaw.

The billionaire also uses gray coal-fired power plants, but this year he came out in defense of the climate and began to raise donations to fight environmental pollution. In addition, his television channels began to provide more airtime to issues related to environmental issues. However, it remains unclear whether he abandoned his favorite vehicle – a helicopter.

1990 – 2000 years

Family ties

Although all two dozen countries emerging from the wreckage of communism became followers of democratic ideals, the issue of Western orientation arose with some delay, while local hardliners continued to hold the reins of government in their hands. Together with them, a class of businessmen with good connections was formed, many of which are family-owned.

Timur Kulibayev and Dinara Kulibayev, Kazakhstan

Personal capital – $ 5 billion

In Central Asia, there is no more prestigious family background than Dinara – she is the middle daughter of Nursultan Nazarbayev, who was the president of Kazakhstan from 1990 to March this year, and today is the country’s lifelong leader. In addition, the capital of this state is named after him.

This family also achieved good results in business, – Dinara is considered the richest woman in the country. She and her husband Timur control financial institutions, including the country’s largest credit institution, as well as the agricultural and trading business and real estate projects in their own country and in Dubai.

Dinara studied theater in Moscow and received a master’s degree at home. Timur studied at the University of Economics in the Russian capital, and later worked at the state oil and gas company. Until 2011, he was chairman of Samruk-Kazyna, the national welfare fund of Kazakhstan, and currently serves on the board of directors of the Russian gas giant Gazprom.

Timur has a reputation for being a tough negotiator, and one American diplomat called him a “sleek billionaire” (manicured billionaire). He has influence over a significant part of the economy, as he is the head of the powerful energy lobby and chairman of Kazakhstan’s largest industrial chamber.

1998

Devaluation, collapse, chain reaction

Russia’s default on domestic debt in 1998 and the devaluation occurred due to continued mismanagement of the economy over many years. Banks collapsed, and with them once again instantly evaporated and the accumulation of people. All this had an impact on the young capital market of this region – confidence in the new system was undermined, and also deprived it of a whole generation of potential retail investors. At the same time, these events cleared the way and allowed those who were able to survive the crisis to expand their empires.

Andrey Melnichenko, Russia

Personal capital – $ 15.2 billion

Melnichenko, one of the ten richest Russians, was too young to benefit from privatization. Instead, he made his fortune during the next economic crisis. At that moment, when he studied physics at Moscow State University, he began to trade currency among his classmates, and as a result, this led to the creation of MDM Bank.

Unlike many other larger rivals, MDM Bank survived the 1998 crisis almost without loss due to its conservative credit policy, lack of illiquid assets and dependence on government bonds. When the rivals collapsed, this bank managed to get some of the largest Russian companies as customers.

This crisis also helped MDM Bank to leapfrog and start buying assets from oligarchs in critical situations. The first on this list was the Volzhsky Pipe Plant, which could be acquired from the Menatep bank owned by Khodorkovsky. Thus began a new phase of expansion under the umbrella of the MDM group into the production of steel pipes, fertilizers and coal mining.

“My concept at that time was to consolidate disparate assets in risky and uncontrolled sectors of the industry at that time, as well as create leading international blue chips in new areas,” Melnichenko said in an email through his representative. – I saw an opportunity to invest in industrial assets, fertilizers and coal mining. “These industrial sectors were not considered” strategic “in Russia, and they were not subject to the political influence that existed in other sectors, including the extraction of oil and gas, diamonds and gold.”

Luck did not change Melnichenko during the 2008 crisis. Just a year before, he and his business partner Sergei Popov split their holdings. Melnichenko received industrial assets, including fertilizer producer Eurochem and the SUEK coal company, which were less affected by financial markets. Popov in 2015 agreed to sell his bank to a larger competitor.

Early 2000s

Putin’s rise

When the first decade after the collapse of communism ended, Yeltsin, suffering from diseases, began to look for a successor who could cope with the chaos, since the Russian economy was constantly in a state of crisis. In 1999, on New Year’s Eve, Yeltsin resigned and handed over the reins to former KGB colonel Putin, who immediately began to change the structure of power in the country. Within three years, he ended the political independence of the oligarchs. The influential political tycoon Boris Berezovsky and media tycoon Vladimir Gusinsky were forced to leave the country. In 2003, Mikhail Khodorovsky, once the richest Russian, was jailed on charges of tax evasion and fraud. A year later, the government began selling his company, most of which is currently owned by the state company Rosneft. In December 2013, after 10 years in prison, Khodorkovsky was pardoned by Putin. He currently lives in London, where he finances an active opposition group.

This shift in power has helped shape a new class of billionaires that continues to flourish in the country after two decades of Putin’s rule.

Arkady Rotenberg, Russia

Personal capital – $ 2.1 billion

Arkady Rotenberg was born in Leningrad in 1951. In his youth, he met and made friends with Putin, and this happened in the judo wrestling section. Rotenberg later worked as a martial arts instructor, and after the collapse of the Soviet Union, he organized competitions throughout the country. He ultimately led the sports club, founded by billionaire Gennady Timchenko, in which Putin was the honorary chairman.

Rotenberg began building his empire after Putin came to power. In 2001, he acquired the shares of SMP Bank, which came under United States sanctions after Russia’s annexation of Crimea. In 2007, he and his younger brother Boris Rotenberg (he also became a billionaire) founded the company Stroygazmontazh, which is engaged in the construction of pipelines.

A year later, the Rotenberg brothers acquired five companies, and in 2014 they already became the main contractor for the construction of pipelines for Gazprom, Russia’s largest exporter of natural gas. As it became known, their company, which also built a bridge between Russia and the Crimea, was sold in 2019 to one company affiliated with Gazprom.

Like Potanin, Rotenberg plays hockey with Putin and does not hide his loyalty to his former colleague in the judo section. “We are friends, and we will remain friends no matter what happens,” Rothenberg said in a recent interview with RT.

2004 – 2013 years

EU and the world

When Putin consolidated power in Russia, former allies in eastern Europe turned their eyes to the west. They sought to become members of the European Union and NATO, were engaged in the revival of the judicial system and the harmonization of business activity. Between 2004 and 2013, 11 former communist countries joined the European Union, and five of them entered the eurozone. More open and flexible economies, as well as easy market access of 500 million people, have contributed to the emergence of billionaires who made themselves.

Ivan Krenko, Slovakia

Personal fortune – $ 1.4 billion

Krenko was born in 1967 in Czechoslovakia, in the city of Chali. Almost by accident, he became a major real estate entrepreneur. His first business in Slovakia, then gaining independence, was selling audio equipment, but his company was in a difficult position, and when he liquidated it, he only had a warehouse to sell. This deal paved his way to the real estate market.

By the mid-1990s, Krenko was one of the most active players in this area. His company HB Reavis built his first office building in Bratislava, in the thriving capital of this young state. Particularly successful was the Aupark shopping center, built in the center of the capital of Slovakia.

At the end of 2005, almost a year after Slovakia joined the European Union, the Netherlands-based Rodamco Europe NV, the largest owner of the shopping centers of this block, acquired half the shares of this shopping center. In the end, HB Reavis received 400 million euros, as well as dividends on its initial investment of 77 million euros.

These events provided Kharenko with new opportunities, as borders and financial barriers ceased to exist. Today, HB Reavis is building more than $ 2 billion worth of facilities in London and Berlin, in Warsaw and Budapest.

Krenko himself tries to stay in the background and does not give interviews, and in 2013 he ceased to be an executive director. Although dozens of executives are listed on the HB Reavis website, the name of the chairman appears at the very end of the page, where he is listed as a member of the board who is not involved in day-to-day management.

2008 – 2009 years

New crises and their harmful effects

Two decades later, the countries of eastern Europe integrated into the global economy. The temptation of obtaining loans in dollars or euros made them vulnerable during the global credit crisis in 2008 and 2009. Although the unexpected weakness of Western competitors has opened up some opportunities, the economic slowdown that has emerged after the crisis has undermined the emerging consumer economy.

Ivica Todoric, Croatia

Bankrupt

Todoric, once one of the richest people in Croatia, was the founder, owner and manager of Agrokor dd, which was once considered the largest in the Balkans. He survived the collapse of communism, the wars that divided Yugoslavia into parts, and the 2008 global crisis.

Todorich and his father traded flowers in a more trade-friendly climate in Yugoslavia in the late 1980s, and then began to produce food.

After the collapse of communism, a desire for independence arose, which caused the most deadly wars in Europe in the last 50 years.

Todorich survived the crisis, and then began to buy state property at tenders and often did so in contact with the state, which sought in the second half of the 1990s to ensure the prosperity of the newly formed Croatia, as well as other republics of the former Yugoslavia.

Over the next two decades, Todoric continued to expand. The financial crisis of 2008, which caused the zero growth of the Croatian economy for six years, did not affect his ambitious plans. In 2014, he wanted to acquire Mercator, the largest retail chain in Slovenia. The high interest rates he agreed to finance the deal turned out to be a real problem, and in 2017 the government carried out a financial restructuring of Agrocor, as a result of which Todoric was forced to resign as head of the company.

In the same year, he was forced to flee to the United Kingdom, as authorities in Croatia began to investigate his role in the failure of Agrocor. In December 2018, he was extradited to Croatia, and this case continues to remain open. Meanwhile, Agrocor changed its name, and today its owners are former lenders, including the largest Russian banks.

2010 years

Populist wave

The 2008 crisis not only destroyed personal wealth, but also destroyed the illusions about capitalism. This disappointment, as well as economic problems, brought to the scene a new type of politician – Eastern European populists. At the head of this movement is the Hungarian Prime Minister Viktor Orban, and all of them claim to be ready to correct the mistakes of previous decades, including through the redistribution of wealth.

Lorinc Meszaros, Hungary

Personal fortune – $ 1.5 billion

Mesaros, a former classmate of Viktor Orban, began his activities in the 1990s with a small gas equipment installation company in his native village of Felchut. For a long time at the national level, he was invisible, his rapid ascent began after his childhood friend became prime minister in 2010, and shortly after that he was on the list of the richest people in Hungary.

Mesaros himself once said that his rapid ascent may have happened because he turned out to be smarter than Mark Zuckerberg, and he considers the Lord God, luck and Orban as the reason for his wealth.

“I have never had a business relationship with the current Prime Minister, our relationship is private in nature,” Mesaros said in his email. – I know Victor Orban since childhood. I respect what he was able to achieve, and I consider him a friend. ”

Mesaros is also the president of the rapidly developing football academy, which Orban founded near his country house, and also owns top-level teams in Hungary and Croatia. His firms are merged as part of the holding company Opus Global, and his field of activity includes construction, the media, winemaking and, in addition, he often receives government contracts.

2014 – 2019 years

Russia under sanctions

Tensions between Russia and the West arose over Ukraine, which had been in the front pages of newspapers around the world for most of 2014. Protests began in Ukraine in November 2013, after the government refused to sign an economic agreement with the European Union and intended to strengthen its ties with Russia. In 2014, people began to die during protests – a total of 100 people were killed, and the pro-Russian president of Ukraine fled the country. In the same year, Putin annexed Crimea, and Kremlin-backed groups helped organize a separatist movement in eastern Ukraine. Western countries responded with economic sanctions against officials and company executives, as well as against some oligarchs that have emerged over the past 30 years.

After some time, additional sanctions were introduced, including restrictions on the transfer of technology to Russia. In addition, state-controlled companies were denied the opportunity to receive long-term loans around the world. The United States Administration, led by President Trump – he promised to improve relations with Russia during his election campaign – introduced the most stringent sanctions in 2018, as well as punitive measures against several oligarchs and their companies, which negatively affected world markets.

Oleg Deripaska, Russia

Personal fortune – $ 3.4 billion

Deripaska, the winner of the aluminum war, became rich in the 1990s. Later, family ties helped him: he married the daughter of the head of the presidential administration, Boris Yeltsin.

Before the crisis of 2008, Deripaska began a large-scale international expansion – he acquired the assets of the construction giant Strabag SE, as well as shares of Magna International Inc., the largest manufacturer of automotive components. Through its flagship company United Co. Rusal, he also acquired shares of Norilsk Nickel.

“The 1990s were a time of instability and opportunities, they had a big impact on me, as well as on the country,” Deripaska said in his email. – I was very young at that time and was very enthusiastic about everything. Nobody ever gave me any assets. What I have, I have done myself. ”

Deripaska was hit hard by the 2008 crisis. The loans taken by him for the expansion, forced him to provide additional security. The purchase of Norilsk Nickel shares, as well as a sharp drop in aluminum prices, led Rusal to the brink of bankruptcy – it was forced to restructure its debt in the amount of $ 17 billion, and this is still the largest share of its kind in Russian corporate history .

Then the Crimea happened. The international consequences led to the collapse of the national currency, and suddenly Rusal’s dollar revenues increased dramatically when converted to rubles. This was good news for Deripaska, but last year the situation changed. The United States imposed sanctions on most of its companies, including Rusal, and thereby limited Rusal’s ability to sign new contracts and sell the latest products. Rusal shares crashed, and the global aluminum market was in a state of shock.

Active lobbying – as well as the consequences of changes in global supplies – helped lift the sanctions from Rusal, but not from Deripaska himself. To help his companies, this tycoon reduced his share of shares and left the company’s management.

“American sanctions are nothing more than a shameless personal attack on people, and this is done in order to give the impression of taking tough measures against Russia,” Deripaska emphasized.

These sanctions were imposed because of “numerous malicious acts of Russia around the world,” and also because “the government contributes to disproportionate benefits to the oligarchs and representatives of the ruling elite,” said US Treasury Secretary Stephen Mnuchin in a statement published at that time. statement.

Today, Deripaska is trying to achieve the lifting of sanctions from his automobile business in response to a reduction in the share of his shares. In addition, he became interested in archeology and supports the largest Russian excavations on the Black Sea coast.

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