Sept. 4 (Bloomberg) -- On a frosty Moscow evening in December, Alisher Usmanov is wearing a boyish grin. Russia’s richest man, who rarely smiles in public, has been elected to a second term as president of the International Fencing Federation, which is holding its annual congress in the Russian capital for the first time.
Usmanov, a two-time Uzbekistan fencing champion in his youth, says the sport develops skills that have helped in life and in business. “The main thing in fencing is to score a touch without giving up a touch in return,” he says. “The sport teaches you to be patient, waiting for the right moment to attack.”
He’s picked his moments well as an investor, Bloomberg Markets magazine will report in its October special issue on the 50 Most Influential people in global finance. In the late 1990s, with Russia’s economy in turmoil, Usmanov began to assemble a metals conglomerate that thrived when demand for commodities boomed and prices soared a few years later.
Then he shifted money to technology companies such as Mail.ru Group Ltd., the largest social-network operator in Russia. With his partner, Mail.ru founder Yuri Milner, he bought a $200 million stake in Facebook Inc. in 2009 that was worth about $2 billion when the company had its initial public offering three years later.
While many Russian billionaires have seen their fortunes shrink as raw materials prices have slid over the past two years, Usmanov has become the country’s richest man on the strength of his tech investments. He’s worth more than $20 billion, according to the Bloomberg Billionaires Index.
Close to Power
Usmanov, 60, is one of a small circle of wealthy men who dominate Russian business. He has a lot of talents, says Stanislav Belkovsky, a political analyst and founder of the Institute for National Strategy, a Moscow-based think tank. “He reached the top thanks to his relations with people who were close to power,” he says.
Usmanov’s connection to Prime Minister Dmitry Medvedev is an example, Belkovsky says. The businessman got to know Medvedev at OAO Gazprom, where both of their careers took off. In the 1990s, Usmanov and two partners set up an investment company, Interfin, that acquired stakes in Russia’s biggest iron ore mine and a steel plant, both in the Belgorod region. Gazprom bought a 20 percent stake in Interfin, and Usmanov in 1998 took a post with an investment subsidiary known as Gazprominvestholding. He also became an aide and confidant of Rem Vyakhirev, Gazprom’s then-chief executive officer.
Vladimir Putin was elected president in 2000, succeeding Boris Yeltsin, and installed Medvedev as Gazprom’s chairman and Alexey Miller as CEO. Usmanov was one of the few people not replaced as Gazprom’s new leadership purged the old. Instead, he worked on getting back a stake of about 5 percent of Gazprom held by a company affiliated with the Yeltsin-era management. His success in that effort helped return control of Gazprom to the government, which had seen its ownership stake in the company drop to as low as 38 percent.
“All the genius businessmen managed to appear in the right time in the right place,” says Nikolay Bogachev, an entrepreneur who sold Yamal LNG, a company that controls a natural gas deposit, to Usmanov in 2006. “Gazprom became such a place for Usmanov.”
Usmanov says he is on good terms with the Kremlin insofar as he shares the same values as Putin and Medvedev: “In this regard, I can be called a man close to the country’s authorities.” He says Putin is taking Russia’s economy in the right direction.
Usmanov also says he established his fortune without favors from the government. “I am proud that I managed to build a multibillion-dollar business by myself,” he says. “We were buying our assets third or fourth hand, after they had been privatized.”
Kirill Rogov, a senior research fellow at the Gaidar Institute for Economic Policy in Moscow, says that this is an important distinction between Usmanov and most of the tycoons who emerged from the Yeltsin era as billionaires. “He didn’t buy his assets in privatizations,” Rogov says.
Usmanov was born in the small town of Chust, Uzbekistan, the eldest of four siblings. His father, Burkhan, was a prosecutor in Tashkent, the capital of what was then a Soviet republic, and his mother, Dilbar, taught Russian. His private jet, which is an Airbus A340, is named for his father, and his yacht is the Dilbar.
In 1976, Usmanov graduated from the Moscow State Institute of International Relations, a prestigious school connected to the foreign ministry. The institute trains diplomats, but Usmanov didn’t become one.
He returned to Uzbekistan and worked for Komsomol, the communist party youth organization. By 1980, a conviction for fraud and embezzlement sent him to prison for six years, even though the case was later overturned and expunged from his record. He says the allegations were fake, made up to hurt the father of a friend. Uzbekistan’s highest court in 2000 ruled there had been no crime, according to a description of the matter in the prospectus for last year’s IPO of MegaFon OAO, the Moscow-based phone company Usmanov controls.
By the time Usmanov picked up his career in the late 1980s, Mikhail Gorbachev was in the Kremlin and the state’s grip on the economy was loosening in the Soviet Union’s final years. Working with partners, he founded a venture called Agroplast, which manufactured plastic bags. Then he expanded into the importing of cheap American cigarettes. In 1997, Usmanov completed another degree, at the Russian government’s Finance Academy, where the alumni include some of the country’s most prominent businessmen, such as Mikhail Prokhorov.
Around this time, he was building Interfin, acquiring some of the assets that are now part of OAO Metalloinvest Holding, and he joined Gazprom, which is Russia’s largest company. Usmanov has been the CEO of Gazprominvestholding since 2000. Even as he talks about limiting day-to-day involvement at his own companies to devote more time to philanthropy, Usmanov says he’ll keep his role at the Gazprom unit as long as his services are needed there.
Metalloinvest today operates two huge open-pit iron ore mines and steel mills that make it Russia’s sixth--largest producer of the metal. The company is privately owned through USM Holdings, based in the British Virgin Islands. In addition to Usmanov’s 60 percent stake, Vladimir Skoch, the father of one of his original partners, holds 30 percent of USM Holdings. The last 10 percent belongs to Farhad Moshiri, an Iranian-born investor who has worked with Usmanov for more than two decades. Moshiri is joint owner with Usmanov of a company that owns a share of the English Premier League soccer team Arsenal.
Usmanov says one of his main rules in business is, “Your partner should be your friend.” It’s the only way you can trust that your money is safe, he says. Another rule: Never be inflexible in business negotiations but strive instead to find the good in what might seem like a bad outcome.
He doesn’t always get the outcome he wants. Usmanov hasn’t realized his aspiration to build Metalloinvest into a global commodities giant, a Russian version of BHP Billiton Ltd. What has come to fruition for Usmanov is the move into tech and telecom. He began by buying stakes in MegaFon, Russia’s second-largest mobile-phone operator, and Mail.ru. Milner became his partner in developing the technology investment portfolio.
It was Milner who appeared in public to discuss the initial Facebook investment, and he’s the better known of the two in Silicon Valley. But Usmanov has more money at stake. The 2009 Facebook holding was 80 percent Usmanov’s and 20 percent Milner’s, and Usmanov still controls about $1.5 billion of the company’s shares, as of August, according to the Bloomberg Billionaires Index. Through their shared investment vehicle, DST Group, Usmanov and Milner hold stakes in LinkedIn Corp., Zynga Inc. and Groupon Inc. Usmanov bought Apple Inc. shares this year.
Usmanov’s competitive fencing career ended at the Institute of International Relations in the 1970s as he devoted more time to studying. Still, he says the lessons of the sport stayed with him, including this one: “You always have to keep fighting until the battle is over.”
Last year, he saw a struggle for control of MegaFon through to the end. After feuding with rival shareholders -- Sweden’s TeliaSonera AB and Russian billionaire Mikhail Fridman -- he bought them out. In November, the company raised $1.7 billion in an IPO, one of the biggest share sales for a Russian company last year.
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