A Russian Tycoon Who's Actually Doing Things Right
Mikhail M. Fridman is a Russian rarity. He has done what other tycoons simply talked about--restructuring and building up companies rather than stripping assets. As chairman of Moscow-based Alfa Group, he now controls over $3 billion worth of assets in banking, oil, and consumer products. That's a remarkable feat in a country still struggling to recover from last August's financial meltdown. But few Russians recognize the 35-year-old Fridman. By design, he has kept his baby face out of the newspapers and off television screens. "I don't want to walk into a restaurant and have everyone start talking," he says.
Fridman won't be able to shun the spotlight much longer. While other Russian tycoons, known as oligarchs, are floundering, he's thinking growth. His Alfa Bank is one of the few private Russian banks to survive last year's financial crisis. Although the bank has serious problems, it is still managing to move ahead. It's buying up the branches of troubled rivals and is now one of Russia's top 10 banks, up from 17th last July. Alfa's biggest industrial asset, Tyumen Oil Co., is one of the first Russian companies to regain the trust of Western creditors, winning a $200 million loan from the U.S. Export-Import Bank in May.
The confidence in Fridman stems from his management savvy and prudent ways. Soon after gaining control of Tyumen Oil in 1997, he brought in an expert as its CEO: Simon G. Kukes, a former Amoco Corp. executive. Kukes, 54, has cut staff by 20% and chopped production costs by 30%. With the new loan, Tyumen will expand production and its retail network. Fridman has unleashed similar restructurings at Alfa's more than 20 consumer companies, which he plans to sell off when Russia's market recovers.
The going is more difficult at Alfa Bank, but it's likely to survive, thanks to Fridman's conservatism. From the start, when he and his friend Pyotr Aven, 44, founded the group in 1988, they insisted on tight financial controls. And unlike other banks, they never went overboard on currency speculation or purchases of risky Russian Treasury bills. When the government defaulted on T-bills and devalued the ruble by two-thirds last August, several tycoon-owned banks went bankrupt.
"MONEY IS TIGHT." Alfa Bank did not go unscathed. It had borrowed hard currency from the West, which it now must pay back with a devalued ruble. From $1.2 billion in July, Alfa's assets are now down to $510 million. What's worse, the bank has defaulted on a $77 million syndicated loan, and it is unclear where it can come up with the cash to make an $18 million coupon payment due on its $175 million Eurobond in July. "Money is tight. But we're not asking for debt reduction," says Alfa Bank CEO Alex Knaster.
Restructuring talks with 20 Western banks on the syndicated loan have been dragging on for seven months. None of the creditors would comment publicly. Privately, some express frustration at delays but say they think Alfa is serious about striking a deal.
Despite its debt problems, Alfa's record stands out in crisis-ridden Russia. Last fall, when Russians lined up outside Inkombank and Menatep in a vain attempt to retrieve their savings, Alfa settled accounts with all of its customers. It has launched an aggressive ad campaign and has landed 6,000 new corporate accounts since August. "Alfa stands above the crowd," says Richard Thompson, a banking analyst at Standard & Poor's Corp. in London. "It's not just luck, they've managed well."
Upcoming parliamentary elections in December and the presidential race in June, 2000, will make it hard for Fridman to keep a low political profile. Both he and Aven have close ties to Kremlin insiders, such as Anatoly B. Chubais. But Fridman is hedging his bets. By beefing up its branch network, Alfa Bank is building connections in the regions, where it is expected that the next political power plays are going to take place. Despite his claims of wanting to stay out of the spotlight, Fridman is setting himself up to be a player.