Interview with Vladimir Zhukov

Vladimir Zhukov, Senior Research Analyst at Lehman Brothers in Moscow, shared with RT his views on Russian billionaires Vladimir Potanin and Mikhail Prokhorov sharing joint assets in the Interros holding company.

Russia Today: Let’s talk about the significance of this Interros deal in particular. What is at stake? What is Interros?

Vladimir Zhukov: Well, Interros is a holding company that has been managing the assets jointly owned by Mr Prokhorov and Mr Potanin until their separation, which was announced in January this year. In effect, this company was managing their largest assets of Norilsk Nickel and smaller assets of Polyus Gold and a number of other assets in the financial sector, the media and some others. Since the announcement of the separation in January, both of them decided to pursue their own ways. My understanding of what is currently held by Interros, is – talking about Norilsk Nickel and Polyus Gold – approximately 8% of Norilsk Nikel and I think 6-8% in Polyus Gold assets. Most of the interests are now effectively owned directly and individually by each one of them. Mr Potanin currently owns 22% in Norilsk Nikel and a similar stake in Polyus while Mr Prokhorov owns 25% in Norilsk Nickel and a similar stake in Polyus Gold.

RT: Nevertheless, we know that Mr Prokhorov has made clear his intention to exit from the commodities to put his focus onto energy. So, we have a sale going through the managing company. What is it, sending us a message to smaller scale investors, not like the big boys Vladimir and Mikhail themselves? What does it send to us, investing in this sector?

V.Z.: Definitely, Norilsk Nickel has been one of the best performers out of, I guess, not only Russian stocks, but probably global metals stock. And this was mostly due to the exceptional performance of nickel as a commodity, which we have seen over the past, probably, 12-18 months, which was definitely exceptional. However, our personal, Lehman Brothers view is quite bullish on the prospects of nickel, and we are remaining quite bullish on the prospects of Norilsk Nickel as well as Polyus Gold.

RT: So, why would he want to get out of commodities and go into energy? Why not stick to where the movement is going, like gold, hitting its all-time high? You talk about nickel doing well. Why is he moving away from what he come from?

V.Z.: You see, gold in general,  I would agree with you, that this is quite an interesting idea, because obviously, everybody is now expecting gold to go up and up, at least for the next 3-5 years probably, and gold is expected to grow quite strong throughout this year. But Polyus Gold is somewhat of a different story, because  most of its gold is delayed into future, so we have to wait for like three-four years until the company starts actually showing an increase in production. Probably, Mr Prokhorov is a little bit impatient and he wants to focus on projects that can deliver value in probably the more immediate future, rather than to wait for three to four years.

RT: Just to clarify: he is going to keep his hand in some of the investment of these assets for production. Is it the distinctive we can draw between holding an investment, and the production side of the business, versus the actual investment? Can we point that down like that or not?

V.Z.: You mean between the energy assets and the mining portfolio?

RT: Within those sectors, if he is taking his step out of the investment as much as the production side or what is he doing?

V.Z.: Well, he is effectively taking out his investments. Again, we should remember that what he is taking out and what Mr Potanin is buying out of him is not his 25% interest but just 4% interest. So, Prokhorov remains as a minority and a blocking shareholder in Norilsk Nickel and in the similar position in the Polyus Gold. Obviously the bigger stakes are yet to be seen, what Prokhorov is going to do with them.

RT: Any idea on what we will see? The sort of the end-game on this business divorce?

V.Z.: You see, there are limitations because there is an understanding that Mr Prokhorov cannot really exit his investment through a sale to an an international investor. So, he is effectively limited to a sale to a domestic player. And obviously there are not that many sizable enough domestic players interested in investing into mining. At least at the current stage.