Skip to main content

Getting money out of Russia: why Prokhorov might want the Nets no matter where they play

The proposed purchase of a majority interest in the Nets by Mikhail Prokhorov, Russia's richest man (at a reported $9.5 billion) may seem to be a toy (as per the New York Times) for the oligarch.

After all, it would cost him just $200 million down (all borrowed) plus a willingness to absorb Nets' debts and losses--hundreds of millions of dollars more--to gain 80% of the team and 45% of the arena.

But if Nets majority owner Bruce Ratner is desperate to divest a money-losing asset, maybe Prokhorov is a little desperate in his own way, given the difficulty--and importance--of getting assets out of Russia and into more stable overseas markets not subject to the heavy hand of the Russian state.

A new owner in NJ?

If that's true--and there's some evidence--then Prokhorov should follow the deal whether it takes him to Brooklyn or New Jersey.

Indeed, after ESPN.com's Marc Stein reported that Prokhorov might buy the Nets even if they stay in New Jersey, a minority owner of the team confirmed to the Star-Ledger's Dave D'Alessandro that "it is believed that Prokhorov 'might be inclined to still buy and keep it in Jersey' if the price could be worked out." (In other words, a renegotiation.)

Toeing the party line, Nets CEO Brett Yormark said Brooklyn was a go: "we will commence construction in mid-December." (Well, in the way are a decision in the eminent domain case and a sale of arena bonds.)

Adding context

If Prokhorov needs to get money out of Russia, it puts in a new light his patriotic statement about wanting to use the purchase to improve Russian basketball: however sincere he might be, the statement could serve to curry favor with a government that wants its billionaires to keep (or bring) their money home.

So there are two reasons Prokhorov might not require the Brooklyn move for him to go forward:
  • The scarce commodity (as I've written) is an NBA team
  • He'd like to get some money out of Russia
Putin pulls the strings

Let's consider some coverage of Russia from the intelligence company Stratfor, which Barron's once called "The Shadow CIA." In a 9/23/08 analysis headlined Russia: Putin Pulls the Oligarchs' Strings, Stratfor cited confidential sources to explain how Prime Minister Vladimir Putin forced Russia's richest citizens to invest their own money to prop up their own and other companies, thus enabling a private-sector rescue--rather than a government intervention--of the Russian economy during the global freefall.

The oligarchs, according to Stratfor, were not treated equally, with multiple factors at work, including their relationships with Putin and their hope to gain future favors from the Kremlin.

(Update: The Star-Ledger's Dave D'Alessandro points to the this 7/8/07 New York Times article, The Kremlin Flexes, and a Tycoon Reels, which explains how Prokhorov was pressured to sell his stake in Norilsk Nickel.)

Prokhorov and Renaissance Capital

So Prokhorov's purchase of half of Russia’s largest investment bank, Renaissance Capital was an investment opportunity--as was widely portrayed--but also a bailout.

Stratfor reports:
Prokhorov is an interesting case; he was recently burned after the conclusion of a years-long battle among oligarchs over nickel giant Norilsk which left him without a super-company but with a ton of extra cash — approximately $6 billion. Prokhorov had sworn after the Norilsk debacle to step back from any politically entrenched business moves in Russia, but not a month later he is suddenly sinking large amounts of cash into one of the most politically and financially unstable firms in the country — Renaissance Capital — most likely because of a nudge from the Kremlin, which is eyeing his idle cash.
Stratfor suggests that oligarchs could not resist Putin’s request for investments, given the potential for state intervention.

Repatriating funds

Most of the oligarchs' investments came from accounts and assets held abroad, according to Stratfor, and Putin's request "proves just how much control Putin has over this class of billionaires."

Stratfor does not, however, specify that Prokhorov's money came from abroad.

Who's in charge?

In the second of a three-part series, a 5/27/09 article headlined Russian Oligarchs Part 2: The Evolution of a New Business Elite, Stratfor describes the penetration of the state into business:
Today, Kremlinologists estimate that 78 percent of Russia’s government, business and social leadership is currently linked to the Federal Security Service, successor agency to the Soviet-era KGB.
Those who run afoul of the state run huge risks: Mikhail Khodorkovsky, once owner of the oil giant Yukos, was put in jail and his company broken up. (Yukos is now fighting Russia in the European Court of Human Rights.)

Now what?

In the third of a three-part series, a 5/28/09 article headlined Russian Oligarchs Part 3: The Party's Over, Stratfor reports how, in January 2009, the need to pay back debt meant that Russia's oligarchs took a huge hit.

Prokhorov, who in 2008 was merely the sixth-richest man in the country, at $19.5 million, saw his net worth more than halved, which still left him in better shape than everyone else. (See chart from Stratfor.)

Prokhorov, according to this second chart from Stratfor, is in much better shape than most. Still, Stratfor warns that "the Kremlin and many others have their sights on" Polyus Gold, Russia's largest gold producer, where Prokhorov is chairman.

The crackdown

Stratfor reports that the Russian security apparatus had been looking closely at the books of companies and institutions controlled by the oligarchs, as well as making deals with tax havens like Cyprus to find out where money is stashed.

Stratfor reports:
This concerted government offensive has enabled the Kremlin to decide which companies to let fail, which to bail out and which to smash or absorb as it tackles Russia’s financial problems... The Kremlin is considering doing the same sort of consolidation with many of the banks that the oligarchs control... Some oligarchs will survive the shakeout, but not with their independence. To some degree, they all will become part of the Kremlin machine so carefully engineered by Putin.
That suggests that Prokhorov, though in a more advantageous situation than most if not all his fellow oligarchs, still might have concerns.

Russian oligarchs vs. the rest

A reader suggests that, in light of the need to get money out, Russian oligarchs might be willing to pay a "premium" on certain assets. So, however much Prokhorov seems to be getting a deal from Ratner and Forest City Enterprises, it's not a deal just any international oligarch would go for.

Ratner surely knows all this. So does Prokhorov. That makes it more likely Prokhorov will buy the team, no matter what.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

"There is no alternative": DM Glen on de Blasio's affordable housing strategy

As I've written, Mayor Bill de Blasio sure knows how to steer and spin coverage of his affordable housing initiatives.

Indeed, his latest announcement, claiming significant progress, came with a pre-press release op-ed in the New York Daily News and then a friendly photo-op press conference with an understandably grateful--and very lucky--winner of an affordable housing lottery.

To me, though, the most significant quote came from Deputy Mayor Alicia Glen, who, as the Wall Street Journal reported:
said public housing had been “starved” of federal support for years now, leaving the city with fewer ways of creating affordable housing. “Are we relying too heavily on the private sector?” she said. “There is no alternative.” Though Glen was using what she surely sees as a common-sense phrase, it recalls the slogan of a politician with whom I doubt de Blasio identifies: former British Prime Minister Margaret Thatcher, a Conservative who believed in free markets.

It suggests the limits to …