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Russia: Financier Soros Is Key Figure In Telecommunications Privatization

  • Stephanie Baker



Moscow, 29 July 1997 (RFE/RL) -- American financier George Soros has emerged as one of the principal backers in a consortium which last week won a 25 percent stake in Russia's telecommunications holding company, Svyazinvest.

The consortium, led by Russia's third largest bank Unexim, paid nearly $1.9 billion in what is one of Russia's biggest privatizations to date. Yesterday it was confirmed that Soros' Quantum Fund was a member of the winning group, along with Uneximbank's subsidiary MFK Bank, the Moscow-based brokerage Renaissance Capital, Deutsche Bank and the U.S. investment outlet, Morgan Stanley.

In an interview published in today's "Financial Times," Soros said he had put up $980 million for the company, which pushes his total commercial investments in Russia to total $2.5 billion.

In February, Soros condemned what he called "robber capitalism" in Russia, saying a group of "oligopolists" were behind the country's economic woes. He said a handful of bankers and industrialists posed a tremendous threat to Russia's fledgling democracy and free market economy.

By teaming up now with Uneximbank, one of Russia's leading seven financial industrial groups, Soros has shocked many observers. Soros has given away millions of dollars to support the development of democracy and a civil society in Eastern Europe and Russia.

He has made other investments in Russia, notably in the Novolipetsk Metallurgy Factory, where he and other shareholders have battled with the Soviet-era management for control of the company. The case has become a barometer for shareholder's rights in Russia. But Soros has so far held back on participating in major, high-profile deals.

In his "Financial Times" interview, Soros said the appointment of Boris Nemtsov to the post of First Deputy Prime Minister had changed his views on Russia. With Nemtsov at the helm, Russia has become what he called "the most interesting emerging market in the world." He said he is confident Nemtsov will guide Russia from "robber capitalism" to a more orderly rule of law.

However, some observers believe Soros' decision to pour money into Svyazinvest indicates that his investment decisions may be divided from his philanthropic philosophy.

Rumors swirled in Moscow last week that Soros was planning to back one of the bids for Svyazinvest. Many believed he was planning to team up with another consortium, led by Alfa Bank, which made an unsuccessful bid for the massive stake. Alfa had teamed up with the Spanish telephone operator Telefonica in a consortium that reportedly included Most-Bank and CS First Boston.

Many market analysts have expressed disappointment in Uneximbank's triumph over the Alfa-led consortium, saying a telecommunications firm like Telefonica could have brought much needed expertise to Svyazinvest.

The sale of Svyazinvest has been welcomed by many as one of the first successful Russian privatizations to date. Unlike previous auctions, the sale was widely considered fair, pumping much needed funds into the cash-strapped Russian budget.

But Russian media have attacked the sale as unfair. Russia's daily Segodnya, which is backed by Most Bank, ran a headline yesterday which read "The Money Stank." Russia's ORT television channel, which is controlled by corporate magnate Boris Berezovsky, also criticized the auction in a Saturday evening broadcast. Berezovsky, now deputy head of the Security Council, had allegedly backed the failed bid for Svyazinvest.

While the losers are crying foul, attention is now focused on what the winners are planning to do with their newly acquired asset. The question on everyone's mind: Will the Uneximbank consortium, with Soros as a major investor, turn around and sell its stake for a profit or will it invest the billions more needed to upgrade Russia's crackling telephone lines?
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