German #Khan, #Alfa Group supervisory board member, talked to about the potential sale of Alfa Bank, the “unclear logic” behind recent US sanctions, ongoing nationalisation in Russia, and new markets for Alfa Group

− What is the current ratio of Russia-based and foreign assets within Alfa Group? It appears you are taking less and less interest in the domestic market.

− You don’t have a lot of opportunities in the Russian market at the moment, taking into consideration all the factors you are perfectly aware of. At the same time, as investors we want to develop in some way. We believe we already made a lot of interesting investments in Russia and now it is time to look at the international market and build infrastructure for successful project outside Russia.

We don’t’ have any rigid rules on the ratio of [domestic and foreign] businesses. Rather, it would be right to say we stick to the opportunist approach and try to go for interesting opportunities where we see them.

− If we look at the recent developments like Magomedov brothers arrest and the government strengthening its role in business, does it mean we witness another change of game rules between the state and business? We hear businessmen from various industries say there are fewer and fewer opportunities for business in Russia now.

− I think there are fewer opportunities because of the significant outflow of western investment, while the government’s strengthened role in the economy is likely not on purpose, but rather a natural protection in reaction to sanctions and their impact on the economy.

The reaction to the arrests you mentioned is not strong but is definitely an unpleasant development. We do also see the strengthening state role and if we take the banking sector, the attitude to this strengthening is two-sided. On the one hand, failing banks are forced out of the market and their clients try to build new relations with other institutions, including Alfa Bank which is enjoying enjoys franchise growth amid the market turbulence. On the other hand, this trend in general is not favourable for private investors like us.

− You are both a Russian and international investor and you were included on the notorious Kremlin list, together with other prominent Russian businessmen. Do you see these sanctions complicating your relations with foreign partners?

− We did face and continue facing a number of difficulties, no doubt about that. You know we had to sell our UK assets in the oil and gas sector and there are other issues we face [because of the sanctions]. But in general we strive to continue working and we are working.

I cannot think of any sharp swings [in relations with foreign partners] and I believe we have to clearly differentiate between private investors/partners and position of certain government bodies. Government officials remain government officials in any country of the world as they operate under a more formal approach.

− But if we take any bank, a foreign private bank, for example, it is a part of the government system.

− This is true, on the one hand. On the other hand, any bank is interested in maintaining normal client relations. There is a delicate line here. So far, we have managed to find weighted reasonable compromises, but definitely all these [sanction] issues are very unpleasant. Nevertheless, there is no significant negative impact on our business and investments in the West because of the sanctions.

− Did you have to change your style of communication with western partners? Did you hire legal experts or advisors for these purposes specifically?

− No. In my opinion, the only right thing in this situation is to take no abrupt actions and make no sharp changes in terms of style, structure or any global financial reshuffles.

− When did you personally find out you can be included on some list with certain consequences? Did you have any concerns?

− Well, I probably had some concerns deep inside but it is impossible to predict such things. It is like forecasting oil prices or comet trajectories. Even those who compose those lists probably take certain decisions at the very last moment. It looks they simply looked at the Forbes list plus the government yellow pages and published it.

− So you see shortcomings in the US Treasury work?

Well, I don’t know if these are shortcomings. After all, this is not a sanction list but a certain list. A list of influential Russian businessmen and politicians.

− Some of the names on the list have represented the inclusion as recognition of their merits at a global level.

− I think this is an exaggeration. I personally had an unpleasant feeling and I don’t like to be included on any lists in general. It was unpleasant for me because I did not understand the consequences. But soon we received feedback and the situation because clear.

− Do you think this is a normal business situation when the government creates conditions under which some businessmen are suffering and then helps them? I mean Viktor Vekselberg and Oleg Deripaska.

− I see no clear logic here and it is unclear what was the purpose of the sanctions and why they targeted Oleg #Deripaska and Viktor #Vekselberg. Reasons unknown, I would say. What we witness now is a movement towards nationalization. No doubt, when the government provides financing and loans, it is not for free. This means certain interests and guarantees, and consequently it can influence some decisions in these businesses. The same happens when a bank issues a loan under certain collateral and tries to control its investment and monitor what is going on in the borrower’s business to be able to influence this business if it contradicts the bank’s interests. This is a clear trend and I cannot say whether it is deliberate or not for officials. Government authorities in any country do not always follow a pragmatic approach.

− But this situation is obviously not good for businesses. Is the government able to understand business processes?

− Well, after all, who knows what is favourable for business? If we ask different people, opinions will differ. I am for private entrepreneurship and in my opinion the weaker the government’s influence, the more opportunities there are for the government as well to receive certain benefits from business, including taxes and economic development in general.


“No buyers on the horizon so far”

− Will Alfa Bank remain private?

− Well, it is private at present.

− But what about going forward?

− It is difficult to say. The bank is developing, we have plans and a lot of ideas. But we definitely do not plan to transform into a government-controlled entity.

− Are there plans to sell the bank?

− Currently there are no such plans. But we always say, we are ready to sell it all any time. This is just the matter of price.

− If we take into account what is going in the banking sector, do you think it still keeps its investment attractiveness?

− Attractiveness depends on the presence of buyers. The more buyers, the better. So far we see no buyers.

− The share of state ownership in the banking industry is 75 to 80 percent according to various estimates. Are you able to compete in such conditions?

In general, our bank boasts quite good results. And I still see opportunities for development in spite of all changes in the banking sector.


“The oil and gas business values big players”

− Do you still plan to merge #DEA oil and gas company with BASF-owned Wintershall, as announced in December 2017? Can you confirm the deal will be closed in the second half of 2018?

− The plan is still there. This is for certain. Currently, due diligence procedures are on the way, and the parties hope it will end with a successful deal closure.

− What is your estimate for the merged entity’s value? At the end of last year, Bloomberg estimated the merged company’s value at €10 billion.

− As you know, the value of oil and gas entities is directly linked to market conditions. We think the merged company’s value could be up to €20 billion. But this is our vision.

− Is LetterOne still expected to have 33 percent in the merged entity?

− Yes, it is.

− How will LetterOne’s stake decrease once BASF transfers gas transportation assets to the merged entity, including 15.5 percent in Nord Stream used by Gazprom to supply natural gas to Europe? By 2-3 percent?

− It will decrease, not significantly.

− Why have you decided not to keep control over the oil and gas asset? Does it mean it presents no interest to you?

− That’s not the point. The oil and gas business values big players with robust positions in terms of influence, market environment and capability to solve possible geological issues at oil and gas fields. This gives big players the advantage of much more opportunities for development and entering new regions. The oil and gas business is quite politicized. It always involves some lint to the state, it means licences, tenders, interactions with large oil and gas companies. Thus, this step is logical for us. This [ownership] structure with certain ownership and investor right and IPO opportunities will let us position us and this entity as a big international player.

− What new markets do you target?

We see massive development opportunities in Mexico, Brazil and Russia as well, where Wintershall enjoys a solid position thanks to cooperation with #Gazprom [the former owns shares in two Gazprom gas projects, Achimov deposits in the Urengoy field and the Yuzhno-Russkoye field].

− Do you consider possible joint oil and gas projects in Russia and abroad with participation of private Russian companies, such as NOVATEK or LUKOIL? Or can we say you are not interested in the Russian market?

Why not? We know this market quite well so there is a possibility for us to implement some projects here. But the logic is the same as for other Alfa Group businesses. Wintershall DEA management will look for and propose some investments based on our coordinated strategy and we, as investors, will support them or not.


“Of course, we think about Russia in the first place”

− At the recent St. Petersburg economic forum you announced you were attracting investors to Rosvodokanal (Russia’s leading privately owned water operator) and partnering with the Russian Direct Investment Fund (#RDIF) or French company, Veolia. Can you tell me this story from the very beginning, who was the initiator and how this consortium was formed?

− We started to look at RDIF and tried to build partnership with it as early as seven or eight years ago, when this fund was only just set up, and was looking for possible directions for co-investment in various businesses, including the housing and utility sector. At that time we had quite intensive negotiations but as you know the rule for the fund is co-investment. It implements projects only with foreign investors. At that time there was no such interested investor.

About six months ago Veolia showed its interest in Rosvodokanal. We held a number of meetings with them and an important meeting just some weeks prior to the St. Petersburg forum. That meeting, where RDIF was present, confirmed Veolia’s interest in entering Rosvodokanal’s capital. The meeting ended with the parties expressing readiness to form an alliance.

− It is not quite clear what RDIF has to do with it? Since the French party contacted you directly and showed its interest, what is the purpose of having one more partner?

− RDIF is a financial investor, a state fund. This means, if we take into account all complex aspects faced by housing and utilities companies in the Russian market, the participation of this fund is quite important and symbolic. This is not only money, this is also the recognition of the importance of private public partnership as a strategic trend in relations between private businesses and the state.

− So it proves the opinion of analysts who say a possible reason behind this transaction is that this business segment has quite tough conditions and the government’s stance in this business is ambiguous. Thus, RDIF is a form of a state support too?

− Absolutely.

− In general, why do you and Rosvodokanal need partners? Does it mean you require financial leverage, desire to expand your business scale and enter foreign markets?

− Of course we think about Russia in the first place. Currently this business segment in Russia offers unlimited opportunities and the market is virtually not occupied and its growth opportunities are in no way constrained. Veolia presents interest to us because of its global experience, technological knowhow, and management solutions, and as a strategic partner that could make the road shorter for us. On top of that we definitely thinking about global expansion and this is the key idea behind our presence in this segment.



“We always welcome competition”

− Another business segment with Alfa group presence where we see large-scale changes is the retail trade. Recently, #X5 Retail Group lost some of its top managers, including Olga Naumova from #Pyaterochka. She joined your key competitor, Magnit, which had a change of ownership and announced it will strive to return to the leading position. Taking these developments into account, what goals do you set for X5 Retail Group managers at present?

We always welcome competition since we believe the presence of strong competitors helps our development. We will follow Magnit efforts to become number one again with interest.

Meanwhile, the goals remain the same, that is business development and keeping leading positions by key parameters. The company demonstrates strong growth both organically and via M&A which we see as a balanced way.

− In the past both Alfa Group and #A1 were very active on the consumer market. But now we do not hear about any new projects and the number of projects is diminishing. Does it mean this segment has become a disappointment for you?

− This only means we do not see any interested offers in terms of pricing at present. As I mentioned we follow a rather opportunistic approach. We enter a business when we see an opportunity and we exit when there are suitable offers.

− You changed A1 team twice in the course of the past year. Alexander Vinokurov has left and Andrey Tyasto was appointed to this position but soon he was replaced by Andrey Yelinson. What is the reason for this?

− I would say there was only one change because Andrey Tyasto was an acting manager. We were considering him for the first position but decided to look elsewhere due to certain circumstances.

− Have you changed the task for Yelinson’s team or is it the same, to look for interesting opportunities in the market?

− I don’t think it is possible to change the task fundamentally now. We do not try to change our approach to this business but we try to base it on partnership with the management team. Many years ago we, as owners, performed direct management of the company, took part in decision making and project implementation. At that time the results were generally a little better. So now we try to add this important element to relations with the management.

− Could you name three business segments you are interested in in terms of potential investments?

− There are no segments for us. A1 strategy is to make deals in the so-called special situations. They can happen in various industries. In general, this is an investment company pursuing the goal of buying assets, positions with a discount, taking higher risks amid special situations and solving those situations, and thereby improving the general quality of assets and taking steps to attract high quality managers. This in turn creates additional value for sale.



− There are market rumours that VEON could sell its business in Russia. i.e. VimpelCom. Do these rumours have grounds?

− First of all, this has nothing to do with the reality. Second, this is a large and expensive asset and there are no potential buyer as yet.

− But are you generally interested in the hi tech market? You already had deals there, e.g. with Uber. Do you keep your eyes open for hi tech companies?

− You need to be an expert in the hi tech sector if you want to invest in those companies. Personally I know nothing about it. That is why investing in traditional segments is much clearer and more comfortable for me. We definitely try to take certain steps in this direction and it is yet to be seen how successful they are and if we will continue moving in this direction or not. By the way, investing in Uber was just the matter of money. For us, it is all about money. We do not experiment just for the love of the game.

− So, it means you have not participated in ICO Telegram and have not bought bitcoins?

− No, we have not.



What is Alfa Group?

The story of Alfa Group started in 1989 when Mikhail Fridman and his university friends and business partners, German Khan, Alexey Kuzmichev, Mikhail Bezelyansky, Andrey Shelukhin and Oleg Kiselev, founded a Soviet-Swiss joint venture Alfa Eco. Later the team was joined by Petr Aven and Andrey Kosogov. First, the company exported artificially aged carpets from Soviet Transcaucasian republics and was engaged in cigarette imports. Then it switched to commodities trading and investments. Currently the group is engaged in various financial services (ABH Holdings S.A., «AlfaStrakhovanie insurance company», Alfa Capital management company, Alfa Asset Management S.A.), investments (А1), retail trade (X5 Retail Group) and water supply (Rosvodokanal), as well as mineral water production (IDS Borjomi ​International), etc.

There is no united legal structure in Alfa Group.

Alfa Bank is controlled via several entities by Luxemburg-based ABH Holdings S.A., owned by Mikhail Fridman (32.8632 percent), German Khan (20.9659 percent), Alexey Kuzmichev (16.3239 percent), Petr Aven (12.4018 percent), Andrey Kosogov (3.6716 percent), UniCredit S.p.A. (9.9 percent) and the Mark Foundation for Cancer Research, registered in the Cayman islands (3.8736 percent).

AlfaStrakhovanie insurer is owned by YuNS Holding (99.9 percent) and minority shareholders while its beneficial owner is Luxemburg-based CTF Holdings S.A.

Alfa Capital management is equally owned by two Russian entities set up by foreign legal entities, Luxemburg-based Alfa Capital Investments Holdings S.A. and BVI-based Alfa Asset Management Holdings Limited. As we see from the company’s statement its ultimate beneficiaries with a stake of over 15 percent are Mikhail Fridman, German Khan and Alexey Kuzmichev.

At the end of 2017, 47.86 percent in X5 Retail Group was owned by CTF Holdings S.A, Intertrust Trustees Ltd (11.43 percent) and minority shareholders (less than 3%).

A1 investment company, according to SPARK, belongs to Gibraltar-based Logford Investmants Company Limited (99.99 percent) and Alexander Fain.




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Khan is showing his “independence” and is explaining to us why the sea is blue and the sun is hot. In the meantime, his son-in-law Alex van der Zwaan spends 30 days in prison for lying to Special Counsel Robert Mueller’s investigators about contacts with an official in Donald Trump’s 2016 campaign. Before that, van der Zwaan worked in the London office of Skadden which represented Ukraine in the gas deal investigation signed by Yulia Timoshenko with Russia. This arrest story moves Khan and Alfa Group closer to the red line which if crossed would see them join Deripaska and… Read more »
Malyuta Skuratov

The risk of sanctions has prompted Alfa Group shareholders to go public. The Alfa’s founder Mikhail Fridman gave interview to Forbes in December and recently arranged a lobbying dinner at Atlantic Council. Now RBC is publishing an interview with Khan. The narrative is still the same. On the one hand they try to justify what Russia is doing and on the other hand they demonstrate that they are “independent international businessmen”.