On the QT

Is the Kremlin extending a helping hand or reaching out to claw back assets? That is the question not a few Russian oligarchs are pondering as they consider whether to take up a share of $50 billion in assistance from the Russian state.

The money is available to cash-strapped businesses struggling to repay short-term loans. Since the start of November, about $10 billion in government money has been doled out. Oleg Deripaska's United Co. Rusal used $4.5 billion to repay a syndicated loan held by Royal Bank of Scotland Group plc and Merrill Lynch & Co. A second oligarch, Mikhail Fridman, received $2 billion so his Alfa Group Consortium could repay a loan held by Deutsche Bank AG.

The oligarchs famously took out short-term foreign IOUs to finance long-term debt, a choice that may prove fatal.

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State aid to corporations crippled by the credit drought is hardly the preserve of the Russian government. It might appear cynical to attribute motives to the Kremlin that cannot equally be postulated for the U.S. or European governments. Yet few other states have displayed such a penchant for reclaiming previously privatized assets.

The Kremlin has used tax inspectors to hound companies into bankruptcy and then nationalized them. OAO Gazprom is the best-known, but not the only case in point. The government has used criminal charges to strip oligarchs of their wealth and redistribute their assets. Just ask former OAO NK Yukos chairman Mikhail Khodorkovsky, at one time Russia's wealthiest oligarch, and his close business partner, Platon Lebedev.

The suspicion is that, in the form of the credit crisis, the Kremlin may have discovered a less confrontational, and therefore more effective, route to massive state ownership. Call it quiet nationalization.

The structure of the Russian bailout certainly opens the door to a wide-scale campaign to seize assets from oligarchs caught short of cash. That description may well apply to most of them.

According to an October ranking by Smart Money magazine, Roman Abramovich, who made his fortune through oil company Sibneft, has seen his net worth tumble about $15 billion. Alisher Usmanov, owner of ZAO Metalloinvest, has lost about $14.5 billion; Fridman is down $14 billion; Dmitri Rybolovlev of Uralkali OAO, $13.4 billion; Vladimir Potanin of OAO GMK Norilsk Nickel, $13.2 billion.

The $50 billion of government loans, which are being distributed through state development bank Vnesheconombank, or VEB, have a one-year term and are underpinned by equity stakes.

Deripaska had to put up his 25% stake in Russia's Norilsk Nickel as collateral for his state loan. The Norilsk Nickel stake was also used to underwrite his initial syndicated loan.

As part of the VEB loan agreement, at least one government official will join the Norilsk board.

In mid-November, hoping to find a silver lining in the collateral posting, Rusal lobbied the Kremlin to take as many as four seats on Norilsk's board, a move that would weaken the influence of Vladimir Potanin, Norilsk's largest shareholder and Deripaska's long time rival.

In taking his government loan, Fridman staked a 44% holding in Russian mobile phone company OJSC Vimpel Communications.

If Deripaska's and Fridman's loans cannot be repaid at the end of their term, the state will be within its rights to call in the collateral.

That's hardly a far-fetched scenario. The dire state of the credit markets, the huge dip in Russian equity values, the weakened oil prices, the collapse of the ruble are all stacked against the oligarchs finding a new source of cash before their state-backed loans come due.

"The bailout program could easily turn into quiet nationalization whereby the Kremlin would regain control over most of the country's major firms," says Michael Thompson, a New York-based analyst at Russian Industrial Leaders Index, which operates an offshore index of Russian companies.

The loans-for-shares scandal of the 1980s and 1990s launched the oligarchs' fortunes, largely at the expense of the Russian state. There would be a certain undeniable symmetry if the state reclaimed much of those assets using a shares-for-loans mechanism.

The Kremlin insists it has no such plans and that its loans package, and any incidental nationalization, is an unfortunate but necessary temporary salve for the country's economic woes.

"Nationalization as a result of the state buying shares in companies that have become victims of the economic crisis is a forced and temporary measure," Russia's prime minister, and former president, Vladimir Putin, said in October. Putin is supervisory board chairman at VEB.

In its defense, Moscow could cite many good reasons for its intervention. The most basic is the desperate need to provide liquidity to an economy crippled by the credit freeze. There is also the benefit of avoiding defaults and thus preserving lender confidence in Russian corporations, a measure that should serve the nation well when credit markets finally thaw.

Intervention would also ensure that some of Russia's biggest, and arguably most strategic, companies will remain in Russian hands rather than be passed to foreign lenders and from there be sold in the open market, a situation the Kremlin was never likely to tolerate.

The impact of intervention is clear: The state would end up controlling a vast swath of Corporate Russia -- directly, through equity stakes, or indirectly, through claims on debt.

That's because Russian companies confront an especially nasty credit crunch. Elena Anankina, a Moscow-based credit analyst at Standard & Poor's, estimates that one-third of Russia's roughly $300 billion in corporate foreign debt is due to be repaid within 12 months.

The Economist Intelligence Unit, a U.K. provider of financial analysis, corroborates the figures, writing recently that about $40 billion of foreign loans are due before the end of the year and a further $150 billion in 2009.

Russia's exposure is particularly acute because of the oligarchs' widespread use of short-term foreign loans to finance long-term debt. The strategy had been adopted in recent years in the belief that regular refinancing would allow them to rapidly improve their credit terms as the value of their investments rose. When credit markets froze, the maneuver backfired spectacularly.

"Russian companies typically have very little reserve in the form of committed bank lines," says S&P's Anankina. "In addition, it now appears that many of the oligarchs raised debt secured by their stakes in their Russian companies, and this debt is now subject to margin calls."

Fears that Russia's oligarchs may have been forced to unwind equity positions to meet margin calls is at least partly to blame for the precipitous decline in Russian share prices that made margin calls inevitable. By the end of October, the key Micex Index had tumbled 74% from its year high and has been suspended on a regular basis.

The sharp fall in the value of Russian equities makes it unlikely the oligarchs will be itching to pay back loans even if they had the means. Yet that reticence will be balanced against the need to keep the Kremlin on their side.

To some extent, that is the same game played out in boardrooms across the U.S. and Europe. It's just that in Moscow it is much harder to read Putin's poker face.

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