State Purchase with Made-in-Russia Money: Ivanishvili’s Bid for Georgia

The latest update of Forbes’ billionaires’ list (www.forbes.com, March 7) raises Bidzina Ivanishvili’s net worth to $6.4 billion, up from the $5.5 billion listed by Forbes and confirmed by Ivanishvili’s office in 2011. The updated figure amounts to more than one half of Georgia’s annual GDP. Ivanishvili apparently hopes to leverage his resources (if only a fraction of those) in Georgia for purchasing human loyalties, political allies, state institutions and, ultimately, the Georgian state itself.

Ivanishvili’s money seems all made-in-Russia: he made his fortune there during the Yeltsin era, multiplied it there during the Putin era, and continues to draw revenue from assets and investments in Russia. Like the lesser billionaire Badri Patarkatsishvili before him (2007-2008), Ivanishvili has announced his goal to take over power in Georgia in an election year. Throwing his resources into Georgia’s parliamentary and presidential elections would, however, negate the democratic process that Ivanishvili claims to stand for. He has not yet presented his own version of the origins of his wealth to the Georgian public. In the absence of Ivanishvili’s own version, some information can be culled from Russia’s business press.

Starting with the medium-size Russian Credit Bank (Rossiyskiy Kredit), which he co-founded in the early 1990s, Ivanishvili branched out into the extractive and processing industries in subsequent years. His long-time business partner, Vitaly Malkin, serves as a member of Russia’s Federation Council (upper chairman of the Russian parliament) from 2004 to date, appointed by President Vladimir Putin to that unelected position. With a Forbes-estimated net worth of $1 billion, Malkin retired officially from business, but retained stakes in some of Ivanishvili’s projects, mostly in construction (Forbes, May 3, 2008). Thus, Ivanishvili maintained at least this communication line with Russia’s authorities. According to Ivanishvili, his Russian assets were left untouched during the persecution of Georgians in Russia in post-August 2008, simply because his Russian business is clean. This naïve explanation may, however, understate the degree of official protection of his assets in Russia.

During Putin’s presidency, Ivanishvili acquired more than one percent of Gazprom’s shares, one percent in the Unified Energy Systems electricity monopoly and another one percent of Lukoil’s shares, as well as lesser stakes in the Vympelkom and MTS telecommunications concerns and in Surgutneftegaz. To acquire these blue-chip share packages, Ivanishvili sold some of his earlier-acquired assets in mining and metallurgy. According to a rare interview and profile of the recluse Ivanishvili in Vedomosti at that time, he received more than $2.5 billion for his controlling stakes in the Mikhailovskoye and Stoilenskoye iron ore-enrichment complexes and the TulaCherMet (Tula Black Metallurgy) plant (Alisher Usmanov’s Metalloinvest bought some stakes in these assets). Forbes ranked Ivanishvili at $2.6 billion shortly before those transactions (Vedomosti, April 7, October 11, 2005).

In 2006, Ivanishvili and Malkin sold their Impex Bank to Raiffeisen International for a reported $550 million (https://www.marker.ru). Meanwhile, according to Rossiyskiy Kredit’s staff, Ivanishvili owns 99.6 percent of Rossiiskyi Kredit via 22 other companies, half of them offshore. In August 2011, Russia’s Central Bank granted Rossiyskiy Kredit a license to accept private deposits in Russian rubles and foreign currencies. Thus, Russia’s deposit insurance system now covers Ivanishvili’s bank. In 2011, Rossiyskiy Kredit established an investment company, Rousseau Private Finances, for “high-net-worth” individuals. The hybrid Russian-French title was chosen supposedly to attract a cosmopolitan rich clientele (RBK Daily, April 14, 2010; https://www.marker.ru/, May 17, 2011; Banki.ru, August 26, 2011; https://www.allbanks.ru/; https://www.banki.ru).

Ivanishvili’s minority stake in Gazprom is believed to be one of the largest held by an individual (albeit via his Rossiyskiy Kredit and his Interfin financial services company). That stake alone should amount to at least $1.5 billion, considering Gazprom’s $148 billion market capitalization at the end of 2011.

In the consumer goods sector, Ivanishvili is the controlling owner of the agro-industrial holding “Stoylenskaya Niva,” Russia’s third-largest grain-processor and bread producer, with a retail network of bakery outlets (https://www.stniva.ru/eng/). After 2002, Ivanishvili and his Rossiyskiy Kredit consolidated retail pharmacy outlets under their control in the “Doctor Stoletov” trademark chain, with 422 outlets purportedly Russia’s third-largest chain by number of outlets (Prime-Tass, November 21, 2008, https://www.allbanks.ru; russmergers.com, January 19, 2010).

“Unicor Management” is a holding-type company for some of Ivanishvili’s assets and investments, including real estate development and construction projects. Its ongoing projects include: “Garden Quarters” (Sadovye Kvartaly) luxury apartments, ranked as Moscow’s largest ongoing housing project, under construction since 2011, valued at $1 billion in investment costs (with a German Strabag subsidiary as general contractor and Rossiyskiy Kredit as financial partner) (www.sadkvartal.ru); “The Summit,” a luxury residential, office, and shopping development that includes the five-star InterContinental Moscow Tverskaya hotel, at $250 million in investment costs; the Luxe Hotel (Mandarin Oriental) in Moscow, also on Tverskaya street (“the hotel will become the center of social luxury lifestyle of the city…….one can easily indulge in luxury brand shopping without leaving the complex”); and Dom.Pionier, a business-class residential complex in Sochi (Vedomosti, May 23, 2011; https://www.unicor-mc.ru/projects; www.sadkvartal.ru; www.dom_pioner.ru).

It seems difficult to believe that such vast and profitable business activities would have been possible in Putin’s Russia without the consent of state authorities. As a Georgian businessman with billions of dollars at stake in Russia, Ivanishvili never spoke up for Georgia’s interests when Russian “peacekeeping troops” occupied parts of Georgia and perpetrated ethnic cleansing there; nor when Russia imposed trade embargoes on Georgia and ultimately invaded the country’s interior. Throughout those years, Ivanishvili kept complete silence (until 2011 when he blamed the Georgian government).

He was not always a non-political person, however. In 1996, with the Kremlin’s approval, Ivanishvili financed General Aleksandr Lebed’s presidential candidacy in Russia. In Ivanishvili’s own interviews, recounting this episode, he seemingly forgets that Lebed commanded Russian paratroopers who killed 20 Georgian protesters (mainly women) on April 9, 1990 in Tbilisi (Vedomosti, April 7, 2005, and Georgian Public Broadcaster, November 1, 2011, cited by Tabula [Tbilisi], December 23, 2011).

After declaring his bid for power in Georgia, Ivanishvili said that he has started transferring or selling his Russian investments and assets, and would continue this process ahead of Georgia’s elections. The current situation with such transfers or sales is not known to the public. The net result might well be to place more disposable liquidity in Ivanishvili’s hands, ahead of the elections. The nature of his relationship with Russia’s authorities, who made possible Ivanishvili’s enrichment in Russia over a long period of time, remains nontransparent to the public, as long as he does not himself clarify it.