Fortunes & Blunders: Oleg Deripaska

Oleg Deripaska—The Russian Bear

“There is no one in Russia whom I can’t reach in less than one hour.”—Oleg Deripaska

Oleg Vladimirovich Deripaska: Russian and Cyprus businessman, billionaire, bookworm and physicist, aluminum tycoon and close Putin confident.

He was ranked ninth on the list of the world’s richest people in 2008, according to Forbes magazine. He was once the richest person in Russia with a net worth estimated to be $28 billion. How he achieved this, at what speed, and all at such a young age is even more impressive.

You could see him travel in one of his private Gulfstream Aerospace aircraft, leading a jetsetter life. Attending conferences around the world and making friends among the global elite, at places such as Davos during the World Economic Forum, or the US in New York and Washington. He could not have known that these would, one day, be his downfall.

His unprecedented rise in the new Russian hierarchy was followed by an equally rapid downfall, one that saw him being personally humiliated on national TV by no other than Putin himself. Although a lengthy recovery and gradually getting back into grace with Putin saw a return to old glories, he seemed to lose it all again—and this time for good.

Upbringing and Career

Deripaska was born on January 2 in 1968 in Dzershinsk, a city in Nizhniy Novgorod Oblast, in the former Soviet Russia. And although born in the city 400 kilometers (250 miles) east of Moscow, he grew up in Ust-Labinsk, Krasnodar Krai on his grandfather’s small farm.

His parents divorced when he was a toddler, and at the age of 4 he moved to the Krasnodar region in southern Russia to live with his mother’s parents until they passed away. He continued living with his paternal grandparents from the age of eight. His father, a military engineer, died when he was 12.

Raised in a small rural settlement where he rode horses and tended chickens, pigs and cows, Deripaska says his grandparents imbued him with the notion that one had to live off the land to survive.^[i] His grandfather always told him, “If you want to eat—work!” To this day, he is proud of his rural background and love for nature. He once said: “I don’t like Moscow. It’s not my city.”

During his upbringing, he gained a passion for reading that continues to this day. He was always an outstanding student and finished school with excellent grades. His teachers and former classmates say that he was always at the top when it came to math, chemistry or physics. His talent for these helped him to enroll at the Physics department of Moscow State University in 1985.

After a year at the university, he was conscripted into the armed forces and served in the Soviet army’s Strategic Missile Forces in the Trans-Baikal area in Siberia. He served three years there before he returned to the university. In interviews, he still speaks fondly of his experiences: “I was in charge of security at a very big complex,” he says. “I learned how to manage people in the army.”

When he returned to the university in 1988, he completed his physics degree, adopting his grandfather’s dictum by working nights and summers, doing construction jobs to make ends meet.^[ii] He had big dreams of becoming a theoretical physicist but with the fall of the Soviet Union and without funding, Deripaska had to look for alternatives—and he found one!

A Rising Star

In 1991, when the Soviet Union collapsed, he made his first steps as a businessman. He teamed up with friends from the university and together they founded VTK, a metals trading company. Deripaska, though, took overall charge. Taking advantage of the ensuing chaos after the collapse of the Soviet Union, he adopted a systematic, scientific approach to commodity trading and buying and selling raw materials.

The business was simple. Deripaska undertook export arbitrage, buying metals and raw materials at low Russian prices and selling them abroad at much higher international market prices, hence making hard currency income. With a clever infrastructure that had offices in the Baltic States, he was able to shelter his profits from any taxes. His boldness and drive to succeed paid off quickly. He made his first million dollars on his second transaction.^[iii]

Networking, Russian-Style

With his financial success, he had tasted blood and he wanted more. But he was motivated by more than simply earning money quickly. He avoided wasting the finances earned through trading, unlike like so many of his compatriots, who spent it to provide instant, but short-lived, gratification. Within the chaos of the collapse of the Soviet Union, he clearly understood the once-in-a-lifetime opportunity that was offered to him. He had bigger dreams and for that, he needed every ruble and dollar he could muster.

He decided to invest his new-found wealth. This enabled him to expand his business reach and to make use of the vast opportunities that were still lying ahead of him. But he also understood that time was of the essence. Unfortunately, being as young as Deripaska was just after graduation, without any political cache, business contacts or experience, his horizons were limited.

He needed more than just his raw talents and youthful drive. He needed the right contacts and he needed guidance; he needed access to important business networks and, most importantly, capital. He found it in Michael and Lev Cherney, Jewish Ukraine-born brothers and entrepreneurs with a background of knowing how to intimidate other business people.

The Cherneys owned Trans World Group (TWG), which had become the most powerful industrial holding company in Russia following the collapse of the Soviet Union. Lev was an official business leader in Russia, and Michael was responsible for acquaintances, especially relationships with government officials.

Deripaska met Michael Cherney at the Metals Bulletin conference in London. The meeting proved to be very fruitful for both of them, and Cherney decided to take Deripaska under his wing. Michael was looking for talented managers for his rapidly expanding aluminum empire. He was especially looking for someone who could oversee the smelting and production process, a job that required drive, endurance and the somewhat Russian resilience to deal with cold winters.

Deripaska didn’t disappoint. He worked eagerly to do Michael’s bidding. In return, Michael showed him the good life. Dinners in Paris, flights in private jets, and introductions to the elite of industry and politics in Moscow.

Deripaska learned fast, absorbed everything and in the process, got increasingly more ambitious. He understood that only through business ownership could he attain the reach and influence he required to realize his grand vision—to change and modernize Russia. His opportunity to own such a business would soon come.

In 1992, Russia began privatizing state enterprises by handing out shares to employees and distributing vouchers that could be converted into stock.

Deripaska decided to invest his own money in Sayanogorsk, a smelter in southern Siberia. He bought up all the shares and vouchers he could lay his hands on. For that, he used all his arbitrage and trading profits to buy his initial stake in this smelter. In the process, he accumulated a 20% stake in the factory, making him the biggest individual shareholder (after the state itself).

To finalize his control over Sayanogorsk, Deripaska asked Michael Cherney for financial and strategic support. The Cherney brothers invested in Sayanogorsk alongside Deripaska, giving their student control over the Sayanogorsk plant. In the process, he quickly made himself the director general and chairman. It was 1994 and Deripaska had just passed his 26th birthday. His star was on the rise.

***TO BE CONTINUED

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[i] “Deripaska Rebound From Near-Crash Stares Down Potanin,” Bloomberg, accessed September, 2018, https://www.bloomberg.com/news/articles/2011-02-21/deripaska-rebounding-from-near-disaster-stares-down-potanin-as-metals-soar

[ii] Bloomberg

[iii] Bloomberg