Monday, March 29, 2010

In Profile: Mikhail Prokhorov

by Stephanie Baker

Mikhail Prokhorov steps off his Gulfstream V into the swirling snow and subzero temperatures of Krasnoyarsk, Siberia, where he’s come to visit his gold mine. Though it’s almost midnight, Prokhorov has no interest in retiring to his hotel room. Instead, he’s whisked away in a police-escorted Mercedes to the local gym, where he puts in two hours running on a treadmill and lifting weights, Bloomberg Markets reports in its May issue.

Even in the depths of Siberia, Prokhorov’s mind wanders thousands of miles away to Brooklyn, New York, where he plans to install his new trophy asset: the New Jersey Nets basketball team. Prokhorov, Russia’s second-richest man, according to Moscow’s Finans magazine, was little known in the U.S. until last year, when he agreed to pay $200 million for an 80 percent stake in the Nets and a 45 percent share in their new Brooklyn arena. He’s not bothered that the Nets were one of the worst teams in the history of professional basketball in the 2010 season, with a record of 8-63 on March 25.

“There is only one way to go: up,” says Prokhorov, 44, in the Krasnoyarsk gym, as he bench-presses 50 kilograms (110 pounds) in baggy sweatpants and a gray Nets T-shirt. “I like to find cheap assets with problems. It gives me power.”

Prokhorov, who’s more than 2 meters (6 feet 7 inches) tall, stands out among Russian billionaires for more than just his height. While other moguls gorged on debt in acquisitive binges that left them on the brink of state takeovers, Prokhorov feasted on their remains, growing richer by investing in gold and aluminum even as the Russian economy shrank 8 percent in 2009.

‘Musical Chairs’

“Prokhorov was in a game of musical chairs, and when the music stopped, he was sitting down,” says Christopher Granville, managing editor of London-based Trusted Sources UK Ltd., an emerging-markets research firm.

Armed with cash, Prokhorov is now expanding beyond his gold and metals holdings into areas such as debt restructuring and hybrid cars and is looking for partners outside Russia for new investments.

The U.S., which so far has been relatively untouched by Russia’s new class of billionaires, is an important part of Prokhorov’s global strategy. And the Nets purchase is about more than basketball.

“It’s about opening up other business opportunities in the U.S.,” Prokhorov says, sipping tea at 2 a.m. at his hotel in Krasnoyarsk. “If I want to do something else, people won’t say, ‘Who’s that?’ They’ll say, ‘That’s the owner of the Nets.’”

An Owner Who Dunks

Prokhorov will be the first owner of a National Basketball Association team from outside North America, at a time when there’s very little foreign ownership in U.S. sports.

Other Russian businessmen have invaded English soccer. Billionaire Roman Abramovich has plowed almost 700 million pounds ($1.1 billion) into the Chelsea Football Club and changed the game by bidding up salaries of star players.

“I’ll be the first NBA owner who can dunk,” says Prokhorov, who played basketball in high school. (Basketball legend Michael Jordan, who is part of a group that in March got NBA approval to pay $275 million for the Charlotte Bobcats, would dispute that claim.)

The Russian entrepreneur installed a basketball hoop down the hall from his Moscow office where he sometimes practices his jump shot.

Prokhorov agreed to buy the Nets from New York real estate developer Bruce Ratner, along with a stake in the new arena that Ratner is building as part of a $4.9 billion, 22-acre (9- hectare) office-and-apartment complex.

Six-Year Delay

Ratner’s own plan to move the Nets to Brooklyn -- home to about 330,000 immigrants from the former Soviet Union -- had been held up for six years because of legal battles with local residents opposed to the new development.

Prokhorov plans to revive the team with new talent. Some of the best players in the NBA, including Chris Bosh of the Toronto Raptors, LeBron James of the Cleveland Cavaliers and Dwyane Wade of the Miami Heat, will become free agents during the next two years, he says.

The Russian metals magnate has the cash to assemble his own dream team. He got some of it after a run-in with French police in January 2007, when he was detained at the ski resort of Courchevel on suspicion of pimping. He was released without charge after four days -- he denies any impropriety -- and he returned to Russia to find himself joined in battle with his then-business partner, billionaire Vladimir Potanin.

$7 Billion Windfall

Prokhorov says that after the events in Courchevel, Potanin urged him to sell his 25 percent stake in Russia’s biggest mining company, Moscow-based OAO GMK Norilsk Nickel. Instead of selling to Potanin, Prokhorov sold out to yet another billionaire, Oleg Deripaska, in April 2008 for a promised $7 billion in cash and a 14 percent stake in Deripaska’s United Co. Rusal, the world’s largest aluminum producer.

It looked like Prokhorov had called the top of the market. In the eight months after he sold his stake, Norilsk shares sank 71 percent. Using his holding company, Onexim Group, he then spent late 2008 and 2009 snapping up distressed assets while fellow Russian businessmen struggled under truckloads of debt. He bought half of Renaissance Capital, one of Russia’s largest investment banks, for $500 million in September 2008.

He also increased his stake in OAO Polyus Gold, Russia’s largest gold producer, before the price of the metal soared more than 50 percent from November 2008 through the end of 2009 as investors worldwide bought it as a safe haven. Prokhorov now owns about 40 percent of Polyus with other investors, a stake valued at $3.7 billion.

Riding the Boom

Like other oil and mining tycoons, Prokhorov rode the Russian boom. From 1999 through most of 2008, Russia was giddy on worldwide demand for its oil, gas and minerals. In 2008, the economy surged 7 percent as investors piled in. When oil plunged to $34 a barrel in December 2008 from $145 that July, the Russian economy sank along with it. For the first time in a decade, the government ran a budget deficit.

Some Russian business moguls were caught out when the Micex Index plunged 67.5 percent in 2008. Deripaska was forced to restructure debt after the value of the shares he had pledged as collateral against loans collapsed. Alexander Lebedev’s National Reserve Corp. faced margin calls from lender Deutsche Bank AG in October 2008 on a loan guaranteed by shares in airline OAO Aeroflot, which had plunged in value.

Having cashed out before the crisis, Prokhorov was well positioned when commodity prices recovered in mid-2009, helping to trigger a 125 percent gain that year in the Micex. Finans magazine’s February 2010 rich list put Prokhorov’s assets at $17.8 billion, second after steel magnate Vladimir Lisin, who’s worth $18.8 billion.

Resource Dependent

“Prokhorov’s story is one of Russia’s fundamental dependence on natural resources,” says David Woodruff, senior lecturer at the London School of Economics and Political Science. “He made his fortune like everyone else, from prices set on international commodity markets.”

Prokhorov increased his stake in Rusal last year in a complex restructuring deal with Deripaska, who owed him $2.8 billion from his 2008 purchase of Norilsk shares. After Rusal’s January initial share offering in Hong Kong, Prokhorov now owns 17 percent of the aluminum giant and pocketed $440 million in cash. Rusal shares had sunk 18.61 percent since the IPO as of March 26.

“I don’t care about the IPO because I can wait and sit on this company,” Prokhorov says, swinging his long legs over the arm of a white leather seat on his jet en route to Krasnoyarsk. “In the next three to four years, the value of the company will double for sure. It’s inevitable that commodities will go up.”

Calculated Risks

Friends say that while there was some luck in Prokhorov’s emergence at the top of Russia’s business pyramid, most of his success comes from hours of mapping out his long-term investment strategy. “He calculates his risks 10 times before he invests,” says Alexander Khloponin, a former business partner and ex-governor of the Krasnoyarsk region, where most of Polyus’s gold mines are located.

Read the rest here.


  1. Why did the author mention his bench? It's pitiful for an adult male, but especially one that is 6ft7... he must be skinny as a twig! I can't tell if the author doesn't understand weightlifting and was impressed, or if they were trying to comment on his physical strength in a negative fashion.

  2. if you are 6'7'' I would think you have a much greater range of motion and it takes more effort to lift the same weight. Though, 110 is still a pretty weak bench.

  3. I have to think the reporter knew exactly what she was writing. A BW story goes through too many editors and fact checkers for that to slip by without someone raising a question.