As ground-breaking for the Barclays Center approaches, NetsDaily is offering a series of reports on "The Prokhorov Effect".
Sunday's report focused on Prokhorov the man, Monday's on an examination of his wealth and Tuesday's on how his ownership could affect the future of the Nets.
One thing about the last few months is certain. While the Nets were losing and critics battled supporters of Barclays Center in New York, the Nets' prospective owner, Mikhail Prokhorov, has been getting steadily richer sitting in Moscow. How much richer? Hard to tell, but the words "a lot" seem to be an accurate description. Finans Magazine, which like Forbes ranks Russia's billionaires, puts his net worth at $17.85 billion, up 27 per cent from last year's estimate of $14.5 billion. Forbes' rankings come out next month.
Part of the fortune accumulated by Russia's richest man is admittedly due to luck, but lately it's involved shrewdly picking up the pieces from the world economy's collapse.
Take for example his nearly 40% stake in Polyus Gold, the world's sixth largest gold producer...and Russia's largest. As the dollar collapsed in price during the economic meltdown, gold became a safe haven for investors and has been hovering around an all-time high of $1,100 an ounce for months. The value of Polyus has quadrupled in the last year. That would make his stake in Polyus worth between $3 and $4 billion.
Meanwhile, Prokhorov has also been busy with his stake in RusAl, the world's largest--and possibly most troubled--aluminum company. When Prokhorov was forced out of Norilsk Nickel in spring of 2008, he sold his stake to RusAl's biggest investor, Oleg Derispaska. With it went all of his responsibility for Norilsk's debt. In return Prokhorov reportedly received $4.4 billion in cash, $2.8 billion in debt and a 14% stake in RusAl from Derispaska, essentially swapping his interest in nickel for one in aluminum. He smartly retained his interest in Polyus Gold, a spinoff from Norilsk, in the deal.
All three things have worked out quite well well for the 44-year-old Prokhorov.
When the world economy crashed last fall, the price of gold soared but commodity prices like nickel and aluminum plummeted. Industries that needed those metals slowed their orders. The huge amount of debt that Norilsk and RusAl carried became onerous.
Now, Derispaska has taken RusAl public on the Hong Kong stock exchange to raise cash to pay off that enormous debt. Before he could do that, he had to restructure it. He owed about $16 billion to the 70 western banks that lent him money...and to Prokhorov. Under a deal with Derispaska, Prokhorov received an additional 5+% of RusAl, giving him a total of 18.5%. Deripaska still owes him about $1 billion, according to reports.
On January 22, RusAl sold 10% of its stock to investors—most notably, to China’s richest man. For the first time, the value of Prokhorov's stake in RusAl has been established on a recognized stock exchange. Based on the $2.24 billion Derispaska raised for the 10% stake, Prokhorov’s 18.5% stake was worth $4.14 billion. It's dropped since as the RusAl stock price has dropped but now he has a stock that is sold on a reputable stock exchange.
Prokhorov has also grown quite confident with the political connections his wealth brings. In December, he announced the formation of a so-called oligarch's bank to restructure Russian corporate and bank debt, saying "active work on solving Russian firms' debts and offering help to the state to restructure the national banking system have a special place in our new strategy." Earlier in the year, he invested $500 million in return for half of Renaissance Capital, a troubled Russian investment bank, believing it could become a banking giant in Russia and beyond, and another $81 million for 51% of RBC, Russia's version of CNBC. In each case, as well as the Nets, Prokhorov used his substantial hoard of cash to buy an debt-burdened, cash-poor entity at a bargain basement price.
He is also expanding beyond mining and finance...and Russia, as shown by his investment in the Nets, high technology, and media. He's set aside $150 million for media investments beyond RBC, the most notorious of which is more of a "concept" or "project" than a single medium. It's called "Snob" and it targets "Global Russians" with social networking interface, a magazine and club at snob.ru.
Thinking big, he received the blessing of Russian Prime Minister Vladimir Putin in January to begin the development of an electric car for urban driving. To be built mostly of plastic, it will sell for around $12,200. Prokhorov, working with a Russian truck manufacturer, says he will invest $1.5 billion in the venture. It's another indication of his increasing political influence at the Kremlin. He also reportedly hosted Putin at his French Alpine chalet during the holidays. But that doesn't mean he can operate outside the boundaries set down by the Russian strong man. After being criticized by Putin for a lack of investment in state energy assets, Prokhorov responded by saying the prime minister was "misinformed". After a hastily scheduled meeting in Putin's office, Prokhorov was humbled and admitted, yes, the prime minister was correct.
That, however, was little more than a blip. After returning from the Vancouver Olympics and his meeting with Rod Thorn, Prokhorov flew off to Paris with Russia's other power broker, President Dmitri Medvedev. He's also on a presidential commission looking into how technology can solve some of Russia's economic problems and may be seeking a larger role in the 2014 Winter Olympics, to be held in the southern Russian city of Sochi.
How does all this affect his pursuit of the Nets? He's been willing to spend lavishly, both publicly and quietly. Recently, after bond rating firms gave a "junk" bond rating to arena infrastructure bonds, Prokhorov agreed to buy $100 million of the bonds. He'd prefer to have others buy the bonds, but if necessary, he will.
Bottom line: Prokhorov is swimming in cash. Cash can help sweeten and close any of the various deals the Nets need to get done, first off the court, then on. Will he be willing to spend? There's plenty of evidence, not all of it yet public, that he is indeed "geeked" about owning the team. Paul Allen, owner of the Trailblazers and the NFL's Seattle Seahawks, is currently the richest owner in pro sports at about $10 billion. If Allen's career is any indicator, the Nets' long time frugality will go out the window come January...assuming all goes well.