Carlyle freezes talks to create Russia fund

The Carlyle Group and Russian industrial giant Alfa have shelved talks to launch a joint venture Russian fund following the arrest of two of Carlyle’s advisors in Russia last week.

(PrivateEquityCentral.net) US private equity powerhouse The Carlyle Group has shelved preliminary talks to start a Russian buyout fund with Russian industrial giant Alfa Group. The decision comes in light of the recent incarcerations of two prominent Russian business moguls – who also served as Carlyle advisers.

Mikhail Khodorkovsky, a Carlyle senior adviser and former chief executive officer of Russian oil company AO Yukos Oil, Russia’s largest privatised oil business with a market capitalisation of $21bn as of December 2002, was jailed last week on charges of fraud and tax evasion. The other former Carlyle adviser, Platon Lebedev, served as chairman of holding company Group Menatep, a major shareholder in Yukos, before being sent to prison on similar charges in July. Both men deny the charges. Khodorkovsky served as an adviser to Carlyle’s energy group while Lebedev was on the Europe board.

 

In August, the Financial Times reported Carlyle, which currently manages more than $16bn in assets, had been involved in talks with Alfa to create a $500m private equity fund targeting Russia. According to FT, each partner was to contribute $250m to the effort. A source close to the situation said news outlets had over-reported the story, and that no figures or strategic relationships had ever been released.

 

This week, in an interview with Bloomberg, managing director of Alfa Group’s private equity unit, Mark Bond confirmed the hiatus. “Talks are on hold. The events of the last two weeks haven't helped.” The talks are also thought to have stalled because the Carlyle is not sure about entering into a joint venture.

 

Khodorkovsky, reportedly Russia’s richest man, and Lebedev amassed their fortunes by buying up state assets during the 1990s. Khodorkovsky’s attorney appealed to European Union leaders this week, calling the imprisonments politically motivated. Ever since Lebedev’s arrests, many investors have been in a panic. According to Moscow-based bank Renaissance Capital, in the third quarter Russians sent $7.7bn abroad, more than three times what they sent out in the same period a year ago.

 

Carlyle isn’t the only American private equity firm looking to Russia for investments. In September, Warburg Pincus announced plans to invest in the country, whose economy is expanding at the fastest rate among the Group of Eight industrialised nations. Its first acquisition that same month gave the firm a controlling interest in Radio 7, Kanal Melodia and Eldoradio, a group of three Russian radio stations with dominant positions in the Moscow and St Petersburg markets. In August, US insurance group AIG announced plans to launch a $300m private equity fund dedicated to countries of the former Soviet Union with Interros, one of Russia’s largest investment holding companies.