In the ranking of Dairy Intelligence Agency of the top 100 milk processors in Russia in 2021, Danone came in second after PepsiCo in terms of volume processed. Meanwhile, Baltika’s share in the beer market, according to the company itself, amounted to 27.3% at the end of 2021. There were many potential buyers for both companies, among which were the largest Russian food producers like Rusagro, Cherkizovo, Chernogolovka, EkoNiva, Rumelko, Agrocomplex Tkachev and AFK Sistema.

Carlsberg, according to some reports, had managed to sign a sale agreement with an unknown buyer. Still, Rosimushchestvo did not even pretend to try to explain the nationalization as a strategic necessity or as a response to unfriendly actions.

The managers appointed to the nationalized companies have also drawn attention. Taimuraz Bolloev, who was Baltika CEO from 1991 to 2004, was appointed to manage Carlsberg’s Baltika operations. This looks like trolling (there were rumors that foreign owners got rid of him because he was too independent), yet still a logical decision – one of the brand’s builders is back at the head of the company (it was Bolloev who came up with the idea of naming beer by numbers: Baltika No. 9, Baltika No. 3, etc.).

Ramzan Kadyrov’s nephew, Ibragim (Yakub) Zakriev, was appointed to manage the yogurt company. This is not the first episode that suggests that the property of foreign companies is being redistributed in favor of the “Chechen group.” Earlier, Chechen businessman Valid Korchagin, associated with the family of a Kadyrov associate, Senator Suleiman Geremeev, received stakes in the Russian network of OBI DIY hypermarkets and the coffee houses of the departed American Starbucks (more on the key owner of these assets below).

The nationalization of both companies looks more like reiderstvo, which in Russia has been long and firmly entrenched as a business practice. It is safe to say that cash flows from yogurt sales will now be channeled in favor of Kadyrov’s group. Baltika did not go directly to this group, perhaps because Islam forbids the consumption of alcohol, or because, according to General Director of Transparency International Russia Ilya Shumanov, the Chechen elites had to share with the elites of Tatarstan. Meanwhile, Bolloev is friendly with Putin and the Kovalchuks, though it is more like clientele relations. But I will not be surprised if over time cash flows from the sale of beer turn up in the same pool as those from yogurt sales.

In my opinion, the nationalization of these assets speaks to more fundamental changes than a strengthening of the position of Kadyrov and his associates. For this, let’s recall the history of how assets were redistributed in Russia over the past 25 years.

Reiderstvo as a business practice

Taking over assets, with or without the support of the state, is not a new practice. Raiders began to use “holes” in legislation and the weaknesses of joint-stock companies in the mid-90s. After the Yukos case, they began to seek the support of law enforcement agencies and regional- and federal-level administrations.

The most common model became large business structures close to certain figures of the political Olympus taking over the “juiciest” assets. Not every takeover went smoothly. One of the most sensational raider attacks was the Togliattiazot case, which began back in 2005. The plant was built in 1985 by Armand Hammer, who had been investing in the USSR since the 1920s, and his company Oссidental Petroleum.

In 1992, Togliattiazot (TOAZ) was privatized by its management, which for a long time managed to fight off the state’s intentions to privatize the company and throw the antitrust books at it, as well as takeover attempts by Viktor Vekselberg’s Renova, which bought a 10% stake in TOAZ and Dmitri Mazepin’s Uralchem.

In the end, after 13 years of struggle, Uralchem managed to take over the asset, while its owners and managers were sentenced to various prison terms (those who managed to flee abroad were sentenced in absentia).

Incidentally, it is TOAZ that owns the section of the ammonia pipeline that runs through Russian territory whose reopening the Kremlin is demanding as part of a resuming the “grain deal” (see Susanne Wengle in Russia.Post).

With the state taking over assets, now everything is faster and easier. In addition to the abovementioned generating assets of the foreign Fortum and Uniper, the assets of the regional generating company TGK-2, owned by Leonid Lebedev, a former senator from Chuvashia and the owner of the Sintez group, have been turned over to the state in Yaroslavl.

The story is familiar: a criminal case has been initiated against Lebedev for embezzling $220 million from TGK-2 (that is, from himself). Lebedev, who is on the Russian Forbes billionaires list, is on the run, and the company is marking billions in losses. And in Volgograd, the Prosecutor General’s Office is seeking to seize the Volzhsky Orgsintez chemical plant for the state on the grounds that the privatization 30 years ago was allegedly illegal and the plant is important for the country’s defense and security.

It is the “strategic interests of the state” that have recently been cited to explain a new redistribution of property, and seemingly this explanation will be used more and more often. If a company that works for the military-industrial complex is not doing well – change the owner. And now observers are wondering if after the nationalization of Volzhsky Orgsintez, the same fate awaits other chemical plants. For example, currently the Prosecutor General’s Office is demanding the nationalization of one of the largest methanol plants in Russia, Metafrax Chemicals, owned by Dmitri Rybolovlev.

Consumer inflation is on the rise? You have to change the owners of consumer-sector companies (Danone and Carlsberg can become a model). Currently, the large agricultural holding Pokrovsky is also under threat of nationalization.

With companies where there is foreign ownership, it will be easier – by Putin’s decree, the state has “super-preferential rights” with regard to property of foreign businesses leaving Russia. Nevertheless, with Russian private owners, as the cases of TGK-2 and Volzhsky Orgsintez show, there are no major issues either – you can always open criminal cases for “wrong” privatizations and “embezzlement” from their own companies. The path here has been well-trodden since the time of Yukos.

And one should not think that only foreigners or Russian owners who are not super loyal to the Kremlin are under attack. Everyone is: Vladimir Putin could decide that, for example, Igor Sechin is not such a great manager and Rossneft deserves better. At this point, we come to the main question.

Heirs

A holy place is never empty, goes a Russian saying, and there will always be a new owner for a good property. But it is not enough to take away property – you still need to somehow manage it or transfer it to someone.

Judging by to whom and how the assets of the first foreign companies to leave Russia after the start of the war went, the Kremlin did not have a game plan at first. As a result, iconic brands were either given to the nimblest or the most daring, or because someone was in the right place at the right time.

Thus, for example, the Russian business of McDonald’s went to a former miner from Kuzbas who owned a regional franchise – an unprofitable one, by the way. The fashion chains Zara, Pull & Bear and Bershka of Spain’s Inditex went to its Middle Eastern partner Daher Group.

There were no big success stories: the former McDonald’s restaurants were renamed Vkusno – i Tochka and went from being highly profitable to loss-making, even though they started selling alcohol.

The former Zara, now called Maag, also saw its numbers fall severalfold. There is no doubt that the current owners of these and other once-successful foreign businesses will try to get rid of the unprofitable assets, and they will eventually pass into new hands. It is possible that they will wind up in more “correct” hands, approved by the Kremlin.

The OBI DIY hypermarket chain, owned by the German holding of the same name, has changed owners three times over the past year and a half. The last owner is seemingly “correct” – the ex-president of Kabardino-Balkaria, Senator Arsen Kanokov, who owns the Sindika holding, which develops and manages real estate, from hotels and shopping centers to agricultural enterprises.

The same holding also became the new owner of the Starbucks chain, renamed Stars Coffee. A stake in these companies, as mentioned above, is also held by businessman Valid Korchagin, who is associated with Suleiman Geremeev.

After an initial period of confusion, the business elites have caught on and realized that the highest quality businesses are floating into their hands: built-up, strong brands, with well-established connections, logistics and loyal consumers.

Judging by the recent events, the Kremlin also realized what excellent assets were left “without an owner” and how grateful those who get them will be to the regime! At the same time, you do not even have to transfer assets to new owners – you can nationalize them and put the right people in charge (to oversee cash flows too). It’s even better that way: the Kremlin still has the levers of control in its hands, and whoever is appointed does not have to rack his brain over profitability, efficiency and other things that keep a businessman up at night. How such assets are managed is no secret: losses are hung on the managed state-owned company, while profits go to private firms affiliated with it and owned by “your people.”

Recall the infamous report put out in 2018 by Sberbank CIB analysts that claimed that Gazprom only made sense as a business if it was seen as run for the benefit of its contractors. It was not the head of Gazprom fired, but rather the head of the Sberbank CIB research department that issued such a frank assessment.

Who is entrusted with the assets?

Interestingly, those who are usually named as being close to Putin are not at the helm of the “raided” companies. Why? I have one hypothesis.

In a sense, Putin never had his own elite. The people usually called oligarchs, who got their assets under Yeltsin, came as “baggage” for Putin. Sure, many of them became his helpers, while after Khodorkovsky’s arrest, they all resigned themselves to the limits put on their power and influence; however, they do not and cannot feel gratitude to Putin. Indeed, for many of them, Putin’s departure will be a relief.

As for the notorious Ozero dacha cooperative – Putin’s “inner circle” from a long time ago that was made up of his St Petersburg friends and colleagues – they are not so much grateful subordinates as, speaking in business language, shareholders of “Russia Inc.”

Putin has a controlling stake in this corporation, and Ozero members are interested in Putin as long as he, the majority shareholder, brings them profit. But lately the corporation has been turning in dubious profits, as in the current conditions, billions cannot be shifted into one’s own pocket, deeply concealed abroad, in countries where property rights are protected. In such cases, the shareholders sometimes put up a fight, and it is a conspiracy of the elites that political experts have been talking about as a possible end to the Putin regime.

In this light, the new appointments in the nationalized companies look differently.

Danone’s cash flows will of course be channeled by Kadyrov’s nephew to the head of Chechnya and his entourage. But the main thing is that Kadyrov is the one who will definitely not betray Putin. Or be the last to betray him. Because without Putin it will be almost impossible for him to keep Chechnya. And if Putin leaves, his nephew will definitely lose both his position and the opportunity to leech off the cash flows of such a good company – unlike the Kovalchuks, who can retain their stake in “Russia Inc” in the event that a figure who is more convenient for them takes Putin’s place. Meanwhile, Bolloev might think about whether he should join a possible conspiracy if his patrons take part in it – after all, he got little from the same Kovalchuks, while Putin not only handed him the largest Russian brewing company, but also, one might say, righted a historical injustice.

This is a completely new reality in which assets can be seized not only from foreigners, but from almost any owner in favor of the state. And the state – in particular the political elites – will decide who to give these tidbits too. Before our eyes, a new moneyed elite is taking shape: completely dependent on Putin personally and thus completely loyal to him.