The eastern regions of Donetsk and Dnipropetrovsk are home to Ukraine's most lucrative industrial enterprises and the influential business groups that control them.
The nation’s four largest diversified business holdings – System Capital Management, Interpipe Corporation, Donbas Industrial Union and the so-called Privat group – own assets in finance, heavy industry, media and telecommunications.
“These are the four biggest and most influential business groups in Ukraine,” said Kost Bondarenko, an independent political analyst and expert on Ukraine’s business and political elite.
“They control about 1/3 of Ukraine’s economy directly,” said Dmytro Tarabakin, director of the Kyiv-based investment banking and brokerage house Dragon Capital. “And through indirect means, they control even more.”
The estimated worth of the owners of three of the four groups is over a billion dollars.
SCM owner Rinat Akhmetov’s assets were valued at $1.9 billion in August 2003 by Poland’s Wprost magazine, placing him 8th on the Eastern European rich list and making him Ukraine’s richest mogul.
Mikhail Khodorkovsky, the detained founder of Russian oil giant Yukos and Russia’s richest man, was listed by Wprost as Eastern Europe’s richest man, valued at $8.3 billion.
The magazine rated Viktor Pinchuk (owner of Interpipe Corporation) and Igor Kolomojsky (shareholder in Privatbank) as Europe’s 12th and 13th richest men, respectively, and valued each of their assets at $1.5 billion. DIU’s Taruta was ranked 36th in the list, valued at $700 million.
According to news reports, Donetsk-based DIU was founded by company chairman Serhy Taruta and former deputy prime minister Vitaly Hayduk. Privatbank group, from Dnipropetrovsk, is co-owned by Gennady Bogolubov, Igor Kolomojsky and Alexey Martynov.
Ukrainian analysts have said that the rating provides a good approximation of the value of Ukraine’s top businessmen.
Recent privatization acquisitions, like the purchase of Ukraine’s largest steel mill Kryvorizhstal in June by companies owned by Akhmetov and Pinchuk, has significantly increased the value of these two tycoons.
“Each of these groups is worth an additional $500 million after acquiring Kryvorizhstal in partnership,” Tarabakin said.
But it’s not only money that makes Akhmetov and Pinchuk the country’s most influential businessmen.
“[Akhmetov and Pinchuk] are almost equally influential – they are more influential than the Privatbank and DIU groups – because they use their influence on the political scene as an instrument to drive their businesses to success,” Bondarenko said.
They know how to lobby their interests better than the other groups, he added.
Foreign expansion
The Donetsk and Dnipropetrovsk business groups have been hugely successful at home; now they are proving they can succeed abroad, too, by acquiring lucrative foreign assets.
DIU acquired a Hungarian steel mill last year. The company is currently competing against LNM Group, the world’s second-largest steel producer, in the controversial privatization sale of a Polish steel mill.
DIU also has assets in former Soviet states; it controls an oil-gas industry company in Uzbekistan.
The Privatbank group is no exception. In an interview with the Post on July 23, Privatbank chairman Gennady Bogolubov said he and other shareholders in the bank have recently acquired ferroalloy plants in Romania, Poland and Russia through companies affiliated with Privatbank. The group is also in talks to acquire a ferroalloy plant in the United States, he added.
Privatbank group also has interests in financial institutions abroad. The group, already a shareholder in Moscow-based Moskomprivatbank, announced intentions to acquire a controlling share in the bank. Privatbank’s most recent acquisition, announced this month, is Latvian Paritate Bank.
Catching up
Although the Dnipropetrovsk and Donetsk business groups are the richest in Ukraine, they lack the wealth and power of their Russian counterparts, who are laden with oil and natural gas.
But in recent years, Ukrainian groups have been able to compete with the Russians on the Ukrainian market, Bondarenko said. Only years ago, Russian business groups gobbled up Ukrainian assets, including oil refineries and metallurgical assets, through privatization tenders.
But that is changing. During the last year, Ukrainian businesses have lobbied aggressively for protectionist privatization conditions that would make it easier for domestic companies – not richer Russian groups – to gain control of lucrative Ukrainian assets.
“Ukrainian oligarch groups have become quite competitive on the Ukrainian market in respect to their northern competitors,” Bondarenko added.
Ukrainian groups certainly held their own in the June privatization of Kryvorizhstal, Ukraine’s largest steel mill. A consortium backed by companies owned by Akhmetov and Pinchuk won the tender, paying almost half the $1 billion to $1.5 billion that foreign bidders offered. A controversial condition imposed in the sale effectively barred western and Russian bidders from qualifying for the sale.
But privatization tenders rigged in favor of domestic groups are a double-edged sword, giving businesses more assets while simultaneously harming the value of those assets, Tarabakin said.
“In the last couple of years it seemed Ukrainian business groups were becoming more civilized, but recent privatization sales – like Kryvorizhstal and Pavlohradvuhilya – make me wonder,” he added.
In Russia, oligarch groups are molding themselves into more transparent business structures that are more in line with multinational corporations, Bondarenko said, adding that Ukrainian oligarch groups are a bit behind.
“They might not be becoming transparent as fast as we would like, but they are definitely becoming more professional, more like CEOs,” Tarabakin said.
In terms of market transparency and readiness to play by civilized rules, Ukraine’s biggest business holdings still have a long way to come, he added.
Ukraine’s business groups face uncertainty ahead of presidential elections, scheduled for Oct. 31, making it difficult to predict what’s in store for these companies.
Powerbases are certain to shift before or after elections, Tarabakin said.
“I hope they will grow, although it’s not clear how things will develop in the short term,” he said.
“We’ll know more after the elections.”
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System Capital Management
Donetsk-based System Capital Management is 90 percent owned by Rinat Akhmetov, said to be Ukraine’s richest man and the CIS’ largest employer.
“I’ve heard that companies he controls employ more than 400,000 people. That’s the size of Brno, Czech Republic, and bigger than the city of Zhytomyr,” said Dmytro Tarabakin, director of the Kyiv-based investment banking and brokerage house Dragon Capital. Through SCM and other companies, Akhmetov controls the Azovstal steel mill, Yenakiyeve Metallurgical Plant, Khartzyszk Pipe Plant, several coke chemical plants and ore mining facilities. Akhmetov’s business empire also includes the Donetsk-based bank Dongorbank, an insurance business, mobile telephone operator Digital Cellular Communications, several machine-building plants, coalmines, the Sarmat beer brewing holding, food companies, thermoelectric generator Skhidenergo, the newspaper Sevyodnya and television station Ukraina.
Interpipe Corporation
Dnipropetrovk’s Interpipe Corporation, founded by parliament deputy and President Leonid Kuchma’s son-in-law Viktor Pinchuk, owes its initial success to assets in Ukraine’s steel pipe manufacturing business, which it currently dominates. The company controls five pipe plants through ownership or influence. In recent years, the group has diversified by purchasing assets in other sectors. The holding controls three metallurgical factories, 10 power companies and several machine-building enterprises. The group also controls five sugar refineries and has its own bank, Credit-Dnipro. Media analysts claim that Pinchuk’s business empire controls four major television channels: ICTV, which Pinchuk admits to owning, Novy Kanal, STB and M1. If true, control over these television stations makes Pinchuk, who also owns the popular Fakty newspaper, one of Ukraine’s most influential media magnates.
Donbas Industrial Union
Located in Donetsk, Donbas Industrial Union was reportedly founded by company chairman Serhy Taruta and Vitaly Hayduk, former deputy prime minister. DIU began in 1995 as an intermediary between state-owned steel mills and their raw material suppliers, like coalmines and ore mining facilities. The group has since acquired shareholdings in several Ukrainian steel mills and raw material suppliers. Last year DIU expanded abroad through the purchase of Hungary’s Dunaferr steel mill, and it hopes to acquire a Polish steel mill later this year. DIU does not have significant control over Ukrainian media, but the group has ventured into the hospitality industry, investing in the Yalta-Intourist hotel in Crimea. Earlier this month, DIU announced plans to invest in the stalled Inter-Continental Hotel in Kyiv.
Privatbank
The so-called Privatbank group, headquartered in Dnipropetrovsk, is co-owned by Gennady Bogolubov, Igor Kolomojsky and Alexey Martynov. The group consists of Privatbank, one of Ukraine’s three largest banks. Through a network of companies owned by the three individuals, the group controls many industrial assets in Ukraine and abroad. The group owns only one metallurgical plant but controls six key steel industry raw material suppliers, yielding it significant leverage over competitors that own steel mills. The group’s assets also include ferroalloy plants – two in Ukraine, one in Romania, one in Russia and one in Poland. The group hopes to acquire a ferroalloy plant in the United States this year.
Privatbank’s shareholders also have a strong hold on Ukraine’s petroleum market through its network of 700 gasoline filling stations, Ukraine’s largest oil drilling company and two refineries.
