11 March 2000 – Financial Times
Charles Clover and William Hall on a UK company’s involvement in a lucrative but dangerous industry.
The decision by Trans-World Group, the UK-based metals group, to sell its aluminium assets in Russia marks the close of a turbulent period in which two secretive British brothers who head the company became key players in one of the country’s most successful but dangerous industries.
DAVID Reuben, 61, who lives in London, and his brother Simon, 58, who lives in Monte Carlo, sought their fortune in Russia in the dying days of the Soviet empire. After the collapse of the communist regime, their involvement deepened as Trans-World worked to protect its position as the most important outlet for Russia’s $6bn (£3.7bn) of aluminium exports.
Now, despite surviving what became known as the “Great Patriotic Aluminium War” of the mid-1990s, they have decided to retreat driven to sell out by the former local partners who have since become powerful competing forces.
“Structures in the industry have changed in recent years,” says Simon Reuben. “New players are appearing on the scene. We saw an opportunity to divest ourselves of some of our interest on favourable terms and therefore pursued them.”
Trans-World will apparently still do significant trading business with Russia, which will remain a key part of its overall operations.
“Trans-World has no intention to withdraw from business in the former Soviet Union,” says David Reuben. “Trans-World will remain a significant investor with specific interest focussed on the metallurgical industry,” says Simon Reuben.
But crucially, they will no longer own assets on the scale that put them at the heart of a rumbustious Russian industry.
The brothers set up Trans-World in 1977, and began by buying aluminium from the USSR in the 1980s.
“We started in aluminium because it has not traded on the metal exchange,” says David Reuben. “Trans-World had a run of about five years before the London Metal Exchange started making its own market in aluminium. We were trading as much as 1m tonnes a year and were among the top three traders.”
By the late 1980s the amount of aluminium coming out of Russia was increasing dramatically and by 1991-92 Trans-World was handling close to 50 per cent of Russian exports. But Russia’s state-owned companies were becoming less reliable counter-parties. Traders were starting to do their own deals, diverting cargoes from established exporters such as the Reuben brothers.
“We were losing control, so we decided we had to move into Russia as investors,” says David Reuben. But first they needed a local partner they could trust.
In May 1992, a Russian businessman named Lev Chernoi walked into their office, asking for the Reubens to help him with finance for a cargo of aluminium. But although the cargo got lost; David recalled that “for the first time someone came and apologised”.
Mr Chernoi, born in Tashkent and stricken with polio as a child, had built up with his brother Michael a thriving metals trading business as the Soviet Union underwent free market reforms. He and David Reuben struck up a friendship, and the latter proposed they work together. “Lev [Chernoi] promised that his people would literally live in the plants and follow the trains around to make sure that the aluminium was delivered on time,” says David.
Together they brought a 20 per cent interest in Krasnoyarsk smelter and a controlling interest in Bratsk, respectively the second largest and largest smelters in Russia.
In 1994, the Reubens met up with another formidable Russian businessman, Oleg Deripaska, who had access to shares in the Sayansk smelter, the third largest and most profitable smelter in Russia.
At one point the three smelters gave the Reubens, along with Mr Chernoi and Mr Deripaska, control of 7 per cent of global aluminium production. The group also had a share in the Novolipetsk steel mill, and had taken control of plants in Kazakhstan which made raw material for the Russian plants.
It would surprise few who know Russia’s rough-and-tumble business world that the group has clashed with both the authorities and the competitors. Trans-World lost control of Krasnoyarsk smelter for four years after the plant’s director simply deleted its shareholding from the registry with a computer keystroke in October 1994.
The 1994-1998 period in the Krasnoyarsk region has been dubbed the “Great Patriotic Aluminium War”, in which local mafia and factory directors were sucked into a bloody battle for control of the smelter.
Dozens died in a series of murders, including local bankers, crime bosses and factory officials. The victims included both allies and competitors of Trans-World, though David angrily denies any hint that they or their partners had any role in the violence. “There is absolutely no truth to any of the allegations that Trans-World has been involved in any illegal activity in Russia,” he says.
“Let me be clear. Trans-World has one unshakeable principles and norms wherever we work. On more than one occasion we have been on the receiving end of actions that have lacked any legality.
“In 1994 they seized our shares in Krasnoyarsk. A vacuum was created and this attracted a lot of competitors, each one vying to gain power over the others,” he says.
In the end Trans-World regained control of the smelter, helped by the interventions of Aleksander Lebed, the former Russian army general-turned-politician. Mr Lebed was elected governor of Krasnoyarsk in 1998, assisted by campaign finance from Mr Chernoi.
Anatoly Bykov, a member of the board of directors and shareholder at the smelter, also supported the return of control to Trans-World. Mr Bykov is currently in Hungary awaiting extradition to Russia to face murder charges.
His associate, Vladimir Tatarenkov, has been captured in Greece despite having plastic surgery in an attempt to avoid detection. His extradition is also being sought on murder charges related to the aluminium war filed by the Russian authorities.
Meanwhile, as a solution to the Krasnoyarsk issue was emerging, in November 1997, Mr Deripaksa, director of the Sayansk smelter, ended contracts with Trans-World. Trans-World accused him in lawsuits of going so far as to set up identically named trading companies to re-register trading licenses with Russian authorities without Trans-World’s knowledge. The same thing happened at Novolipetsk steel works, according to Trans-World.
And Trans-World’s partners in Kazakhstan seized the company’s assets after a dispute about non-payment of taxes the same week.
Trans-World, which said it had invested $750m in Kazkhstan alone, responded by seizing 3,000 tonnes of Kazakh steel aboard a ship in Rotterdam. The two groups settled their multiple lawsuits a fortnight ago.
Trans-World’s decision to sell most of its stakes in Russia’s aluminium industry and end its long-running legal battle with Kazakhstan appears to have been prompted by the growing strength of domestic forces in the industry.
Mr Chernoi has allied himself with Russian oligarchs Boris Berezovsky and Roman Abramovich, who are among the buyers of Trans-World’s assets.
Mr Deripaksa and his company Siberian Aluminium are also in a powerful position. The two forces are already in talks to combine to create a giant, domestically owned Russian aluminium group.
For David Reuben, playing the heady game of Russian aluminium seems to have given him more satisfaction than the money he made.
“We were risk-takers. That’s why we went into Russia, and that’s why you don’t see any of the big producers, the Alcoas, the Alcans, in Russia. They are not risk-takers. It was only people like us.”