23 December 2014 – Financial Times
The deal to buy the controversial warehousing business of Goldman Sachs marks a high-profile return to the metals market by the billionaire Reuben Brothers.
Best known for their investments in property, racetracks and data centres in the UK, David and Simon Reuben amassed their initial fortune in the Russian aluminium market in the years that followed the collapse of the Soviet Union. The acquisition of Metro International puts them back at the heart of the aluminium industry with control over one of the main warehouses for the metal. Metro has nearly 30 Detroit warehouses containing the largest London Metal Exchange-certified aluminium stocks in the US, according to a recent US Senate report.
Goldman bought the business for $500m in February 2010 at a time when a build-up of stocks following the financial crisis triggered a boom for storage companies. It is not clear what the Reuben Brothers paid for the business. Current and former market participants said the investment could be a property play designed to earn rent from warehouse storage while the Detroit property market improves. Others cast doubt on that theory, saying warehouse operators typically lease their storage. “It’s an interesting move,” said one veteran trader. “For the Reubens, it combines a bit of what they used to do [metal] and a bit of what they do today [property]. And they won’t have paid top dollar for it.”
However, the purchase could raise questions about transparency in the metals market. The sale of the warehouse to the Reuben brothers means most of the world’s metals houses are owned by private companies. Commodities trading house Trafigura owns the Impala brand of warehouses and JPMorgan sold its Henry Bath warehouse business to Mercuria.
The Reubens were previously investors in Erus Metals, an LME licensed warehouse company they set up with Barclays. They sold their stake in April this year as part of the sale of their metals business to commodity trader Gerald Group. Their involvement in the metals industry stretches back decades. Their company Trans-World, which was founded in 1977, reportedly controlled as much as 7 per cent of the world’s aluminium market in the 1990s. In the early 1990s, Trans-World teamed up with Russian businessman Lev Chernoi and his brother Michael. Together they bought a 20 per cent stake in the Krasnoyarsk smelter and a controlling interest in Bratsk at the time, the largest smelters in Russia. It was a period when foreign investors could not move into Russia without having a local partner, according to one former Reuben Brothers employee. Many larger western companies were not willing to invest as boldly as the Reubens did. “When the Soviet Union broke up, lots of industrial assets came up for sale,” the former employee said. “There was a little wrinkle in it at the time as foreign entities were not allowed to own Russian assets, if you wanted to buy any of the assets you had to have some form of local Russian partner.
“Trans-World stole a march on people. Because if you have shareholders to answer to, you couldn’t advance the business in the way David did.” They later teamed up with another Russian businessman, Oleg Deripaska, who had access to shares in the Sayansk smelter, the third-largest smelter in Russia at the time. It was a gamble that paid off. The low cost of producing aluminium in the country compared with the market price allowed them to make money, the person said. The brothers later sold their business to parties including Roman Abramovich in 2000.