On the QT

Paul Whitfieldby Paul Whitfieldfrom The Deal.com

Is the Kremlin extending a helping hand or reaching out to claw back assets? That is the question not a few Russian oligarchs are pondering as they consider whether to take up a share of $50 billion in assistance from the Russian state.

The money is available to cash-strapped businesses struggling to repay short-term loans. Since the start of November, about $10 billion in government money has been doled out. Oleg Deripaska's United Co. Rusal used $4.5 billion to repay a syndicated loan held by Royal Bank of Scotland Group plc and Merrill Lynch & Co. A second oligarch, Mikhail Fridman, received $2 billion so his Alfa Group Consortium could repay a loan held by Deutsche Bank AG.

The oligarchs famously took out short-term foreign IOUs to finance long-term debt, a choice that may prove fatal.

State aid to corporations crippled by the credit drought is hardly the preserve of the Russian government. It might appear cynical to attribute motives to the Kremlin that cannot equally be postulated for the U.S. or European governments. Yet few other states have displayed such a penchant for reclaiming previously privatized assets.

The Kremlin has used tax inspectors to hound companies into bankruptcy and then nationalized them. OAO Gazprom is the best-known, but not the only case in point. The government has used criminal charges to strip oligarchs of their wealth and redistribute their assets. Just ask former OAO NK Yukos chairman Mikhail Khodorkovsky, at one time Russia's wealthiest oligarch, and his close business partner, Platon Lebedev.

The suspicion is that, in the form of the credit crisis, the Kremlin may have discovered a less confrontational, and therefore more effective, route to massive state ownership. Call it quiet nationalization.

The structure of the Russian bailout certainly opens the door to a wide-scale campaign to seize assets from oligarchs caught short of cash. That description may well apply to most of them.

According to an October ranking by Smart Money magazine, Roman Abramovich, who made his fortune through oil company Sibneft, has seen his net worth tumble about $15 billion. Alisher Usmanov, owner of ZAO Metalloinvest, has lost about $14.5 billion; Fridman is down $14 billion; Dmitri Rybolovlev of Uralkali OAO, $13.4 billion; Vladimir Potanin of OAO GMK Norilsk Nickel, $13.2 billion.

The $50 billion of government loans, which are being distributed through state development bank Vnesheconombank, or VEB, have a one-year term and are underpinned by equity stakes.

Deripaska had to put up his 25% stake in Russia's Norilsk Nickel as collateral for his state loan. The Norilsk Nickel stake was also used to underwrite his initial syndicated loan.

As part of the VEB loan agreement, at least one government official will join the Norilsk board.

In mid-November, hoping to find a silver lining in the collateral posting, Rusal lobbied the Kremlin to take as many as four seats on Norilsk's board, a move that would weaken the influence of Vladimir Potanin, Norilsk's largest shareholder and Deripaska's long time rival.

In taking his government loan, Fridman staked a 44% holding in Russian mobile phone company OJSC Vimpel Communications.

If Deripaska's and Fridman's loans cannot be repaid at the end of their term, the state will be within its rights to call in the collateral.

That's hardly a far-fetched scenario. The dire state of the credit markets, the huge dip in Russian equity values, the weakened oil prices, the collapse of the ruble are all stacked against the oligarchs finding a new source of cash before their state-backed loans come due.

"The bailout program could easily turn into quiet nationalization whereby the Kremlin would regain control over most of the country's major firms," says Michael Thompson, a New York-based analyst at Russian Industrial Leaders Index, which operates an offshore index of Russian companies.