Oligarchs sell out

Some of Eastern Europe's richest tycoons have been badly hit by market turmoil. Private equity may have a role in picking up the pieces

When private equity professionals first began to turn their thoughts to possible new sources of deal flow in a world without (much) leverage, it seems unlikely that forced sales by credit crunch-hit oligarchs would have entered their minds. But just such a deal materialised when Ukrainian tycoon Kostyantin Zhevago offloaded a minority interest in London-listed iron ore pellet producer Ferrexpo, which is based in Switzerland but has most of its assets in Ukraine.

Earlier this year, Zhevago borrowed hundreds of millions of dollars from JP Morgan to invest in various business interests – and used his 72 percent stake in Ferrexpo as security. At the time the shares were trading at £4 per share, but have since fallen to around £1 each. Consequently JP Morgan called in its loan, at which point Zhevago sold 20.8 percent at 83 pence per share to RPG Industries, the holding company of Czech coal mining company New World Resources.

One of the beneficiaries of the deal was US buyout firm First Reserve, which acquired a 19 percent stake in New World Resources alongside American Coals and Metal International, a privately held mining company, in December 2005.

Zhevago, born in 1974, is Ukraine's youngest billionaire. He became finance director of Ukrainian bank Finance & Credit at the age of 19 and went on to acquire a majority stake in its holding company. Since 1998, he has been a member of the Ukraine Parliament and is an ally of current Prime Minister, Yulia Tymoshenko.

Zhevago is far from the only oligarch reeling from the effects of the credit crunch. Oleg Deripaska, thought to be the richest man in Russia, was recently forced to sell a 20 percent stake in Canadian auto supplier Magna International to creditor BNP Paribas following a margin call – and others have had to make similar moves.

In Russia and the former Soviet satellites, private equity has found it difficult to compete effectively given the dominant market positions of the oligarchs. It would be quite a turnaround should those same tough competitors end up handing private equity a new and unexpected source of deals.

Bernard Bourigeaud, former head of global IT services giant Atos Origin, has joined Apax Partners' Paris office as a senior adviser to help develop Apax's portfolio companies in the IT and other sectors. The Paris office has also boosted its investment team with the appointments of Sebastien Mazzuri from McKinsey & Co and Thomas Simon from Goldman Sachs.

Zurich-based funds of funds manager Alpha Associates has hired Kurt Geiger, an ex-banker at the European Bank for Reconstruction and Development, to chair its advisory board as the firm seeks to expand its investments in Russia and the CIS nations.

UK buy-and-build specialist Sovereign Capital has added to its portfolio development team with the appointment of Jon Edington as assistant director. He joins from 3i, where he spent seven years in its venture team.

Richard Swann joins UK mid-market private equity firm Inflexion Private Equity in November as an investment director. He has been an investment director at rival firm LDC since 2005.