Gleb Fetisov: “Being an investor is a state of mind”

15 November 2018
Forbes today publishes a rare interview with Gleb Fetisov aired on Russian television in 2010. Fetisov talks about some of the deals that have made him famous.

This article is based on Gleb Fetisov’s TV interview of 2010. One of its topics is the Alfa-Bank Vimpelcom deal which launched Vimpelcom into the corporate stratosphere and turned it into one of Russia’s largest mobile telecoms providers. Fetisov also talks about his relationship with Mikhail Fridman, Alfa Group’s founder, and about his own journey to becoming one of Russia’s most successful entrepreneurs whose personal fortune stands at $1.2 billion in 2018, according to Forbes magazine.

Talking about Fetisov in his book “2 to 72”, Dmitry Zimin, the original founder of Vimpelcom and one of the founding fathers of Russian business, mentions Fetisov’s role during the negotiations for Alfa Group’s takeover of Vimpelcom. He says of Fetisov: “Having such a negotiator on the other side of the table is something I would not wish on my worst enemy. They say this was one of the most profitable deals in Alfa Group’s history. However, I am satisfied too. The deal was a game-changer in my life and as it turned out it marked its final, yet thoroughly interesting, stage. For some reason, this negotiator prefers to remain in the shadows. At the time, I had stopped cutting him any slack. We parted company if not on friendly terms then on neutral terms.”


Vimpelcom’s expansion into Russia’s regions would not have been possible without Alfa Group

The negotiations took 9 months, the same time it takes to gestate a baby. Although the eventual agreement may have been one of the most profitable in Alfa Group’s history, Fetisov believes that the deal also benefitted both parties. Without Alfa Group’s investment, Vimpelcom would not have been able to develop as much business in the Russian regions as it did. The initial investment provided by Alfa made Vimpelcom’s regional development possible and benefitted regional customers.

Zimin and Vimpelcom’s key strategic partner at the time, Norwegian telecoms operator Telenor, was convinced that retail consumers in the Russian regions did not have the potential to be high-paying customers and that it would not make sense to expand into the provinces for another five years. Telenor took the view that any investment in regional development would  be loss-making for the first 5 years. However, Zimin and Telenor clashed on this issue. Vimpelcom was at a disadvantage at the time – according to Zimin, the company was under heavy pressure from regulators. No mobile telephony frequencies were allocated to it, and even if frequencies had been allocated, they still could not have been used.

“Dmitry (Zimin), who is a wise man, both in terms of his age and life experience, made a wise decision. He realized that Vimpelcom would never get the momentum it needed to get ahead in the communications market without a strong and dynamic group, a team to partner up with,” says Fetisov.

During the sale of the company, Zimin cleverly hung onto some of his stock. He cashed in on the deal yet retained a significant share for himself – 10 % at the deal’s close, which made him the company’s third largest shareholder. “As far as I understand, Dmitry never regretted that deal and later always spoke about our negotiations with gratitude,” Fetisov says.

The deal between Alfa Group and Vimpelcom took 9 months to negotiate and was eventually valued at $250 million. Before the deal, the telecom company was valued at $800 million, but the deal boosted it to $45 billion before the 2008 financial crisis. Vimpelcom broke new ground when it listed on the NYSE in 1996, becoming the first Russian company to be listed in New York since 1913. By the time of the interview in 2010, Vimpelcom’s value had dropped to $16 billion and by October this year was close to $5.13 billion. Zimin kept his position as honorary president even after the deal.


The Wind deal in Italy turned Vimpelcom into a global operator

Another exceptionally successful and lucrative deal was VimpelCom’s merger with Italian telecom firm Wind which was eventually completed in 2011 and transformed Vimpelcom into a global carrier operating in roughly 20 countries including Russia, Ukraine, Italy, and Algeria.

When asked about the state of the negotiations in 2010, Fetisov said: “There is nothing we can say with certainty at this moment. Corporate procedures are largely completed and the deal has been approved by the Board of Directors, but usually such major deals come with a lot of conditions attached.” One of them was sorting out debt restructuring  with the financing banks on more favorable terms, not just for Wind but for the whole of Weather Holdings.

“Given the current uncertainty in the telecoms market in terms of available technology options, the level of debt is material. So in order to make the situation more comfortable for Vimpelcom shareholders and to allow the company some space for development, it is particularly important to get the blessing of the banks over the idea that a new shareholder is buying into the company. A big and significant player is acquiring the company; it is not burdened with debt and has a good reputation for servicing loans. Therefore, the banks may be better off foregoing some of their immediate short-term interests in order to offer this new player more favourable and mutually beneficial terms. That would be beneficial for the banks as well. It might be an extension of the repayment period or reduced interest rates. Given the current liquidity crisis and the absence of good borrowers on the market. If we can meet all these conditions, then the deal is 90 percent done,” he said, adding that the negotiations had another month to go to completion.

At the time regulators and the telecoms industry were discussing the reduction of roaming prices by half the following year and cutting SMS pricing four-fold rather than just a few basis points. The move would turn mobile telephony into one of the most profitable businesses in Russia. Despite the profit margins the company’s main Egyptian shareholder ended up in massive debt.

Fetisov argues that although mobile telephony at the time was a profitable business, it was no more profitable than the oil industry. “The way he [the Egyptian shareholder] got into so much debt is quite simple: he acquired an Italian operator entirely with borrowed funds, while contributing next to nothing of his own. To compound things, this was not a traditional deal and he was not the first in that market – everyone coming in after the first entrant has to pay extra. Therefore he had to take on an additional loan burden to get a foothold in the market. He was the third operator in the Italian market.”


Meeting Mikhail Fridman

The Alfa Group acquisition of Vimpelcom would not have happened without Fetisov meeting the group’s founder Mikhail Fridman, which led to Fetisov representing the bank’s interests in that deal.

“Although I was representing Alfa-Group’s and Mikhail Fridman’s interests as its shareholder, I was also representing my own interests because I was a partner in the company buying Vimpelcom,” Fetisov remembers. “I owned 30 % and Alfa Group owned the remaining 70 %. This is why I was in the deal as a business owner. I would not have been ready or financially able to make that deal without Alfa-Group.”

He and Fridman first met in the early 1990s. Fetisov was working in the banking industry at the time, representing the board of a small bank called Cross Invest Bank. His old friend Pyotr Aven called him and invited him to meet Fridman at Alfa-Bank. “Pyotr Aven and I had the same research advisor, Stanislav Shatalin. I had met Pyotr in Austria when he was working on economic comparison models at the Institute of Applied Systems Analysis and I was on an energy project. Pyotr once suggested that I come to work in government, perhaps not in government per se but at a ministry to be in charge of imports into Russia. However, I declined the offer as I preferred to be a businessman. That is how I met Fridman.”

At their first meeting, Fridman invited Fetisov to head the Credit Department at Alfa-Bank. “I thought this offer was very generous but I had to decline it.” At the time, Fetisov also received an offer from Dubinetsky at PromStroyBank. “He offered me a more interesting and financially attractive job. PromStroyBank was at the time much bigger than Alfa-Bank; it was one of the former Soviet state banks. I considered the options, declined Mr Fridman’s and Mr Aven’s offers and accepted Mr Dubinetsky’s. However, after I declined and as I was about to leave, Mikhail Fridman called me and asked to meet me in person. Then he made me an offer I could not refuse. But the offer was not related to Alfa-Bank. For that time, the offer was insane,” says Fetisov.

Although he did not provide the exact number, Fetisov said that even high-ranking Russian bank managers’ packages were nowhere near Fridman’s offer for the position of Alfa-Eco’s Chief Financial Officer. “It was not two or three times higher, but perhaps ten times higher than the offers from PromStroyBank and Alfa-Bank,” he says. “He suggested that I join the Board of Directors at Alfa-Eco, along with him, German Khan, Alexey Kuzmichev, and Mikhail Bezelyansky – all of Alfa-Group. He offered me a seat on the Board of Directors and the position of the CFO at Alfa-Eco.”

From there, Fetisov went on to take part in all of Alfa-Eco’s high-profile deals, first as CFO and then from late 2000 as the company President. One of the most significant transactions was the InBev deal, devised and executed by Fetisov and Leonid Rozhetskin.

Having realized that an agreement preventing either of the two largest shareholders in the Russian subsidiary, each holding a 35% share, from purchasing a controlling interest, would expire in about 18 months, Rozhetskin and Fetisov bought a 15-percent share on the Luxembourg Stock Exchange. Fetisov delegated the actual acquisition process to Alexander Savin, who he tasked with the challenging role of purchasing the shares on the stock exchange without creating a stir.

“That was not an easy job. The Luxembourg Stock Exchange has a rather low free float, and Alexander handled this deal brilliantly – carrying out the acquisition without any leaks. It must have been his experience at Renaissance Capital, but during the entire period of the acquisition, which lasted more than six months, there was not a single leak or surge in share prices,” Fetisov says.

After they bought the shares in Luxembourg, Fetisov and Rozhetskin made each shareholder an offer. When they finally disposed of this stock, they made somewhere between $160 million and $220 million in net profit, having started with an investment of between $30 million and $60 million.

Although InBev was one of the most successful deals in Alfa-Eco history, Fetisov says there have been even more profitable deals. “Alfa-Eco is a unique company in the Alfa Group structure. Every business Alfa Group is proud of has come out of Alfa-Eco. X5 Retail Group is one example. The first idea for this came from Alfa-Eco.”

The X5 Retail Group project started off with Alfa-Eco buying eight shops on the outskirts of Moscow while they were still unfinished construction sites. The financing group then took on the construction and the opening of the shops, spinning the business off once three or more shops were opened. The new business became a separate company called Perekryostok with Alexander Kosyanenko who was a department manager at Alfa-Eco as its first General Director. Perekryostok mushroomed to achieve a turnover of more than $10 billion and a market capitalization in excess of $16 billion.

Alfa-Eco has also made some very successful forays into metals and mining, including the West-Siberian Metal Plant, the Orsk-Khalilovsk Metal Plant, the Korshunovsky Mining Plant and the Achinsk Alumina Refinery. In the case of the West-Siberian Metal Plant, Alfa-Eco acquired its debts when it went bankrupt, joined the management of the enterprise, turned it around, and then sold it to Alexander Abramov, who went on to become the owner of Evraz, Russia’s biggest steel conglomerate.

“Also, the Achinsk Alumina Refinery deal was brilliant,” Fetisov says. “The deal created an alumina shortage in the country which then led to the creation of what is now RusAl. I think Oleg Deripaska should be thankful to Alfa-Eco and me that a company like that came about in the first place and continues to operate successfully.

“Oleg was just as much a partner in the deal and he delivered on all the terms of the deal. It was everyone’s deliberate choice. Mikhail Fridman actually wanted to stay in that business and we could have kept our share – we had 8 percent to 9 percent in RusAl. Mikhail listened to me, as a junior partner, followed my advice and I appreciate this,” Fetisov says. “Back then, we sold our stake to the Abramovich and Deripaska alliance so we could have cash to invest in Vimpelcom. This investment turned out to be very profitable,” he adds.

Describing Fridman, Fetisov says he has one crucial personal quality that has played a key role in his success, and that is being a good listener. “For me, the most brilliant book on management I have ever read is called ‘I Am Listening’. It says that one attribute any successful entrepreneur should have is not the ability to talk, or to persuade, but rather the ability to listen,” something Fridman excels at, Fetisov explains.

Following the 2008 financial crisis, deal flow stagnated both for Alfa-Eco and Alfa Group in general. The latter decided to focus on a few key strategic areas such as retail, telephony, and the oil industry. The deals on the scale of the InBev beer deal, Sakhalin Gold, and the ingenious transactions involving Korshunovsky Mining Plant all became a thing of the past.

Fetisov sold his share in Alfa-Eco in 2007 but stresses that the decline in the deal flow did not stem from his departure. “One should also take into account the differences in Russia in 2005 and in 2008: the economy was growing, everything had doubled in value, and there were fewer opportunities where companies were either deeply in debt or inefficient management had immediately translated into inefficient operations,” he says. This is in contrast to the time when Fetisov first started at Alfa-Eco and the general trend was very forgiving. “At the time, you did not have to do anything other than sit pretty and watch your shares generate profit,” he says.

After Fetisov’s departure the company profile changed significantly in 2008-2010 and it became more of a classical investment fund that was looking for market opportunities rather than a company looking to improve management in target companies. Searching for attractive opportunities in various market segments, Alfa-Eco had to start facing harsh realities and recognize that certain sectors were not growing as fast as expected and that the demand for some services was not as high, he explains.

“Besides, the team they had was not quite right for the job. Earlier, Alfa-Eco hired professionals who specialized in working in extreme circumstances. I stated many times in meetings of the Board of Directors that Alfa-Eco had teams capable of solving problems and finding ways out of extreme situations but not capable of managing routine operations – in essence they were not managers. Nevertheless, the company relied on them to manage a business that would require a different kind of knowledge to grow – the knowledge of marketing, human psychology, and different management qualities,” Fetisov says, adding that this is not the case for Alfa Group, which is one of the most efficiently structured holdings out there.

Fridman’s Alfa Group has generated the most millionaires and billionaires in Russia and no other Russian oligarch can rival him in his ability to create wealth for those around him. At the time Fridman made a speech in his native Lvov about his strategy, later posted on Oleg Tinkoff’s business blog, which at the same time criticized him for the decline in mega-profit deals.

“As an outsider, I think Mikhail does not want to try anything new. He really does have unique experience,” Fetisov explains. “I once counted how many deals I have executed in partnership with just him, without any other partners. Not just deals but industries – 14 industries! Now he has reduced it to just four or five industries: finance, retail, oil, telecommunications, and media.”

“Speaking of the Fridman phenomenon, another reason why he is such a genius investor is that he finds the time not just for business but also for education and culture. He reads widely. This definitely gives him a broader vision, helps him make smarter deals and smarter investments. On the other hand, you must understand that these four or five specialisms already have  great prospects. Indeed, you could go out and sign the InBev deal and earn another $220 million. Alternatively, you can cut theft at X5 by 1 % and get the same $200 million. Pick the right way forward and get it done, that would translate into growth of around $10 billion,” he says.

Fetisov estimates X5’s value at the time at around $80 billion to $100 billion.

When asked about the future of mobile telephony and the potential convergence between mobile phones and banking over the coming decade, Fetisov starts his response describing a discussion he had with Fridman in 2001 when they were working on the acquisition of Golden Telecom.

“I was trying to persuade Fridman that we needed to enter the mobile communications market and I wrote a business plan. I still believe people will spend at least half of their lives on their phones. Not just banking but also shopping, television, libraries, all that. Phones will be used as blood pressure monitors, smart home management devices; it is hard to comprehend today what future technologies will look like. I understood this very well, while Dmitry [Zimin] did not,” Fetisov says.

The future development of mobile communications will depend not just on mobile operators but also on regulators, he explains. One of the key aspects will be whether regulators agree to issue banking licenses to companies with communication licenses but also if mobile operators want to be bound by prudential regulations like banks are, or whether they are more comfortable using existing banking networks. “They have the technology for making that move. The rest is up to them. Will they want to dive into this new business or will they be happy to solely support data exchange, to be a channel not just for voice but also for data? It is entirely up to their shareholders and their management, but the technology is there,” Fetisov says.


My Bank

Talking about the purchase of My Bank Fetisov describes it as “merely an investment project.”

“This was a project I entered deliberately – I bought a small bank called Gubernsky in 2004 with assets worth just about RUB 300 million. I thought there was a good opportunity to grow this investment from $3 million to $100 million to $200 million. Generally, we would be there if it were not for the crisis, as I managed to grow assets to nearly $700 million,” he says.

Before 2008, better financial offers were on the table for My Bank, he explains. “Before the crisis, I was negotiating with two western strategists – not just financial investors but strategists – who expressed an interest in buying the bank, but the plans were scrapped because of the crisis. The situation now with investments into credit institutions is not very favorable. I don’t expect any high-profile deals with interesting ratios in the next 5 years or possibly longer,” he says.

The bank started off as a universal commercial bank and once acquired Fetisov started opening branches, expanding in Moscow from one branch to 10 and then opening another 14 branches in the regions. “We went and bought several other regional banks, we started offering a wide range of services and engaged individual customers,“ he says.

The bank’s client base rose to 100,000 individual customers but it also signed up corporate clients. “We chose not to specialize in anything. We thought that a bank with 80 million to 100 million worth of capital operating in 15 regions would be an interesting acquisition target for a strategic partner. Now the situation in the banking sector has of course changed. We focus a lot on retail and we entered the consumer credit market, mortgage lending, car loans, and credit cards. We have engaged most of the resources we have as a bank. We also take in deposits. Now is the time to upgrade the strategy. The management say they will have the strategy ready by the end of the year (2010), not just a draft but also an approved business plan. A new strategy for the institution should be ready in November and should be approved by the end of the year,” he says.

The bank had an extensive distribution network. The acquisition of two new banks increased the number of its sales points to over 120. A cost cutting program that followed meant the bank had to close some inefficient offices but still ended up operating a network of about 50 branches. At the time, Fetisov was also looking at different models, like the one used in Oleg Tinkoff’s TKS Bank, which he described as a very creative solution, and was getting ready to develop remote sales channels and other distribution networks.



In 2010, Fetisov also held a 14% share in Altimo, the telecoms investment arm of Alfa Group, worth roughly $2 billion. “Altimo has one asset that is not public, it is a 25 % share in Megafon and therefore it is hard to give an accurate estimate of the value of the company,” he says. “Based on Altimo’s value without the spread, without the premium for a controlling interest, and without the premium for a substantial shareholding as these can also vary – 25 %, 50 %, 75 % – without all the premia, Altimo’s current worth is between $12 billion and $15 billion,” he says.

Asked if it was hard owning an asset that he could not use because it had a non-public component, Fetisov says: “Not too hard. There is a time to throw stones and time to gather them. When we came into this business in 2001, we were gathering stones. If you look at what we gathered, besides Vimpelcom and its regional network which covers the entire country now, we also entered Kazakhstan, Uzbekistan, Georgia, and Ukraine. We entered Vietnam, Cambodia, Laos, and Kyrgyzstan. Given all the deals we had in those countries, it was a period when we did not have much time to ponder over it. Now that we have Vimpelcom and it constitutes a completely different kind of deal, it is time to think about how we can improve the liquidity of our shareholding. We have a long way to go to that end. For example, Kievstar was a low-liquidity asset; we were in there with Telenor. Now this asset is liquid; in fact, only one non-liquid asset remains. After we achieve full liquidity, I believe we should part with this business. We only part to meet again in other businesses. Life will give us those new businesses. After all, we have been working together with various investors for some 20 years already; that gives us hope that we will continue working together in future.”


Early foray into the Chinese market

Fetisov was also an early investor in the Chinese market at a time when most entrepreneurs did not venture into China. “If could say that China looks exotic for any normal person, but this would not give the right impression. I have been working with China since 2004 when I sold my share in Alfa-Eco and opened an office in Beijing.”

Fetisov operated an investment bank in China that offered private equity investment and provided services to a number of Russian, American, and Chinese entrepreneurs. Its main market was China but it also operated in America because Fetisov’s two partners were US citizens, one of them of Chinese origin.

In 2010 the retail market in China was developing rapidly and by then 12 Chinese retail companies had listed on the local stock exchange. Living standards were growing at a sharp pace, particularly in the eastern parts of the country, to the point that multinational corporations started looking into relocating their production facilities from the east coast further inland because wages in the latter had jumped to between $7,000 to $8,000 a year.

The eastern part of the country benefitted from its proximity to ports and the creation of free economic zones, with tax incentives and waivers for imports and customs duties for components. Chinese factories had been concentrated in this and consequently the east had also seen commensurate growth in the organized trading sector.

“This is why we thought this company could be an interesting one,” explains Fetisov. “It represents a consumer cooperative with tens of thousands of shops and tens of thousands of franchisees throughout the territory of China. They borrowed the consumer cooperative model from the Soviet Union and rather than breaking it up they developed it while preserving all its assets. We agreed to start a joint venture with them with 60 % of investors coming through a fund managed by my company and the other 40 % represented by the most efficient enterprises we could select. We financed the IT infrastructure upgrade at these enterprises, the purchase of assets that were possibly not part of the network yet, and the pre-emptive right to purchase any companies once they reach the required operational efficiency level.”

Fetisov’s initial investment in the company was $100 million with the long-term plan to have it listed on the stock exchange.


What does it take to become an entrepreneur?

So what does it take to become an entrepreneur of Fetisov’s calibre? He thinks there is not just a single entrepreneurial attribute, but that it is a sum of several attributes. “The first thing is about being realistic about your own competitive advantages,” he says. “Only 8 % of people worldwide have what it takes to become an entrepreneur – the entrepreneurial spirit, entrepreneurial traits. If you believe you are a professional and that a profession is something you are inclined to do, perhaps you do not need to be an entrepreneur.”

Another key quality is having a desire to create something. “It has to be an overarching, dominant idea. If you do not want to create, if you only want to consume, if you prefer to use the alternatives already available in the market then you must understand that an entrepreneur is someone who creates these alternatives, not someone who chooses from what is available, like a manager choosing between several job offers. An entrepreneur creates his own job.”

An entrepreneur is also a person willing to take action. “You must have an itch for action. You must understand that you might make a mistake, you might fail, you might go bankrupt – but there is nothing terrible about that. If you want to achieve success, you still have to make that step, even if it brings you down. Few people know that Donald Trump, this legendary man – at least in Russia – went bankrupt four times,” he says.

Entrepreneurs must also have the ability to negotiate: “Unfortunately, the negotiating culture is underdeveloped in Russia. People come to the negotiating table pursuing solely their own goals.”

As an example, Fetisov references his last deal with Zimin and how that was hammered out: “We started our negotiations at noon and finished at 4 a.m. without ever leaving the office. It took me 16 hours to convince him why the deal was beneficial for him. I am glad he listened and that I managed to persuade him. I generally never sit down at the negotiating table until I work out how the projected deal will benefit my counterparty. Our people usually have just one desire when they negotiate – to cheat, to outwit the opponent, or something along these lines.”

The approach to time management is different for successful entrepreneurs, Fetisov explains: “It is most important not to pay attention to time; you must understand that if you are an entrepreneur you should not have any restrictions on your personal time. Your time belongs to the business. As much as you love your family or your friends, business is above all. Your friends and family must understand that. They must understand that your business is the top priority for you. They must share your passion. Business is a passion, after all.”

He concludes, “The worst part of life is feeling sorry about what you have not done. I think feeling sorry about a mistake you made is not as bad as feeling sorry you did not do something. This is why the most important thing is to act! Avoid thinking about failure, about not succeeding. Do not get disappointed when failure strikes or about the lack of success. Just remember: any path to success starts with the first step. Do not wish upon a star, do not dream about the end goal – think about the move, refine it, make it as rational as possible. Wish for and crave that success. Do you remember Sam Walton [the founder of Walmart]? He did not go into business at 18, as you might do…He started his business at the age of 42 and at 45 had lost his first store. Yet he did not give up, he started again and 30 years later his family became one of the world’s richest families. I want you to find hope in this fact – you still have plenty of time to make mistakes. If you are lucky enough, you can get ahead much faster in the entrepreneurial world.”

By Forbes Staff