|                                                                                                                                                             |  | RUSSIAN FIGS SPECIAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | November 1997In recent years, several new financial-industrial groups, or FIGs, have emerged in Russia.
In basic form, these special holding companies fall into two categories: bank-led and
industry-led. FIGs are a force to be reckoned with in some important industries, but many FIGs
suffer from serious shortcomings. This State Department report discusses these influential
organizations.The strength of FIGs lies in their combination of both industrial and financial organizations, a
strength they have recently utilized to take a very active role in privatization of key areas of the
Russian economy.  Most notable is Oneximbank's involvement in the acquisition of a stake in the
telecommunications company Svyazinvest.  Despite their strength, FIGs alone are not able to
fulfill Russia's need for capital and are not likely to generate broad economic growth. Industry-led
FIGs, holding companies which include several industrial enterprises and usually at least one
financial organization, have their own power which is gained from, among other things,
accumulated resources. Nevertheless, many industry-led FIGs suffer from the same financial and
management shortcomings of typical Russian enterprises --lack of capital and managerial talent
have shown many FIGs to be uneven at organizing and reaping profit.Bank-Led FIGs
Many bank-led FIGs have certain features in common: a vast "empire" of financial and industrial
holdings; a top-rated banking or financial institution at the core of the holding company; and
leadership by a single, extremely powerful entrepreneurial figure.  The heads of bank-led FIGs
tend to have strong international reputations, maintain close ties in government circles, and have
holdings in media enterprises which reach the public.Bank-led FIGs are linked with companies in several ways.  Companies are often considered a part
of a FIG because of forceful governance of minority stakes, partnership arrangements, ownership
via subsidiaries, and assertion of creditors' rights. Bank-led FIGs seem willing to expand into any
sector, although petroleum, metallurgy, machine-building, and other heavy industry have drawn
the greatest attention.An elite group of bank-led FIGs has become prominent in the Russian economy, with
Oneksimbank by far the largest and leading FIG in Russia. Other bank-led FIGs include
Menatep/Rosprom/Yukoz, Alfa Group, SBS-Agro, and the Most Group. Rossisskiy Kredit
Bank has been expanding its interests much like a bank-led FIG.Bank-led FIGs are engaged in some of Russia's most active enterprise restructuring. 
Oneksimbank's actions at Norilsk Nickel, Sidanko, Northwestern Shipyards, and Perm
Motors have won it a reputation for aggressiveness.  The bank has installed new management,
brought in Western auditors, dismissed many employees, closed side businesses, and tried to shed
social assets.  At Novolipetsk, Oneksim subsidiaries MFK and Renaissance Capital have been
cooperating with a Western firm, Cambridge Financial Management, in an ongoing case to
assert minority shareholders' rights.Despite their spheres of influence, bank-led FIGs remain unable to satisfy Russia's capital needs. 
Russia's banking system, which is dominated by FIG banks, is very small relative to Russia's
overall economic activity.  Bank FIGs' total capital is around $3 billion, accounting for nearly half
of total Russian bank capital, but less than one percent of gross domestic product.Industry-Led FIGs
Industry FIGs emerged between 1993 and 1996 as transitional structures to help suffering
industries regroup in the face of shrinking production, capital shortages, regional difficulties, and
fading government support.  Many ministry departments, committees, and associations,
particularly in the defense industry, have redefined themselves as FIGs.Industry-led FIGs are loosely based on a central industrial enterprise and a group of associated
companies which may or may not contribute to a single production cycle. They often have a
central managing board. The state holds stakes in some FIGs, but for now, state FIGs are moving
away from state-led management.  FIGs such as Ruskhim, Nosta Gas and Pipe, and others are
managing their state shares in trust.  Several of the state holding companies created in the last few
years are being privatized. Gazprom and Lukoil are conglomerates more focused on a specific
industry (oil and gas), but they compete in prominence with the small circle of leading bank
FIGs.The pooling of resources does not seem to have provided any special advantages to industry-led
FIGs.  The majority of banks with which they work still lack a strong capital base.  Management
skills are still underdeveloped, and only a few have established vertically-integrated operations. 
Nevertheless, these organizations often control important assets and U.S. companies doing
business in Russia should pay attention to their activities. For a additional information on
Russian financial-industrial groups, visit BISNIS Online at 
http://www.mac.doc.gov/bisnis/country/970916r2.htm.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)