The Russian whose fortune fell from the sky

Jules Evans says billionaire industrialist Oleg Deripaska has global business ambitions — but a dispute with another Russian tycoon, Michael Cherney, may get in his way leg Deripaska wants it all. He already has quite a lot: assets in Russian insurance, pulp, construction, airports, media, cars, and oil, and a controlling stake in the world's largest aluminium company, Rusal. These make him Russia's second-richest man, worth $18 billion according to Forbes; only Roman Abramovich is richer.

But Deripaska's ambition is not yet sated. He wants a place in the top league of global businessmen alongside Bill Gates and Lakshmi Mittal. And so far his ambition appears to enjoy strong Kremlin backing. This is remarkable considering the extent to which he is a Yeltsin-era figure, and how badly others of that ilk, such as Boris Berezovsky or Mikhail Khodorkovsky, have fared under President Putin. But, like Abramovich, Deripaska has managed to make the transition from the era of the oligarchs to the era of the security services.

More than any other Russian businessman, Deripaska is now profiting from Putin's ambitious 'public-private partnership' programme to rebuild Russia. The Kremlin is preparing to put tens of billions of dollars into infrastructure projects around Russia, and Deripaska's company, Basic Element, has already attracted state backing for a new hydroelectric dam and aluminium smelter in central Siberia. It also recently bought 30 per cent of a German construction company, Strabag, for $1.6 billion, which puts it in a strong position to win huge PPP road-building contracts. So tight is Basic Element's embrace with the Kremlin, it is practically a ministry of the Russian government.

The big gun in Deripaska's industrial arsenal is Rusal, which was formed last year by the merger of Deripaska's Russian Aluminium with SUAL, the aluminium business of another oligarch, Viktor Vekselberg, and the Russian metals assets of Glencore, Marc Rich's former company. The merger was personally approved, on television, by Putin, who has long called for the creation of 'national champions' to project Russia's economic muscle into the global economy.

Now, Deripaska wants to move to the next level. Rusal is preparing for an IPO on the London Stock Exchange, possibly as soon as November. Rusal doesn't just want to be the first Russian company to list on London's primary market, it wants to be the first Russian blue-chip: 'Getting into the FTSE100 is the top prize,' says one banker working on the IPO.

The company plans to float a 25 per cent stake, which could raise as much as $10 billion — the biggest-ever foreign listing of a Russian company. This would give Deripaska the fire-power to continue an extraordinary run of acquisitions: in the last six months, he bought a Canadian car-parts maker, Magna ($1.5 billion), and a Russian oil company, Russneft ($3 billion), as well as the Strabag stake, and more. He's also rumoured to have bought 5 per cent of General Motors, and to have approached Ford about buying Land Rover and Jaguar. There is speculation that after the IPO, Rusal might bid for Alcoa or Alcan or buy out the Russian shareholders of Norilsk Nickel, the world's largest nickel company, who are thought to be less in favour with the Kremlin What could stand in Deripaska's way? As with other Russian businessmen looking to go global, his past may come back to haunt him He started off as a young metals broker, and was spotted by a Jewish entrepreneur from Uzbekistan called Michael Cherney, 15 years his senior, who met him at a Metals Bulletin conference in London and was impressed by his drive and vision. Cherney says he helped finance Deripaska's acquisition of the Sayansk smelter in Siberia, and the two set up a 50/50 holding company for the smelter, called Sibirsky Aluminium.

The aluminium industry in Russia in the mid-1990s was rough terrain. It was here that the mafia diversified beyond their usual areas of business and made a bid to go mainstream. Violent battles were fought over smelters around Siberia. When I visited one in Krasnoyarsk, now owned by Deripaska, my guide pointed to the hotel car park and said, 'Here's where the car bomb exploded.'

Our young metals broker was not intimidated. As Vladimir Zhukov, metals analyst at Alfa Bank, says: 'Many people were killed during the aluminium wars. Deripaska survived, and won.' One by one, his rivals were either arrested or sold their assets to Deripaska or a rival aluminium firm, Sibneft, controlled by Abramovich and Boris Berezovsky. Sibneft and Sibirsky eventually merged in 2000 to create Russian Aluminium, in negotiations in which Cherney says he played a key role.

What happened next is subject to vigorous dispute. A spokesman for Deripaska says he 'has never had a business partnership with Mr Cherney', whose claims are too 'spurious' to merit detailed response. 'This person had no relation to my business,' Deripaska himself told the FT earlier this year, in an interview in which he also summed up his own career: 'I was lucky. Just consider that everything fell from the sky.'

Cherney says it was all a bit more complicated than that. His version is that shortly after the creation of Russian Aluminium, Deripaska told him that the new Putin regime did not look favourably on Cherney (by then living in Tel Aviv) and it would be better if his name were taken off the shareholder register. Deripaska, according to Cherney, said he would hold Cherney's assets for him in trust. Cherney says: 'I placed complete trust in Deripaska. I would describe our relationship as akin to one of father and son.'

The Cherney version continues: Deripaska and Cherney met a year later, and Cherney mentioned he was considering selling his 25 per cent stake in Russian Aluminium. Deripaska said he wanted to buy the stake himself. The two worked out a deal, Cherney claims, whereby Deripaska would buy 17.5 per cent of Sibirksy Aluminium for $150 million plus $100 million of its debt, and then buy Cherney's remaining stake in Russian Aluminium within three years, at market price. The deal was, he says, witnessed and signed in a London hotel. Deripaska admitted to the EBRD, when it made a loan to Rusal in 2006, that he had bought 17.5 per cent of Sibirksy Aluminium for $150 million in 2001 from Cherney.

Then a year later, Cherney says Viktor Vekselberg offered to buy both Cherney and Deripaska out of Russian Aluminium for $3 billion. Cherney asked Deripaska to consider the deal, but Deripaska told Cherney 'he had always dreamed of managing a business of this size and therefore did not want to sell'. After that, Cherney says, Deripaska ... did not return my calls.'

Cherney is now trying to sue Deripaska for 20 per cent of Basic Element, worth perhaps $6 billion. He attempted to serve suit last year, but a London judge ruled that it had been improperly served, because Deripaska did not habitually live or do business at the address where it was served and because it was handed to a bodyguard, not to Deripaska himself. Cherney appealed, and in the High Court on 8 August he won the right to bring the case again within four months, which he is expected to do.

This is awkward for the IPO. Disputes over ownership are nothing new in Russia. As Zhukov of Alfa Bank says: 'Many Ninetiesera owners have skeletons in their cupboard. The difference is perhaps the size of the skeleton in this instance.' The bankers working on the IPO, including Morgan Stanley, Goldman Sachs, Deutsche Bank, JP Morgan Cazenove, Credit Suisse and UBS are feeling the heat, because Rusal is going for a listing of ordinary shares, as opposed to a GDR listing like every previous Russian offering.

An ordinary listing opens an IPO to a much broader investor base, including FTSE tracker funds. Bankers say if Rusal wants to raise billions of dollars from foreign investors, an ordinary listing is 'virtually the only option'. But many FTSE investors will never have bought Russian shares before, and will not be familiar with Russian business practices. So they might be caught offguard if a big dispute were suddenly to erupt. As Reinout Keepmans of Deutsche Bank says: 'Ordinary shares tend to be distributed more broadly and hence some of these [disclosure] issues are more sensitive.'

The dispute with Cherney poses no threat to the day-to-day running of Rusal but it raises obvious questions about Deripaska's multi-billion-dollar spending spree. It could yet derail the biggest IPO of the year — and Deripaska's attempt to join the super-league of global businessmen.