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Billionaires
Man of Steel
Heidi Brown and Nathan Vardi, 03.28.05
Alex Shnaider became a billionaire in the dimly lit steel mills of eastern
Europe. How will he handle the glare of the Western world?
Alexander Shnaider was relaxing on a recent winter morning with his wife and
three young daughters on his 170-foot Benetti yacht in a Miami harbor.
Within a couple of months, he daydreamed aloud in accented but fluent
English, he would unveil the first Russian Formula One team, in Moscow's Red
Square. President Vladimir Putin would be there. So would Moscow's mayor,
Yuri Luzhkov. Thousands of racing fans would gather under a
30,000-square-foot heated tent with the spires of St. Basil's Cathedral as a
backdrop.
Russian by birth, Canadian by upbringing, Shnaider was in a rare expansive
mood. His 12-person staff served him and his guests as they settled down to
a lunch that included a roast chicken, pasta with clams and sautéed beef.
"I'm building something," says Shnaider, 36.
He has already built a $4 billion (sales) empire sprawling from Yerevan to
Toronto. Much of that business-and his $1.4 billion in net worth-comes from
trading Ukrainian steel and grabbing control of that country's
fourth-largest steel mill, Zaporizhstal. There is also a power grid in
Armenia; two hotels, a bakery chain and a meat-packing company in Serbia;
small interests in Turkey and Israel; a Russian steel mill in Volgograd; and
an ornate office building and casino in Moscow's Arbat pedestrian mall.
They're all under his holding company, Midland Resources, registered in the
British tax haven of Guernsey.
So what does a newly minted billionaire do for a second act? He works on his
image. In Canada Shnaider is bankrolling the nation's tallest building,
fronted by Donald Trump. And in January he spent $50 million to buy the
Jordan Formula One team, with the idea of turning it into a Russian
franchise next year. After years of doing business in dangerous places and
cutting fast deals with strongmen, Shnaider is stepping into the
unaccustomed glare of public scrutiny. Even his Ukrainian holdings are now
subject to prying eyes, as the new president, Victor Yushchenko, calls for a
reexamination of how state jewels like the large steel mills were sold off.
"I don't know if I am ready for all this attention," says Shnaider, a
compact 5 foot 8. But given how far he has come, this tough, if low-key,
player can probably handle anything.
Alexander Shnaider
Born in St. Petersburg, Shnaider and his family got to Israel via Ukraine
when he was 4 years old and wound up in Toronto nine years later. His
parents ran a deli in a Russian enclave of north Toronto. Shnaider stocked
shelves and mopped floors. Tapping family friends, he began trading textiles
and electronics with crumbling Soviet factories while living with his
parents and finishing a degree in economics at York University. As the
Soviet Union collapsed, he left to work for a steel-trading house in Zurich
before setting up his own in Belgium, competing at times with Marc Rich.
Knowing nothing about how to move steel, Shnaider hung out at Ukrainian
mills and made deals with desperate managers, providing everything from VCRs
to dining room sets in exchange for hot-rolled steel. His margins were huge,
swapping, say, a $40 microwave for $150 worth of coil steel, which he sold
to Asian traders. One of Shnaider's favorite customers was the Zaporizhstal
plant in eastern Ukraine, built in the 1930s. There he often bumped into
Eduard Shifrin, who worked for a competing Hong Kong trader and had once run
a nearby specialty steel mill for a decade. Shifrin seemed to know
everybody.
The two became partners and set up Midland Resources in 1994. Paying for
electricity with coal brought in from Russia, they started financing steel
production at the factory. The company's directors gratefully handed off
finished steel as payment.
It was a shadowy business. As in Russia, disputes among steel traders
sometimes ended violently; at least seven steel executives were assassinated
in Ukraine in the 1990s. But Shnaider quickly learned how to keep people
happy-a hallmark of his business. "You had to be nice to a general director
and do things like taking him on tours in foreign countries," he recalls.
"We would hire their relatives, give them gifts-whatever could be done."
In Ukraine, the world's third-largest steel exporter, easy profits lasted
only as long as the government owned the mills. When privatizations began in
the mid-1990s, shares in state-owned factories were sold off in murky
auctions, often to the well-connected. It soon became Zaporizhstal's turn,
thanks in part to the efforts of Vasily Khmelnytsky, an ambitious
businessman-turned-politician. A parliament deputy, Khmelnytsky was a
leading member of the Green Party, which supported the prime minister's
coalition, and got himself named manager of the government's stake in
Zaporizhstal. When the auctions started, Khmelnytsky and his investment
group started snapping up the shares.
>>From the sidelines Shnaider saw that his livelihood was at stake. "If we
didn't buy the steel mill our business would be finished because nobody was
going to let us keep making [those] absurd margins," he explains. But few
had the stomach for getting involved. "We thought it was too hot to handle
and could have been dangerous physically," says Michael Bleyzer, who runs a
Houston private equity fund with $200 million under management, specializing
in Ukraine. He once owned 2% of Zaporizhstal, but he didn't dare buy more.
Sidebar
Rich Company
--Boundary_(ID_oKR5m2DvJn8hDQc0IZ2oog)--
Billionaires
Man of Steel
Heidi Brown and Nathan Vardi, 03.28.05
Alex Shnaider became a billionaire in the dimly lit steel mills of eastern
Europe. How will he handle the glare of the Western world?
Alexander Shnaider was relaxing on a recent winter morning with his wife and
three young daughters on his 170-foot Benetti yacht in a Miami harbor.
Within a couple of months, he daydreamed aloud in accented but fluent
English, he would unveil the first Russian Formula One team, in Moscow's Red
Square. President Vladimir Putin would be there. So would Moscow's mayor,
Yuri Luzhkov. Thousands of racing fans would gather under a
30,000-square-foot heated tent with the spires of St. Basil's Cathedral as a
backdrop.
Russian by birth, Canadian by upbringing, Shnaider was in a rare expansive
mood. His 12-person staff served him and his guests as they settled down to
a lunch that included a roast chicken, pasta with clams and sautéed beef.
"I'm building something," says Shnaider, 36.
He has already built a $4 billion (sales) empire sprawling from Yerevan to
Toronto. Much of that business-and his $1.4 billion in net worth-comes from
trading Ukrainian steel and grabbing control of that country's
fourth-largest steel mill, Zaporizhstal. There is also a power grid in
Armenia; two hotels, a bakery chain and a meat-packing company in Serbia;
small interests in Turkey and Israel; a Russian steel mill in Volgograd; and
an ornate office building and casino in Moscow's Arbat pedestrian mall.
They're all under his holding company, Midland Resources, registered in the
British tax haven of Guernsey.
So what does a newly minted billionaire do for a second act? He works on his
image. In Canada Shnaider is bankrolling the nation's tallest building,
fronted by Donald Trump. And in January he spent $50 million to buy the
Jordan Formula One team, with the idea of turning it into a Russian
franchise next year. After years of doing business in dangerous places and
cutting fast deals with strongmen, Shnaider is stepping into the
unaccustomed glare of public scrutiny. Even his Ukrainian holdings are now
subject to prying eyes, as the new president, Victor Yushchenko, calls for a
reexamination of how state jewels like the large steel mills were sold off.
"I don't know if I am ready for all this attention," says Shnaider, a
compact 5 foot 8. But given how far he has come, this tough, if low-key,
player can probably handle anything.
Alexander Shnaider
Born in St. Petersburg, Shnaider and his family got to Israel via Ukraine
when he was 4 years old and wound up in Toronto nine years later. His
parents ran a deli in a Russian enclave of north Toronto. Shnaider stocked
shelves and mopped floors. Tapping family friends, he began trading textiles
and electronics with crumbling Soviet factories while living with his
parents and finishing a degree in economics at York University. As the
Soviet Union collapsed, he left to work for a steel-trading house in Zurich
before setting up his own in Belgium, competing at times with Marc Rich.
Knowing nothing about how to move steel, Shnaider hung out at Ukrainian
mills and made deals with desperate managers, providing everything from VCRs
to dining room sets in exchange for hot-rolled steel. His margins were huge,
swapping, say, a $40 microwave for $150 worth of coil steel, which he sold
to Asian traders. One of Shnaider's favorite customers was the Zaporizhstal
plant in eastern Ukraine, built in the 1930s. There he often bumped into
Eduard Shifrin, who worked for a competing Hong Kong trader and had once run
a nearby specialty steel mill for a decade. Shifrin seemed to know
everybody.
The two became partners and set up Midland Resources in 1994. Paying for
electricity with coal brought in from Russia, they started financing steel
production at the factory. The company's directors gratefully handed off
finished steel as payment.
It was a shadowy business. As in Russia, disputes among steel traders
sometimes ended violently; at least seven steel executives were assassinated
in Ukraine in the 1990s. But Shnaider quickly learned how to keep people
happy-a hallmark of his business. "You had to be nice to a general director
and do things like taking him on tours in foreign countries," he recalls.
"We would hire their relatives, give them gifts-whatever could be done."
In Ukraine, the world's third-largest steel exporter, easy profits lasted
only as long as the government owned the mills. When privatizations began in
the mid-1990s, shares in state-owned factories were sold off in murky
auctions, often to the well-connected. It soon became Zaporizhstal's turn,
thanks in part to the efforts of Vasily Khmelnytsky, an ambitious
businessman-turned-politician. A parliament deputy, Khmelnytsky was a
leading member of the Green Party, which supported the prime minister's
coalition, and got himself named manager of the government's stake in
Zaporizhstal. When the auctions started, Khmelnytsky and his investment
group started snapping up the shares.
>>From the sidelines Shnaider saw that his livelihood was at stake. "If we
didn't buy the steel mill our business would be finished because nobody was
going to let us keep making [those] absurd margins," he explains. But few
had the stomach for getting involved. "We thought it was too hot to handle
and could have been dangerous physically," says Michael Bleyzer, who runs a
Houston private equity fund with $200 million under management, specializing
in Ukraine. He once owned 2% of Zaporizhstal, but he didn't dare buy more.
Sidebar
Rich Company
--Boundary_(ID_oKR5m2DvJn8hDQc0IZ2oog)--