Русский язык (Russian translation)

IGORA, Russia - The wedding party dominated a ski resort nestled in the hills about an hour’s drive north of St. Petersburg. No expense was spared and everyone was sworn to secrecy. The happy couple rode in a traditional Russian sleigh drawn by three white horses, said one of the workers who described the scene to Reuters.

The bride wore a long pearl-tinted wedding dress, the groom wore a dark overcoat, said another person who attended. The newlyweds were Katerina, younger daughter of Russian President Vladimir Putin, and Kirill Shamalov, son of an old friend of Putin.

Their wedding celebrations took place in February 2013, at Igora, a small ski resort that combines beauty and discretion, five people who were there told Reuters. Set amid woodland with a picturesque lake, the resort is co-owned by the family of Yuri Kovalchuk, another old friend of Putin, and a Cyprus company with undisclosed shareholders.

One person who attended the event said staff were told the bride and groom were named Kirill and Katerina, and that guests wore white scarves embroidered with the letters “K&K” in red thread. When shown a photograph of a woman known as Katerina Tikhonova, the source identified her as the bride. Tikhonova is Putin’s younger daughter, as Reuters confirmed in November.

“Guards were behind every corner, (they) didn’t let anyone close to the celebration,” said a staff member at the resort, which has a luxurious spa complex. “But we knew it was Kirill and Katerina – Putin’s daughter – celebrating marriage.”

At the time of the wedding, Kirill – a tall, dark-haired man with rimless glasses - was a rising star of Russian business, but still only 31. His fortunes began to skyrocket soon after his wedding to the president’s daughter, a competitive acrobatic dancer who is now helping to oversee a $1.7 billion expansion of Moscow State University.

Within 18 months, Kirill acquired a large chunk of shares in a major Russian oil and petrochemical processor called Sibur - a stake now worth an estimated $2.85 billion, based on the value of recent share deals. He also quit his job as a business manager and set up a company to run his personal investments.

How did such a young businessman go so far, so fast? A Reuters examination of Shamalov’s career shows that in the summer of 2013, months after he married Putin’s daughter, Kirill opened discussions about buying shares in Sibur from one of the president’s wealthiest friends.

A year later, he was able to borrow more than $1 billion, judging by the published accounts of his investment company. The loan came from a bank headed by another longtime associate of Putin, and where Shamalov’s brother holds a senior position. The money was used to make an investment in Sibur that within months proved highly profitable for Kirill.

Asked about his business deals and the wedding, Kirill Shamalov and Sibur declined to comment.

The trajectory of Kirill’s fortunes sheds new light on how people close to Putin have taken commanding positions in key companies - and how such opportunities are now being extended to a new generation. Like the wedding, much of this transfer of riches has occurred away from public scrutiny.

“We are not allowed to talk about this. I can be fired - you know whose daughter it is.” A worker at Igora ski resort

Vladimir Milov, a former Russian deputy energy minister and now an opposition campaigner, said Putin’s friends had acquired major assets with the help of lenders with links to the state, such as Gazprombank.

“It’s extremely non-transparent, so it is hard to get to and judge the specifics of the loan agreements,” Milov said. “They consider Gazprombank their pocket bank.”

He added: “They are looking to pass on their power and privileges to a new generation.”

Asked about the wedding celebrations and business deals, Dmitry Peskov, spokesman for the Russian president, said: “Putin's daughters are not involved in politics or business. The businessman, Shamalov, is well known. As far as we are aware, all his activities are in line with the laws of the Russian Federation. For many years he has been in the management of the company Sibur, and along with other senior managers is a shareholder. His career and business are not within the sphere of interest of the Kremlin. We do not give comments on the private lives of Putin's close relatives.”

THE BROTHERS SHAMALOV

When Kirill Shamalov was growing up in the 1990s, his father, Nikolai, was a co-founder with Putin and others of a development of dachas known as The Ozero (Lake) Cooperative, about 100 km (60 miles) north of St. Petersburg. Various members of the Ozero development went on to prominence in Putin’s Russia.

Nikolai Shamalov became a shareholder in a small lender called Bank Rossiya, which over the past 15 years has grown to be one of Russia’s most influential banks. Kovalchuk, the co-owner of the Igora ski resort, is the largest Bank Rossiya shareholder.

After Russia seized control of Crimea in 2014, the United States sanctioned Bank Rossiya, describing it as the personal bank of the Russian elite. The European Union sanctioned Kovalchuk and Nikolai Shamalov for their close links to Putin. The U.S. Treasury also sanctioned Kovalchuk as a member of Putin’s inner circle.

Nikolai Shamalov has two sons: Yury, born in 1970, and Kirill, born in 1982. Both have prospered during the Putin years.

After studying naval engineering and foreign trade at university, Yury Shamalov worked, according to his official corporate biography, as a staffer on the foreign economic relations committee of the St. Petersburg city council. Putin ran the committee.

On the eve of 2000, Putin became president and began to stamp his authority on Russia’s economy. One company he paid particular attention to was the gas giant Gazprom, which he brought back under state control. Among Gazprom’s assets were Sibur, the petrochemical company, and a lender called Gazprombank.

Both Yury and Kirill Shamalov went on to take important roles in these and other institutions as Putin consolidated his power.

THE BANK

In August 2003, according to his corporate biography, Yury became president of Gazfond, a huge investment fund that controls the assets of Gazprom’s pensioners. Led by Yury, Gazfond later acquired control of Gazprom’s banking subsidiary, Gazprombank. Yury went on to become one of the bank’s deputy chairmen.

Gazfond had effectively bought a state asset and turned it into a private bank controlled by people with long-standing links to Putin.

“They are looking to pass on their power and privileges to a new generation .” Vladimir Milov, opposition politician, commenting on the elite around Putin

Kirill Shamalov, meanwhile, was also making rapid progress. In 2002, he was appointed Gazprom’s “Chief Legal Counsel for foreign economic activity,” according to a biography on Sibur’s website. He was just 20 and had not yet graduated from his law studies at St. Petersburg State University.

Three years later, after completing his law degree, Shamalov became “Chief Legal Counsel” at Gazprombank, then still a subsidiary of Gazprom. Then, in June 2008, Kirill joined Sibur as vice-president for business administration.

It was a notably small world. Kirill’s brother Yury was already both a director of Sibur and a deputy chairman of Gazprombank. Chairman of the bank was Alexei Miller, who in the 1990s had worked with Putin in St. Petersburg. When Putin became president, he had trusted Miller enough to put him in charge of Gazprom.

In addition, Gazfond, where Yury Shamalov was chairman, exerted strong influence at both Sibur and Gazprombank. And the same month that Kirill joined Sibur, according to financial declarations, Gazfond, through its control of Gazprombank, became the ultimate owner of Sibur.

Gazprombank declined to comment, and Gazfond did not respond to questions.

TIMCHENKO CONNECTION

On top of their family links, the brothers Shamalov have deep connections to other members of the Putin elite who reshaped Russia’s economy in the 2000s and made personal fortunes doing so. One is Gennady Timchenko, who became a shareholder in Bank Rossiya along with Nikolai Shamalov.

Timchenko has known Putin for more than 20 years. In the 1990s, he began oil trading from St. Petersburg, when Putin was a rising politician there, and went on to co-found Gunvor, a company that grew to be one of the largest traders of Russian oil. Last year, the U.S. government alleged that Putin had a personal stake in Gunvor, though it offered no evidence of this. Gunvor denied the allegation.

Timchenko was an important contact for Kirill Shamalov, because the oil-trading magnate later became a large shareholder in Sibur.

In 2010, Gazprombank and Yuri Shamalov’s Gazfond held a combined 95 percent stake in Sibur. That year, they made a deal to sell Sibur to a company owned by Timchenko and one of his business partners, an energy entrepreneur named Leonid Mikhelson. The deal was complex, but Gazprombank smoothed the way by lending money to Mikhelson and Timchenko to fund at least half the purchase.

Mikhelson ended up owning 57.2 percent of Sibur and Timchenko 37.3 percent. Five managers and former managers owned the remaining 5.5 percent. Those managers included Kirill Shamalov. By 2014, according to Sibur’s declarations, Kirill had extended his personal stake to 4.3 percent of Sibur.

KIRILL’S COUP

Once Mikhelson and Timchenko had taken control of Sibur, the only way for anyone to obtain a major stake in the company was for one of them to agree to sell some shares. Fortunately for Kirill Shamalov, Putin’s friend Timchenko was willing to sell to him.

Timchenko and the president’s new son-in-law began discussions in the summer of 2013, according to an interview Kirill gave to the Russian newspaper Kommersant in August this year. The start of those talks was a few months after Kirill had celebrated his marriage to Putin’s daughter.

In March 2014, Kirill stepped down from his management role at Sibur. But he kept his shareholding and stayed on as member of the board of directors. Four months later, on Aug. 1, he registered a new company called Yauza 12 that is wholly owned by him.

The following month, Yauza 12 bought 17 percent of Sibur from Timchenko. That took Kirill’s stake in the petrochemical company to 21.3 percent. Putin’s son-in-law was now the second largest shareholder in Russia’s leading gas and petrochemicals processor.

Earlier this year, a spokesman for Timchenko told Reuters that his sale to Kirill Shamalov took place after negotiations with several potential buyers and was at a market price. The spokesman said the sale reflected a policy of Timchenko’s holding company, Volga Group, of diversifying its assets.

This month, a spokesman for Volga Group told Reuters: “All transactions which were conducted by Mr Timchenko’s structures with shares of Sibur – the acquisition of shares in the company, the sale of part of the share structure to K. Shamalov – had a market character and took place based on the market valuation of the company.”

How could the then-32-year-old Kirill afford such a purchase? A Reuters examination of Yauza 12 accounts filed at the end of 2014 shows that the company had borrowed 78.9 billion roubles (about $1.3 billion at the time). The source of this money was the bank where his brother is a deputy chairman. The financing came “from Gazprombank secured on assets belonging to me,” Kirill told Kommersant.

Yury Shamalov did not respond to requests for comment.

The terms of the loan are not known, but Kirill’s company appears to have borrowed the money cheaply. Interest paid after he took the loan, according to the Yauza 12 accounts, amounted to 343 million roubles to the end of 2014. That equates to an annual interest rate of about 1.3 percent if the loan began when Yauza 12 bought the Sibur shares, a Moscow-based credit analyst said. The analyst added that because the loan’s maturity date is unknown, it is unclear whether that interest rate differs from the market rate or not.

Kirill Shamalov and Gazprombank declined to respond to Reuters questions about the loan.

Using the borrowed $1.3 billion, Kirill was able to buy the 17 percent stake in Sibur. He and his spokesman declined to specify how much he paid, other than saying it was a market price.

Three independent analysts told Reuters in October this year that Kirill’s total holding of 21.3 percent was worth at least $2 billion. That may have been conservative. On Dec. 11, the Chinese petroleum company Sinopec agreed to pay $1.34 billion for only 10 percent of the company.

That valuation implies that Kirill’s overall 21.3 percent holding in Sibur is now worth $2.85 billion.

FULL CIRCLE

With his secret wedding at the Igora ski resort and his financial good fortune, Kirill Shamalov encapsulates key aspects of today’s Russia. The Putin era has its roots in St. Petersburg, where the president began his political career. His friends from the Ozero dacha cooperative, as well as aides he worked with in the St. Petersburg mayor’s office, went on to wealth and influence as Putin consolidated his power.

Now Kirill has joined the ranks of the billionaire elite around the president. The connections, though, are kept discreet. When Kirill and Katerina Tikhonova celebrated their wedding, security was tight and the guest list exclusive: About 100 attended, according to people who were there.

The guests were asked to leave their mobile phones at the skating palace, an imposing building that hosts figure skating, ice hockey matches and concerts. The organisers wanted no photographs leaking out on social media, and the VIPs were shielded from the resort’s regular staff.

The choice of venue also underscored the close-knit nature of the circle encompassing Putin, his friends from St. Petersburg, and their children.

The Igora ski resort lies about 30 km from the Ozero dacha cooperative. The resort and surrounding plots of land are owned by companies with past or present connections to Shamalov, Kovalchuk and Timchenko.

The owner of Igora itself, according to public records, is a locally registered company called Ozon LLC. Putin’s old friend Kovalchuk and his wife and son own 25 percent of Ozon; the other 75 percent is owned by a Cyprus company.

According to resort staff, Putin has been a frequent visitor to Igora - though always staying discreetly in a neighbouring compound behind a tall fence. That residence belongs to another company, one fully owned by the Kovalchuk family, according to land records.

Next door are two more plots. These are owned by ZAO Lider, which manages assets for Gazfond - the company run by Yury Shamalov, brother of Kirill.

The wedding celebrations thus captured an important facet of Putin’s Russia: a wealthy and close-knit elite at play, shielded from the gaze of ordinary Russians. Entertainment included an indoor ice-skating display, laser lights, and a mock-up Russian village with performers and cultural exhibits, according to a person who attended.

At one point, an emblem was projected on the snow, showing the names Kirill and Katerina, said another worker. But the worker added: “We are not allowed to talk about this. I can be fired - you know whose daughter it was.”

Comrade Capitalism: Read the other stories in the series

————— Comrade Capitalism: Rising son By Jack Stubbs, Andrey Kuzmin, Stephen Grey and Roman Anin Graphics: Christian Inton Photo editing: Simon Newman Design: Catherine Tai Edited by Richard Woods and Michael Williams