Glencore’s very private school

What links the world’s biggest com­modi­ties trad­er, a bil­lion­aire friend of Kazakhstan’s pres­i­dent and one of the UK’s most pres­ti­gious edu­ca­tion institutions?

With The Times.

Glencore is huge.

So mas­sive, in fact, that there could scarce­ly be a per­son on earth who has not encoun­tered a product—coal, oil, met­als, grain—that it pro­duced or trad­ed: cobalt in your smart­phone bat­tery, wheat in your bread, sug­ar in your fizzy drink.

One thing Glencore doesn’t do is pri­vate edu­ca­tion. So how did the world’s biggest com­modi­ties trad­er end up buy­ing into a pres­ti­gious pri­vate school and hand­ing the $23 mil­lion stake to a trust­ed lieu­tenant of a Central Asian dic­ta­tor in a secre­tive deal nev­er dis­closed to shareholders?

Just as Glencore is big, it is fear­less: a £42 bil­lion behe­moth that wins deals in places oth­ers fear to tread, like the Democratic Republic of Congo, Colombia or the dis­put­ed ter­ri­to­ry of Western Sahara—a strat­e­gy that has made it the biggest com­mod­i­ty trad­er in the world.

But audac­i­ty car­ries risk. Gaining access to fron­tier mar­kets can mean get­ting into bed with some colour­ful char­ac­ters. In Congo, the com­pa­ny has been accused of fun­nelling cash to Dan Gertler, a dia­mond tycoon and close con­fi­dant of Joseph Kabila, whose 18-year tenure as Congo’s pres­i­dent end­ed last month.

In Kazakhstan, the min­ing giant’s clos­est friend is Bulat Utemuratov, one-time “Manager of the President’s Affairs” to Nursultan Nazarbayev, the dic­ta­tor who has ruled the ex-Soviet repub­lic since inde­pen­dence in 1991. Utemuratov did so well out of Glencore’s 2011 ini­tial pub­lic offer­ing that short­ly before its record London stock mar­ket flota­tion he splashed $600 mil­lion on the Moscow’s Ritz-Carlton hotel, made famous in 2016 by lurid alle­ga­tions in an intel­li­gence dossier about Donald Trump.

Making friends with ‘gatekeepers’—influential, polit­i­cal­ly con­nect­ed fig­ures who can unlock deals at the high­est level—is Glencore’s modus operan­di. “Glencore has a Gertler every­where,” a for­mer employ­ee told reporter Ken Silverstein in 2012. “That’s standard.”

Last year the US depart­ment of Justice ordered Glencore to hand over doc­u­ments about its ties to inter­me­di­aries includ­ing Gertler (both have denied any impro­pri­ety), and the com­pa­ny has tak­en to pay­ing him in euros instead of dol­lars to skirt US sanc­tions against him.

An inves­ti­ga­tion by SourceMaterial reveals how Glencore’s deals with Utemuratov car­ry uncom­fort­able echoes of that relationship.

Old school ties

In 2012 the FTSE 100 min­ing group’s local sub­sidiary invest­ed $23 mil­lion in Haileybury Astana, a Kazakh satel­lite of the Hertfordshire pri­vate school that counts for­mer British prime min­is­ter Clement Attlee, Formula One dri­ver Sir Stirling Moss and writer Rudyard Kipling among its alumni.

Located in a “beau­ti­ful, nat­ur­al park and site, along the bank of Ishim riv­er”, Haileybury Astana boasts an indoor swim­ming pool, two sports halls, dance and per­form­ing arts stu­dios. It was opened in 2011 by President Nazarbayev, accord­ing to its online prospec­tus, which shows stu­dents danc­ing in din­ner suits and ball­room gowns.

Glencore’s pre­vi­ous­ly unre­port­ed for­ay into edu­ca­tion is revealed in Russian-lan­guage Kazakh cor­po­rate fil­ings exam­ined by SourceMaterial. They show that the com­pa­ny imme­di­ate­ly wrote-off its Haileybury investment—and lat­er gift­ed the entire hold­ing to Utemuratov in a below-the-radar deal nev­er dis­closed to Glencore shareholders.

Glencore, through its Kazakh sub­sidiary Kazzinc, was the major­i­ty share­hold­er in Haileybury Astana between 2012 and 2016. The next largest share­hold­er in the pri­vate school was the char­i­ta­ble foun­da­tion of Nazarbayev him­self, which held a 26 per cent stake.

The school in Astana, Nazarbayev’s gleam­ing new cap­i­tal in the cen­tre of the coun­try, was Haileybury’s sec­ond fran­chise in Kazakhstan along­side one in the for­mer first city Almaty. Glencore’s Kazzinc unit helped the ven­ture get off the ground with a $17.4 mil­lion loan.

Haileybury receives around £500,000 a year in roy­al­ty fees for the use of its name in Kazakhstan but has no own­er­ship of either school.

The bor­rowed mon­ey was soon repaid but Kazzinc’s accounts show it lat­er pur­chased a 56 per cent stake in Haileybury Astana LLP for $23 mil­lion. The found­ing patron of the project was Utemuratov, accord­ing to a hagio­graph­i­cal por­trait of Kazakhstan and Nazarbayev writ­ten by Jonathan Aitken, the for­mer Conservative MP.

In 2016 the Glencore unit trans­ferred its share of Haileybury to Utemuratov’s pri­vate foun­da­tion for free.

“The man­age­ment of the group do not expect to recoup the costs of the acqui­si­tions from prof­its derived from the invest­ments,” the accounts note. “Therefore the com­pa­ny pro­vid­ed for the loss from the investments.”

Asked about the pur­pose of the trans­ac­tion, a Glencore spokesman said: “The invest­ments were dis­closed in Kazzinc’s finan­cial state­ments. The invest­ments were not mate­r­i­al for Glencore and there­fore were not sep­a­rate­ly dis­closed by Glencore in its finan­cial statements.”

Glencore, through Kazzinc, “has sup­port­ed the country’s devel­op­ment over the past 20 years, includ­ing through occa­sion­al strate­gic invest­ments in the devel­op­ment of Astana as a mod­ern cap­i­tal of Kazakhstan”, he said.

A Verny spokes­woman said the Haileybury shares were trans­ferred to Utemuratov’s foun­da­tion and under Kazakh law could not be trans­ferred to him per­son­al­ly. The school is a “non-com­mer­cial enti­ty, did not and does not gen­er­ate any income for its share­hold­ers (includ­ing the Foundation), and, there­fore, does not incor­po­rate any­thing of val­ue”, she said.

Skyscrapers, gold mines

The Haileybury pur­chase is not Glencore’s only sweet­heart deal with Utemuratov.

In 2013, again through Kazzinc, Glencore invest­ed $13 mil­lion dol­lars in a lux­u­ry real estate devel­op­ment by Utemuratov’s Verny—Talan Towers, a com­plex includ­ing a 30-floor sky­scraper, the Astana Ritz-Carlton and a shop­ping mall, all just a block away from Nazarbayev’s pres­i­den­tial palace.

And the same year, Glencore set in train a series of trans­ac­tions that effec­tive­ly gift­ed the Kazakh busi­ness­man mil­lions of dol­lars, along with gold mines that now gen­er­ate tens of mil­lions in cash.

Just as with the school invest­ment, there is no clear ben­e­fit to the Glencore from the arrange­ment, whose net result was to trans­fer con­sid­er­able wealth to one of the most trust­ed asso­ciates of the president.

Glencore sub­sidiary Kazzinc and Verny cap­i­tal joined togeth­er to buy a local gold min­er, Orion Minerals, for around $200 mil­lion, from Yerbolat Apsalyamov, a for­mer par­lia­men­tar­i­an who heads the East Kazakhstan ama­teur box­ing fed­er­a­tion and whose son was once pre­vent­ed by visa issues from tak­ing up a post as head of recruit­ment for Cardiff City Football Club.

Kazzinc paid $176 mil­lion for 89.5 per cent of Orion, and Verny $20 mil­lion for the remain­der. The fol­low­ing year, even as gold prices fell, Kazzinc bought Verny out for $36 million—effectively hand­ing Utemuratov $16 million.

In addi­tion, the deal—which like the Haileybury trans­ac­tions was nev­er dis­closed to Glencore shareholders—handed the Kazakh busi­ness­man Orion’s two most valu­able mines.

Utemuratov spun the mines into a new com­pa­ny, RG Gold, which pro­ject­ed an oper­at­ing prof­it of $31.8 mil­lion for 2018.

The rump of Orion that remained in Glencore’s pos­ses­sion was a dud, and the asset was even­tu­al­ly offloaded to Russian min­ing house Polymetal in 2016 for $100 mil­lion plus a roy­al­ty stream linked to the inter­na­tion­al gold price, at a loss to Glencore share­hold­ers of tens of mil­lions of dollars.

Estimated gold reserves for the mines trans­ferred to Utemuratov were nev­er includ­ed in Glencore’s fil­ings, sug­gest­ing it may always have been the company’s inten­tion to gut Orion of its prime assets in a loss­mak­ing deal that proved high­ly lucra­tive to the president’s friend.

Glencore told SourceMaterial in an email that “your descrip­tions of the trans­ac­tions do not appear com­plete and do not take into account chang­ing mar­ket conditions”.

Verny’s spokes­woman said the RG Gold deal was “exe­cut­ed at a fair mar­ket val­ue”, adding that Verny pro­vid­ed a $20 mil­lion loan to the orig­i­nal own­ers as a part of the acqui­si­tion. “This is one of the rea­sons why we have man­aged to make the deal effec­tive­ly on the ben­e­fi­cial con­di­tions in October 2012,” she said.

Concerns about Glencore’s rela­tion­ship with the Nazarbayev regime were already stok­ing unease on the eve of its flota­tion in London in 2011.

Opposition par­ties wrote to the London Stock Exchange, stat­ing: “Bulat Utemuratov, the for­mer head of admin­is­tra­tion for the President of Kazakhstan, is a co-own­er of Kazzinc. Utemuratov is wide­ly believed to be hold­ing these assets for the ben­e­fit of Nazarbayev.”

They were far from alone in har­bour­ing such suspicions.

A leaked US diplo­mat­ic cable from 2009 not­ed that Utemuratov had “long been rumoured to be Nazarbayev’s ‘per­son­al finan­cial man­ag­er’”, while in anoth­er from 2007 he was cit­ed by a source as an exam­ple of “high-lev­el cor­rup­tion” and “a bil­lion­aire who has nev­er had a business”.

Utemuratov has con­sis­tent­ly denied any alle­ga­tions that he has prof­it­ed from his rela­tion­ship with the auto­crat­ic pres­i­dent or that he is acts as a front.

He is “nei­ther a mid­dle­man, nor proxy for President Nazarbayev,” Verny’s spokes­woman said. “Since 2008 he has focused on his busi­ness activ­i­ty as well as char­i­ty ini­tia­tives.” He con­ducts his busi­ness “open­ly and trans­par­ent­ly based on busi­ness ethics and good cor­po­rate gov­er­nance practice”.

His per­son­al web­site says his ascent began when he was sent to Vienna as a young trade diplo­mat after inde­pen­dence in 1992. He returned “an inde­pen­dent-mind­ed, unfet­tered man”, the web­site says, “a busi­ness­man with his own funds too”.

Yet his web­site is sketchy on the first mil­lions: “He knows how he earned his first cap­i­tal in the envi­ron­ment of com­plete absence of entre­pre­neur­ship rules and laws.”

Image by Ninara, licensed under Creative Commons.

Original source of arti­cle: https: https://www.source-material.org/