Posted: Oct 4, 2008, 10:04 AM CST
Russian billionaire Oleg Deripaska has been forced to hand over his stake in Magna International Inc. to his banks, after taking a margin call on his $1.54-billion (U.S.) investment in the Canadian auto parts maker.
In a stunning turn of events, Paris-based bank BNP Paribas SA seized the Russian oligarch's 20 million shares in Magna, unwinding a deal that closed 13 months ago and making one of the world's richest men the latest casualty of the global credit crisis.
The move hands full control of the auto parts giant back to its founder, Frank Stronach.
According to people familiar with the transaction, BNP Paribas led a syndicate that financed an estimated $1-billion.
That amounts to about two-thirds of the total purchase price.
It is understood that the lending agreement gave the banks the power to reclaim the Magna shares in the event they fell more than 40 per cent below the $76.83 a share Mr. Deripaska paid for the stock. That threshold appears to have been triggered on Thursday, when the shares slumped to a closing price of $45.59 on the New York Stock Exchange.
The aggressive move to force one of Russia's richest men to hand over assets casts a stark spotlight on the harsh new lending environment for businesses seeking to raise capital or hang on to acquisitions that were snapped up in headier times.
It also highlights how quickly billionaires, even in growing economies such as Russia, are seeing their fortunes erode as the crisis cripples financial markets around the globe.
Sources said banks lined up to lend money to Mr. Deripaska in the spring of 2007, when he first announced he had struck the agreement with Mr. Stronach. Eighteen months later, a deal that was code-named Project Pearl is in tatters because of a crisis that could spiral into an “economic Pearl Harbour,” according to a warning issued this week by Omaha billionaire Warren Buffett.
“It is a whole new world. When a deal falls apart 18 months after the fact, anything is possible. Nothing can be taken for granted,” said one person close to Magna.
Like many financial upsets in the past few weeks, the unravelling of the Magna investment happened with breath-taking speed.
Sources said Magna executives were stunned late Thursday when they were informed that Mr. Deripaska was ceding his stake to banks.
At Thursday's closing price of $45.59 in New York, his 20 million Magna shares were worth $911.8-million, suggesting that the loss on the sale will cost him almost $630-million.
“He had to make a decision based on market conditions,” said one high-ranking European auto source familiar with Magna and Mr. Deripaska's investment. “He had to choose his priorities.”
The news sent Magna's stock plunging initially in Toronto and New York, although it rallied in trading later in the day to close at $43.45, down $2.14 on the NYSE.
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