«Tell me, Mr. Prutkov — how much does one of those boats cost?» I asked, Irina still translating.
«We got them for twenty million dollars new out of a shipyard in East Germany», he answered.
«How many do you have?»
«About a hundred».
«And how old are they?»
«Seven years on average».
I did the math. A hundred trawlers at $20 million each meant that they had $2 billion worth of ships. I figured that if the fleet was seven years old, then it was about half-depreciated, meaning that they had $1 billion of ships at the current market value.
I was amazed. These people had hired me to advise them on whether they should exercise their right under the Russian privatization program to purchase 51 percent of the fleet for $2.5 million. Two and a half million dollars! For a half stake in over a billion dollars’ worth of ships! Of course they should! It was a no-brainer. I couldn’t understand why they needed anyone to tell them this. More than anything, I wished I could have joined them in buying the 51 percent.
As I went over all this with Prutkov, I felt the release of that familiar chemical in my stomach — the one I’d felt after my ten bagger in Poland. I wondered, Is this deal unique to the Murmansk Trawler Fleet, or is the same thing happening all over Russia? And if it is, how can I get involved?
I was scheduled to return to London the following day, but I was so excited and agitated that I bought a one-way ticket to Moscow instead. I had to find out if the shares of every other Russian company were just as cheap as this one. Nobody would miss me in London, anyway — they barely knew I existed.
After arriving in Moscow and collecting my bags, I went to an airport kiosk and bought a small, English-language business-phone directory. I’d never been to Moscow, didn’t speak a word of Russian, and hardly knew a soul. I got in an airport taxi and told the driver that I wanted to go to the Metropol Hotel on Red Square (he must have known that I was easy pickings because I later learned that he charged me four times the normal rate). We sat in snarled traffic on Leningradsky Prospekt, a boulevard that was wider than a football field, slowly passing hundreds of identical Soviet-era apartment blocks and billboards advertising strange-sounding companies.
The cab pulled up to the Metropol two hours later, across from the Bolshoi Theatre. When I got to my room, I called a friend in London who had worked in Moscow and he gave me the numbers of a driver and a translator, each of whom charged $50 a day. The next morning I went through the phone directory and started cold-calling anyone who seemed relevant to see if they would be willing to discuss the Russian privatization program with me. I ended up seeing officials from the US embassy, some people at Ernst & Young, a junior Russian official at the privatization ministry, and a Stanford alum who worked at American Express, among others. Over four days, I arranged a total of thirty meetings, and from them I pieced together the full story of what was going on with the Russian privatization program.
I found that to transition from communism to capitalism, the Russian government had decided to give away most of the state’s property to the people. The government was going about this in a number of ways, but the most interesting was something called voucher privatization. In this part of the program, the government granted one privatization certificate to every Russian citizen — roughly 150 million people in total — and taken together these were exchangeable for 30 percent of nearly all Russian companies.
One hundred and fifty million vouchers multiplied by $20 — the market price of the vouchers — equaled $3 billion. Since these vouchers were exchangeable for roughly 30 percent of the shares of all Russian companies, this meant that the valuation of the entire Russian economy was only $10 billion! That was one-sixth the value of Wal-Mart!
To put this in perspective, Russia had 24 percent of the world’s natural gas, 9 percent of the world’s oil, and produced 6.6 percent of the world’s steel, among many other things. Yet this incredible trove of resources was trading for a mere $10 billion!
Even more astonishing was that there were no restrictions on who could purchase these vouchers. I could buy them, Salomon could buy them, anyone could buy them. If what had happened in Poland was profitable, then this was off the charts.
I returned to London a man possessed. I wanted to tell everyone at Salomon that they were giving money away for free in Russia. I started by going to one of the guys on the East European investment banking desk with my discovery. But instead of congratulating me, he frowned and asked, «Where are the advisory fees on this?» How could he not understand that this could easily go up a hundred times? Advisory fees? Was he serious? Who gave a shit about advisory fees?
I then went to someone in the investment-management division, expecting him to hug me since I was sharing the most jaw-dropping investment opportunity he would ever see in his life. Instead he looked at me as if I were suggesting that the firm invest in Mars.
After that, I went to one of the traders on the emerging-markets desk, but he looked at me quizzically and asked, «What’re the spreads and trading volumes on these vouchers?» What? Who cares whether they’re 1 percent or 10 percent? I’m talking about making 10,000 percent!
Nobody at Salomon could divorce themselves from their own narrow mind-set. Perhaps if I had been more subtle and clever I could have found a way to pierce their myopia, but I wasn’t. I had no political skills, and for weeks I just kept presenting my idea over and over, hoping that by repetition I would eventually get through to someone.
Instead, I completely ruined my reputation inside Salomon Brothers. No one wanted anything to do with me because I was that «crazy fuck who wouldn’t shut up about Russia». The other associates I used to hang out with stopped inviting me for lunch and after-work drinks.
It was now October 1993, and I’d been at Salomon Brothers for just over a year. I was an object of ridicule throughout Salomon, and worst of all I’d made the firm only $50,000 in total, meaning I was sure to be fired at any moment. As I despaired over my impending dismissal, my phone rang. I didn’t recognize the New York extension: 2723. I answered. The man on the other end had a deep Southern drawl, like a Georgia lawman. «Hey, there. This Bill Browder?»
«Yes. Who’s calling?»
«Name’s Bobby Ludwig. I heard you got something going on in Russia».
I’d never heard of this guy before and wondered who he was. «Yeah, I do. Do you work for the firm?»
«Yep. In New York. I was wondering if you might do me a favor and come tell me about what you’re up to?»
«Uh, sure. Can I check my schedule and get back to you?»
«’Course».
We hung up. I immediately called someone I knew on the emerging-markets desk who had worked in New York and asked him about this Ludwig person.
«Bobby Ludwig?» he asked, as if I were stupid not to know who he was. «He’s one of the top producers at the firm. Weird guy, though. Some people think he’s crazy. But he makes money year after year, so he kind of does whatever he wants. Why do you want to know?»
«No reason. Thanks».
Bobby was exactly the person I needed to get me out of my rut. I phoned him back immediately. «Hi, this is Bill again. I’d love to come to New York and give you a presentation on Russia».