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Man of Steel
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. 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 -
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