Middlesex holdings has dealt in many things, from aluminium and steel to oil. Now, by venturing into the former Soviet Union it may well have struck gold.
Lord Owen has come a long way since his days as foreign secretary in the '70s Labour government. These days, when Owen visits the Kremlin, it is in a new role - as businessman. As executive chairman of Middlesex Holdings, a trader with interests in the former Soviet Union, Owen is proving that there is money to be made for British companies doing business with Russia and the Confederation of Independent States.
Until Owen arrived, Middlesex was best known as the forever bust-again stock market shell which former England spin-bowler Phil Edmonds bought into in 1992 when he turned from cricket to business. At that stage, the shares of the company, then known as Ferromet, were about 0.25p in the wake of a disastrous two-year career as a trader of steel scrap in the US. Prior to that it had been known as Clogau Gold, one-time owner of a reopened Welsh mine best known for supplying the gold for the Duchess of York's wedding ring. Even in late 1995 when Owen arrived at Middlesex (Edmonds renamed the company after his county side), many people still thought its financial future uncertain.
As a trader in the former Soviet Union, Middlesex doesn't operate in the comfortable markets that appeal to institutional investors. It remains a penny share even today (at around 7p), although it has enough of them to muster a £60-million market capitalisation. But there has been change: in 1995, most of its business was aluminium. A minor war near its aluminium source in Tajikistan finally closed that innings in 1996. Middlesex then struck up a relationship with a Russian steel plant and became a big steel trader. The whisper is that by 1998 it will be very big in nickel. Throw in a diamond play, some oil - including 19 wells in Kansas that deliver Middlesex a princely barrel a day each, a few gold prospects, an 'agribusiness' embracing a winery in South Africa, a food-freezing plant in Israel and the Du Pont herbicide franchise in Ukraine, and you have a taste of Middlesex.
It might sound like fun, but it's not the vehicle you'd expect to attract a 59-year-old former foreign secretary. True, Owen wasn't a Conservative, so a mainstream bank or utility chairmanship probably wouldn't quite have suited (he is however a non-executive director of textiles group Coats Viyella and US healthcare group Abbott Laboratories and a director of New Crane Publishing). But Owen, after all, had been tipped for various elevated positions on standing down as an MP: next director general of the BBC, governor of Hong Kong, UN secretary general. Instead, of course, he became the European Union's peace mediator in Bosnia. As executive chairman of Middlesex - note the 'executive' - he earns a modest £50,000 a year for a three-day week. 'Of course you can become a non-executive chairman, open a few factories, float on top and never understand quite what it's all about,' he explains. 'I didn't want to do that ... I wanted to do something genuinely entrepreneurial.' He dates this interest back to the late '60s when he was a junior minister in charge of four Navy dockyards and 56,000 workers and believes his experience as minister for health in 1974 and as sponsoring minister for the pharmaceutical industry allows him to say he's 'not completely new to business'.
Owen, whose models for the company are the great Hong Kong trading houses Swires and Jardine Matheson, arrived at Middlesex via an introduction from David Alliance, chairman of Coats Viyella. After once more hearing Owen say he wanted to do something genuinely entrepreneurial, Alliance sent him to see Masoud Alikhani, Middlesex's chief executive.
Alikhani had then been working with Edmonds at Middlesex for two years.
In fact, although Middlesex the stock market vehicle was Edmonds' creation, Middlesex the Russian trader was very much Alikhani's (see box). He had spent the four years up to 1993 criss-crossing the old USSR looking for business opportunities thrown up by the disintegration of communism. His first big catch was an aluminium mill at Tadaz in Tajikistan. The mill was operational, but idle, as its supplier of ore was insisting on payment in dollars. Alikhani provided the dollars in return for refined aluminium.
As an experienced metals trader, he knew how to sell aluminium to the world markets.
The Tadaz connection had just become established when Edmonds called Alikhani, an occasional acquaintance. Though the company was still breathing, Edmonds' initial plans for Middlesex hadn't worked out. Did Alikhani want to go public? Alikhani didn't hesitate: 'I didn't know anything about public companies, but I was under the impression that when you go public, people queue up to give you money. It sounded like the perfect solution.
I could go out and buy half of Russia.'
In October 1993, Alikhani and six Russian contacts put £370,000 into Middlesex. Other investors came up with another £250,000. As well as the equity, Alikhani undertook to put enough aluminium trading through Middlesex to earn it $1 million of gross profit within 12 months. 'That was Phil's idea,' says Alikhani. Once the $1 million was in the bank, Edmonds would let Alikhani turn Middlesex into his own vehicle. (As soon as Owen turned up, Edmonds stood down from the chairmanship and left the Middlesex board a year later, to concentrate on several other tiny stock market shells.)
The target reached within five months, the way was open for other projects: a privatised oil refinery in Moscow, another in Belarus, and a couple of Siberian gold mines offering equity. It was time to set up a bank.
Interfin Services, the heart of Middlesex's operations, was financed by Middlesex (40%) and two privatised Russian banks, and now employs 30 people.
The next catch was a real prize. In 1995, Oskol Electrometallurgical Kombinat (OEMK) knocked on Interfin's door. The OEMK steelworks is the most modern in Russia. Initiated in 1982, it is built to western standards and packed with German equipment. It had been in the first wave of Russian privatisation and was owned by its management, workforce and various local bodies. With just £22 million of aluminium turnover in 1994, Alikhani and his managing director Farhad Moshiri (a Deloitte & Touche accountant) talked OEMK into contracting Middlesex to take £200 million a year of OEMK's output for sale abroad. Middlesex's own resources weren't up to that, so Alliance and steel trader Balli were brought in to finance a 51% subsidiary to undertake the trading. And that's when Alliance thought Alikhani could use a heavyweight chairman.
'We never had a serious conversation about splitting the work up,' says Owen. 'Masoud runs the company. Being executive chairman simply means I'm more than a figurehead.' He works as part of a team to get deals done but although he does some travelling - his name-recognition score in Russia, which was deeply involved in the Bosnian dispute, is good in high places - Owen's role often involves simply holding the fort at Middlesex's base in Swiss Cottage. Adds Alikhani: 'We don't need to go out and get deals.
More come to us than we can cope with already.'
Arguably Middlesex's biggest coup since the arrival of Owen is the company's appointment as an adviser to Gazprom, the giant Russian gas producer.
The bulge-bracket investment banks slug it out to win each new Gazprom assignment. Last year Morgan Stanley and Dresdner Kleinwort Benson listed its equity on the London Stock Exchange. Currently, Goldman Sachs and ABN AMRO are working on a $2 billion eurobond. Earlier this year, Gazprom took a 25% stake in Interfin.
In a perfect illustration of what Middlesex is all about, ABN Hoare Govett analyst Elena Clarici points to the huge network of non-gas assets inside Gazprom, including 300 ex-collective farms, metal businesses and oil reserves which the deal gives Middlesex access to. In May, Middlesex bought control of a quoted oil shell, Dominion Energy, into which it will direct any oil opportunities that come its way. Clarici says, 'We feel free to speculate that Gazprom's oil assets could end up in Dominion, and Middlesex's nascent agriculture associate, Agrifarm, might be the right home for some of its farms. It might prove that the Gazprom connection will provide a golden thread for Middlesex's portfolio.'
And even if it doesn't, Middlesex seems to be creaking with opportunities.
The OEMK relationship means that Middlesex now has a 10% shareholding in a steel works with unaudited net assets put at £800 million. Furthermore, most of the financing for a new one million tonne-a-year mill has already been secured. In April, OEMK's boss joined the Middlesex board. The latest metals venture involves nickel and, after some hiccups in 1997, analyst Clarici sees this as set to deliver net profits of £3 million a year. Again there is an equity stake, this time in the nickel deposits as well as the smelting plant. In Archangel and Siberia, Interfin has stakes in or options to buy into oil companies which speak for around four billion barrels of oil.
Owen and Alikhani have no doubt their strategy of partnering the Russians in the revivification of their industrial base sets Middlesex up for the big time. Clarici calls it a blue-skies opportunity. Owen has options over 10 million Middlesex shares which could be worth £2-3 million in the next few years if brokers' forecasts are right. That would probably be a modest consolation for the man who wrote many of the policies now coming out of 10 Downing Street. But worth having, all the same.
Masoud who? Meet Mr Middlesex
Owen might be 'more than a figurehead' at Middlesex, but Masoud Alikhani is Mr Middlesex. Alikhani is a man of many experiences and a few contradictions.
An Iranian Muslim, an ex-kibbutznik, a graduate of the Hebrew University in Jerusalem, Alikhani and his family moved to London in 1979 when the mullahs expropriated his family's aluminium and other businesses.
He applied for a UK passport and took up a career working for US investment banks as a private client broker specialising in commodities. Then Russian perestroika got under way and Alikhani smelt opportunity. He caught a plane to Moscow and started chatting people up. Softly spoken, engaging and very enthusiastic, he found a would-be capitalist and offered funds to set up a bakery - a good business in a time of bread queues.
Alikhani left his job and carried on making contacts in Russia. As he saw the Russian industrial machine grinding ever slower it dawned on Alikhani that what it needed was money. The machine, however depreciated, was still capable of producing things people would buy, but with the state planning apparatus gone, the raw materials weren't going in any more: the Tadaz aluminium mill in Tajikistan was a such a case. To get himself into that opportunity, Alikhani mortgaged his house.
He doesn't dwell on the difficulties of doing business in Russia. He doesn't use a bodyguard, as it 'only broadcasts the fact you're worth robbing'. From his experience, to explain things, Russians are more inclined to use a bottle of vodka than an overhead projector: 'It's a good way of getting problems out into the open.'.