Johnson's Russia List
#5078
7 February 2001
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#6
Moscow Times
February 7, 2001
It's All About Debt
By Peter Ekman
Peter Ekman is professor of finance at a Moscow-based MBA program. He
contributed this comment to The Moscow Times.

Moscow's expatriates seem to be in a state of panic as Media-MOST's
financial problems draw toward their almost inevitable conclusion — the
takeover of Media-MOST and its television channel NTV by Gazprom. Many
expats see the current situation as more critical than the August 1998
financial crisis. According to this view, the takeover of NTV will mark the
end of Russia's democratic experiment. Freedom of the press will have been
crushed, and Russia will return to totalitarianism.

The single premise behind the propaganda is constantly repeated: The
takeover of NTV is purely political and has nothing to do with Media-MOST's
debts or financial condition. This premise is demonstrably wrong.

NTV itself, the other organs of Media-MOST and the foreign press are the
major purveyors of this propaganda. For example, last week The Washington
Post published a 1,200 word story on Media-MOST (reprinted in The Moscow
Times on Jan. 30 as "Broadcasting Under Kremlin Siege"), which mentioned
Media-MOST's debt just once: "Nor is it only a tale of efforts by Gazprom
to collect its debt." The Los Angeles Times' Jan. 30 story didn't quite
mention the debt, saying only that Gazprom "had been a creditor to
Gusinsky's Media-MOST." Had been?

The Moscow Times, in its extensive coverage of the story, almost always
mentions the debt, but seldom gives many details on it. The paper's many
editorials on the story are almost always pro-NTV or are against the
prosecutor's office or President Vladimir Putin. For example, the Jan. 31
editorial entitled "Latest Twist in NTV Tale Is Troubling" supports NTV
journalists against charges of impropriety for accepting loans from
Media-MOST, and scolds the prosecutor, Putin and Gazprom. Gazprom is
scolded for handing out loans, but Media-MOST's debts to Gazprom are not
mentioned. It is impossible to avoid the conclusion that The Moscow Times
editorially supports Media-MOST.

Please consider some facts. Media-MOST ran up short-term debts to its major
creditors before last summer of $800 million, according to The Wall Street
Journal. Other estimates of its total debts are well over a billion
dollars. By comparison, total advertising revenue for all Russian
television stations in 2000 was less than $400 million. This revenue, of
course, is divided among three national television stations and many
smaller stations.

Overhead, production costs and taxes need to be paid. Any revenues left to
NTV would clearly not pay even the interest on such debt, much less pay
back the principal. By all accounts, Media-MOST's other properties do not
produce much profit. Economically, Media-MOST is dead. Under these
conditions, in any country, the most likely result would be that NTV would
be taken over by its creditors.

There are some legitimate concerns about press freedom involved in the
case. But anybody who tells you that the takeover has nothing to do with
the debts needs to explain how $800 million of short-term debt could be
repaid by a single company, when the annual revenue of the entire industry
is less than $400 million.

In November, Media-MOST's debt was restructured so that Gazprom now owns 46
percent of NTV and only $300 million needs to be repaid. This $300 million
was originally not due until this summer. But under the usual cross-default
arrangements and the November agreement, it is due now unless 25 percent of
NTV shares are sold for at least $90 million to extinguish the debt. To
avoid losing the votes of these shares Media-MOST backed out of their
commitment to sell.

The joker in the deck is an apparent offer by a syndicate led by CNN
founder Ted Turner to buy part of NTV for $300 million, which would pay the
debt to Gazprom in full. I say "apparent offer" because nothing is clear
about it and most information about it has come from NTV. Turner has only
said about three sentences to the public about a possible offer, without
specifying exactly what he wants to buy or how much control he wants to have.

Why Turner wants to pay $300 million now, when he probably could have
bought 25 percent of NTV for $90 million a few weeks ago, has never been
explained. The deal looks nonsensical unless Turner's syndicate is trying
to buy out Vladimir Gusinsky's majority stake. George Soros, a possible
syndicate member, has said the deal could only proceed if Gusinsky was
removed from management.

The panic among expats in Moscow about what is for the most part just a
drawn-out bankruptcy proceeding is a simpler matter to explain. NTV has
been the least biased source of Russian news for expats and foreign
reporters, and is very influential among them. NTV broadcasters have been
very effective in stating their views and they are now in a state of panic
about the takeover. Since their livelihoods are on the line, NTV
broadcasters should probably be forgiven for the lack of objectivity in
their reports. Foreign reporters are less easily forgiven for their lack of
objectivity.

While they may have the best intentions, foreign reporters who file story
after story on Media-MOST while hardly mentioning the company's inability
to pay its debts are misleading the public. Stephen Cohen, in his recently
published book "Failed Crusade: America and the Tragedy of Post-Communist
Russia," has accused Western journalists of "professional malpractice" for
their overly optimistic stories on Russia during the 1990s. Perhaps
journalists are now trying to balance the scales by being overly
pessimistic about Russia. But it still looks like professional malpractice
to me.

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