Russian politics has been rocked by a spat of scandals and some blockbuster investigations recently that have set the newswires humming and sent Kremlinologists into top gear.

Amongst the most notable has been the investigation into Kirill Shamalov and his relations with Russia’s petrochemical giant Sibur.

Shamalov is reportedly Russian President Vladimir Putin’s ex-son-in-law and the latest investigation suggests he received a generous “wedding present” in form of a 3.8% stake in Sibur worth hundreds of millions of dollars, paying only $100 for it.

Putin rarely comments on his private life and declined to do so again during his recent annual press conference. And he never talks about his two daughters. However, according to reports Shamalov married Katerina Tikhonova and more recently the couple got divorced. Shamalov has also not commented on the relationship.

Shamalov is a well-connected and successful businessman. He is the younger son of Nikolai Shamalov, a co-owner of Rossiya Bank and a former economic advisor to the Russian government. In 2008, he was appointed as a vice-president of Sibur and has served on the board of directors there until this day.

Journalists have reported that in 2013 as part of an incentive programme for Sibur top-managers Shamalov acquired a stake in Sibur’s holding company, called Themis Holdings Ltd., paying only $100 for control of a 3.8% shareholding in Sibur, while other managers reportedly paid millions of dollars for smaller stakes.

According to some journalistic investigations this was due to the fact that in that same year Shamalov allegedly became President Putin’s son-in-law.

“However, these reports miss out on quite a lot of detail, which show that the $100 deal was actually an ordinary transaction within an incentive programme,” a Sibur representative told bne IntelliNews. “To understand how this transaction came about you have to put it into context.”

The company has gone through a lot of changes in the last decade, emerging from the largest Russian petrochemical concern into one of the most dynamically developing companies in the global petrochemical industry, as profiled by bne IntelliNews, and is promising to eventually carry out a highly anticipated IPO, when the market conditions are right. In the meantime it has issued a series of Eurobonds that have been amongst the cheapest bonds ever issued by a Russian corporate.

Until 2010 Sibur’s key shareholder was Gazprombank, which introduced an incentive programme for its top management as the company revved up for the changes that have since been put in place. The programme promised a hefty remuneration for the management for achieving certain key performance indicators (KPIs). Shamalov, who had already been a top executive at the company for two years that is five years before he reportedly got married. Shamalov was included in the incentive programme along with other senior executives, according to Sibur CEO Dmitry Konov in a comment to the Russian publication that released the investigation.

In December 2010, Gazprombank sold its 100% stake in Sibur to a new shareholder Leonid Mikhelson, who is also the key shareholder in LNG producer Novatek.

According to Forbes, Mikhelson bought 100% of Sibur for approximately RUB150bn ($5bn at the time). Structurally, the deal consisted of multiple transactions and involved two key companies affiliated with Mikhelson – CJSC MIRACLE and Themis Holdings Ltd. Both companies bought c. 50% of Sibur and took out equal collateralised loans to finance the purchase. According to public information, CJSC MIRACLE borrowed RUB73bn ($2.4bn at the time), meaning Themis Holdings Ltd. borrowed c.RUB77bn for the purchase of 50% of Sibur. Sibur’s valuation at the time was also estimated to be around RUB150bn (c. $5bn), according to Gazprombank.

With the new shareholder came a new incentive programme for top management that was launched in 2010. Around two dozen top managers were invited to participate in it under the following conditions: top-managers had to forego the remuneration they were due under the Gazprombank incentive programme; and upon achieving new KPIs they would have a right to purchase a stake in Themis Holdings Ltd., including assuming all the debts of the company in proportion to the stake they would receive.

Some of the managers, fearing the uncertainty that always accompanies shareholder change, preferred to opt out and take their money from the previous incentive programme, which came in as tens of millions of dollars for some of them. Others, including Shamalov and the current CEO Konov, went all in with the new deal.

"In 2013, Kirill Shamalov bought a 3.8% stake under the terms of an agreement that was formed for a group of Sibur managers back in 2010. Not only Kirill Shamalov, but also myself and several other managers of the company participated in the incentive programme on the same terms. In 2013, I bought shares (of Sibur's holding company, which was also burdened with debts) on the same terms," said Konov earlier, when commenting on the investigation.

Mikhelson’s new incentive programme matured in 2013 and the management’s performance against their KPIs was assessed. At the end of the programme, the top managers, including Shamalov, now had the right to purchase a pre-determined stake in Themis Holdings that was part of the programme, assuming along with it company debts proportional to their stake.

Under the terms of the incentive programme Shamalov was entitled to buy 38,000 shares in Themis Holdings, which provided him with a beneficial ownership of a 3.8% stake in Sibur.

But as part of that deal he also assumed around $190mn of debts. At the same time, based on Gazprombank’s valuation of Sibur of RUB150bn, the real value of Shamalov’s stake at the time Mikhelson was buying Sibur would have been c. RUB 5.7bn or c. $187mn.

The $100 comes into the story as this was not the amount that actually changed hands in the share purchase deal, but was just a nominal amount included in the contract. The real cost of the deal to Shamalov was the assumption of his share of the holding company’s debt which was almost $200mn as well as agreeing to forego the offer of several million dollars under the terms of the previous Gazprombank incentive programme.

In an interview to a Moscow-based radio station Konov said that under that same programme he purchased his stake in Sibur for c. $85-$100. He also said that the incentive programme details are disclosed in the company’s reporting for 2010-2013.

Since 2013, the management who opted for the new deal have been using their dividends payments to pay off this debt. And as bne IntelliNews has reported the company has been paying record high dividends in the last year. As part of its disclosure to bond investors and creditors, Sibur has released the details of all these debts and payments on its corporate website. Shamalov holds these shares that he received via the incentive programme to this day, according to Sibur.

“The other group of managers had other deals on other terms, reached at other times, but they implied the purchase of Sibur shares directly, while Kirill Shamalov and the first group of managers, including myself, was buying shares in Sibur’s holding company burdened by debt", explains Konov.

“It is also incorrect to estimate the 3.8% stake based on an approximate valuation of Sibur from 2013, because the details and conditions of the transaction were set and pre-determined at the start of the incentive programme in 2010 based on the 2010 valuation of Sibur,” Konov added.

Shamalov’s presence on the board has dogged the company ever since it was reported that he married Tikhonova, as part of the relentless investigations into anything where Putin’s life touches on business.

bne IntelliNews quizzed Konov about Shamalov’s role at the company during an exclusive interview in December 2018. Konov expressed some frustration with the brouhaha associated with Shamalov, pointing out that he had been working at the company for over a decade and was a senior executive long before his marriage. “He was first running the government relations department, as he came to Sibur from the government, and later expanding his role to cover the legal and PR departments.” Konov quipped that he has no idea if Shamalov was married to Putin’s daughter but says he was not invited to any weddings.