Russia’s billionaire Hairspray King

Before 2022, the name Alexei Sagal meant little to anyone in Russia outside the domestic cosmetics industry and residents of his native Stavropol Territory in the south of the country. That has changed completely since Russia invaded Ukraine as Sagal swooped to take control of Heineken’s Russian businesses. That deal proved to be just the start, with Bloomberg estimating his wealth at $1 billion at the end of last year. In the latest installment in our series about the Russian businessmen scooping up assets left by foreign companies leaving the country, we look at how government loans turned the “Hairspray King” into a billionaire.

• Alexei Sagal was born in 1968 and went into business in 1990 as a wholesale trader — a typical career move for an entrepreneur in the dying years of the Soviet Union and early 1990s. His hometown of Nevinnomyssk (pop. 100,000) in southern Russia was a major center of the chemical industry under the planned economy. Sagal started by trading products from the local Arnest chemical works, the Soviet Union’s biggest producer of hairspray and insect repellent. In the late 1990s he worked with the director to fend off bandits and raiders, eventually becoming the controlling shareholder.
• This could be the story of any privatized enterprise: a “red director” appointed during the Soviet times, helped by an ambitious young businessman, steering an industrial enterprise into Russia’s new market economy. But Arnest’s story wasn’t so straightforward. By coincidence, Pioneer Investments, one of the leading foreign investment houses of the time, was among its shareholders. Pioneer was trying to strike it rich in developing markets. Through that connection, Arnest secured a World Bank grant — under a global program to protect the ozone layer — to buy state-of-the-art new, more climate-friendly equipment. In 1998, 25.1% of Arnest’s shares were sold to another international institute — the European Bank of Reconstruction and Development (EBRD), which introduced strong corporate governance at the outfit and helped to reduce costs. In the late 90s, few Russian companies could boast of such a turnaround and respected investors. 
• Arnest had put itself in a position to make products for leading Western brands trying to enter the fast-growing Russian market in the early 2000s. The plant started churning out products for Schwarzkopf & Henkel, L’Oreal, Procter & Gamble, Unilever and Colgate-Palmolive, among many others. Sagal wanted to make his company a contract manufacturer on a global scale. To enter European markets, he bought factories in Scotland and Italy and agreed to build a facility in Hungary. The war would crush those ambitions and his European assets had to be sold off.
• Asked about his business approach in a rare interview in 2019, he said: “It’s addictive. It’s hard to stop. When you’re on an express train, it’s hard to get off. You have to put the brakes on before you can. Maybe you can jump out of the window, but that’s going to hurt.” Russia’s invasion of Ukraine initially threatened to force him out of the window at full speed — almost destroying his 25-year-old businesses — but like all of the Russians to have struck it rich over the last two and a half years, he found a way, going on to pick up $1 billion of assets, with the help of the government and state-backed lender VTB.
• The war did hurt his business, which depended entirely on western companies, initially — but it did not kill it. The challenge he faced was replacing the supply of Western materials. Meanwhile, Western contract manufacturers in his sector have not gone anywhere. Most, such as Britain’s Unilever, show no intention of leaving Russia. Others, such as Beiersdorf (which owns the Nivea brand), Colgate-Palmolive and L’Oréal promised to reduce their work in Russia but in 2023 all increased their Russian profits.
• With his Western connections, Sagal emerged as a logical buyer for other companies that were leaving Russia. In 2022-2023 the businessman acquired the Russian subsidiaries of America’s aluminum can producer Ball Corporation, the Heineken brewery and Oriflame cosmetics. Thanks to rules established by the government, he secured all of them on the cheap. The Bell discovered the deals were also financed by the sanctioned state bank VTB, which loaned 65 billion rubles (about $700 million at the current exchange rate) to Sagal’s structures. Sagal also has a powerful patron and backer in the shape of Denis Manturov, the deputy prime minister who oversees trade, industry and the exit of Western companies from the country. It turns out Manturov has a joint business with the Sagal family.
• You can read the full investigation into Sagal on The Bell’s website (in Russian).

Why the world should care

Vladimir Putin has pitched Russian veterans who served in Ukraine as the country’s “new elite”. But if anybody has a right to that title, it is not Russia’s soldiers, but its businessmen being gifted prime Western assets at knock-down prices and showered with state support. Unlike the oligarchs of the 1990s, this new class of business leader owes its wealth and status entirely to the current regime.