Russian privatisation

Privatising Russia's future

For further growth, panellists at the Russia and CIS Investment Summit in Hong Kong agree that Russia is serious about privatisation.
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For sale?
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Russia has been off investors’ radar for quite some time, despite a brief moment in the spotlight in January 2010, when aluminium company Rusal raised HK$17.4 billion ($2.24 billion) through its initial public offering in Hong Kong. But with accession to the WTO late last year (after 18 years of talks!) and the decision to hold the Apec summit in Vladivostok this year, Russia is back on the map of investors.

The IMF projects that Russia will grow about 4% in 2012 and 2013, after the economy grew 4.3% last year and continued to accelerate during the first quarter of 2012. The growth has been helped by high oil prices, though the reliance on oil exports also exposes Russia to the opposite trend, according to the IMF. But specialists say that Russia is about more than just natural resources.

At the third annual Russia and CIS Investment Summit organised by FinanceAsia and its sister publication AsianInvestor in Hong Kong, Damian Chunilal, the chief executive officer for Asia at VTB Capital, said yesterday that investment opportunities in Russia are supported by the growth of its economy and the rise of the middle class.

“We’ll likely have a shift away from seeing Russia just as a natural resources play to a much more consumer play as the economy evolves,” said Chunilal. He compared Russia with China, which was considered a manufacturer to the world 10 to 20 years ago and is now the market everyone wants access to.

VTB Capital, which was one of the conference sponsors, offers investment banking products and services. It focuses on debt, equity and global commodities markets, and investment and asset management, as well as advising clients on M&A and equity capital markets deals in Russia and abroad.

Of course, VTB has a vested interest in telling the world how many opportunities there are in Russia as it seeks to develop Russia-Asia cross-border business. But the story is compelling.

The panellists at the conference agreed that Russia is serious about privatisation. For one, it is a way to raise capital, which Russia needs to do; but it is also a way to diversify its economy away from its reliance on natural resources — when oil prices are high, Russia is solvent; when it drops, so does the economic outlook.

Prime Minister Dmitry Medvedev and President Vladimir Putin may have different opinions on how and what to privatise, but if it can be done profitably, then it will be done. (Putin has gone on record saying he doesn’t want to see companies privatised “for pennies” and then sold “for big money” later.)

The assets often mentioned are headline-grabbers — from Aeroflot, the national airline, to diamond giant Alrosa, to Sovcomflot, which is a shipping group. But panellists at the conference also pointed out opportunities in infrastructure and natural resources, particularly with regard to helping feed China’s voracious appetite for resources, that are ideal for private equity investors and investors willing to take a mid- to long-term view. And there are opportunities in agriculture, as well.

So far the interest is mostly from investors in Hong Kong and China, as well as Korea. Indeed, China Investment Corp has been increasing its investments into Russia and announced in April plans to launch a China-Russia investment fund that will have an initial capital of $2 billion. And last month CIC and the Russia Direct Investment Fund announced they had signed a memorandum “signifying the full launch of the joint fund”.

While big IPOs are sexy, smaller investments that make strategic sense may be the way forward for Asian investors and corporations looking to benefit from the emergence of a new, well-rounded Russia.

¬ Haymarket Media Limited. All rights reserved.
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