Financial News
Jason Corcoran
26 February 2007
Letter from Moscow
Shares in Russia’s listed supermarket chains are flying off the shelves as investors digest a rush of takeover rumours by foreign and domestic players.
Recent reports suggest the founder of upmarket Sedmoi Kontinent, Vladimir Gruzdev, is going to sell his 37% stake to a partner or Andrey Melnichenko, the founder of MDM Bank. Shares jumped by 7% in a day on the story.
The chain, which operates about 20 supermarkets and five hypermarkets, became the country’s first retail group to float on the Russian stock market in 2004.
Sedmoi, or Seventh Continent, is pitched towards Moscow’s higher spenders. A single avocado in a central store last week cost 300 roubles (€8.70) while five pre-packed tomatoes would have set you back 250 roubles.
Those prices are well beyond the pocket of the average Moscovite, who might be more inclined to buy vodka and beetroot at X5’s Perekrestok and Pyaterochka mid-priced chains.
The latest stories have London-listed X5 walking down the aisle with France’s Carrefour, US group Wal-Mart or even Tesco of the UK.
The group’s chief executive said it may develop joint projects with foreign companies but denied these plans include the sale of a stake in X5. However, X5’s big shareholder is conglomerate Alfa Group, run by billionaire investor Mikhail Fridman.
Alfa’s interests stretch from retail and institutional banking to oil and telecoms, and Fridman seems to nurture foreign investors like President Vladimir Putin cultivates western foes.
But if Fridman chooses to sell his stake it is possible his friend and fellow oligarch Vladimir Potanin could become involved.
With the Kremlin apparently eager to “renationalise” Potanin’s nickel group Norilsk Nickel, analysts say the billionaire could move into retail if he sells.
In a recent interview, Potanin said he did not see the possibility of the government buying back Norilsk shares as “a personal tragedy but as a change in the business climate”.
Another oligarch soon to be jobless is Anatoly Chubais, who is presiding over the break-up of the electricity monopoly. His long-held plan of introducing competition by bringing on board portfolio investors and foreign firms is on the rocks.
State-controlled Gazprom has emerged one of the favourites to carve up the country’s power production and form regional monopolies. It also announced plans to merge its electricity and coal assets with the Siberian Coal Energy Company.
Chubais, deputy prime minister under Boris Yeltsin, described the Siberian deal “a big mistake on the part of the government”.
Chubais’s plans are unclear but it is unlikely he will turn to grocery. The interest in the food sector illustrates investor appetite for anything not linked to the political vagaries that affect natural resources.
The segment is one of the country’s most fragmented and underdeveloped. Only 28% of food is bought in large, western-style stores, with the top five retailers controlling 8% of the market, according to a UBS report.
The remainder of Russia’s grocery shopping is conducted in kiosks, ubiquitous corner stores known as produktis, and open-air markets.
Foreign grocers operating in Russia include Turkey’s Ramstore, Germany’s Edeka and Rewe and France’s Auchan. A move by Tesco into Russia would come after UK regulators highlighted concerns about monopolism and the emergence of “Tesco towns”.
The Competition Commission is examining whether Tesco and other supermarkets have established monopolies to dictate prices and levels of service.
www.efinancialnews.com
Monday 26 February 2007
Foreign buyers flock to Russia
Private Equity News
The former Soviet Union is attracting big game hunters
By Jason Corcoran in Moscow
An estimated $2.5bn (€1.9bn) was raised in Russia last year by funds using mainly foreign institutional money, and the government announced plans for a $1bn venture capital fund to stimulate investment in technology start-ups.
The market is dominated by local investors who have been around for a decade or more but there are signs Russia is arousing the interest of international private equity firms.
London-listed 3i planted its marker last year, committing $20m to Quadriga Capital Russia, based in St Petersburg. The fund has taken five significant minority stakes in companies in Moscow and St Petersburg, including a plastic container producer and a computer console game manufacturer.
Ere Kariola, the head of 3i in Finland, said the group’s next step would be to make direct coinvestments with Quadriga in the Russian midmarket. He said: “In Russia, you can’t sell private equity from a hotel rooftop. You must have a local presence to understand what is going on because it is a complicated place.”
Kariola said 3i’s relationship with Quadriga was a strategic one to pave the way for a push into the country although he declined to say whether 3i would take a stake in the Finnish firm. “It’s very critical to watch what’s happening to the Russian markets in the run-up to the presidential elections,” he said.
Last year, Russian investment banks Troika Dialog and Renaissance Capital raised almost $300m and $200m for their respective private equity funds. Former Russian finance minister Boris Fyodorov closed UFG Asset Management’s private equity fund at $280m.
Swedish investment managemement firm raised €350m to acquire stakes in the region’s banking sector and Guernsey-based Aurora raised £75m (€114m) on the Alternative Investment Market to invest in Russian mid-market companies.
Overall, foreign investment has shot up to $2.5bn from about $500m five years ago, according to Mike Calvey, managing partner at Baring Vostok Capital Partners, Russia’s largest private equity fund.
Calvey said: “Investment is increasing but it only represents about 5% of total M&A activity. Investors are scared off by geopolitical issues and what they read in the newspapers. They still don’t regard Russia as part of the global economy like China and India.”
Although many investors remain nervous of Russia’s record on corporate governance, accounting standards and lack of minority shareholder rights, Aurora director John McRoberts said its economic fundamentals were difficult to ignore. He said: “Hedge funds are sniffing around at pre-IPO funds and the big private equity funds will come as well when acquisition targets become large enough.”
The established participants say returns have been extremely good in recent years, with firms making several times their money. Baring Vostok and Renaissance Capital claimed to have notched up average historical portfolio growth rates of 40%.
Renaissance fund manager Sergey Nazov said RenFin, the group’s third private equity fund, had attracted more than 30 private and institutional investors, both international and domestic.
He said: “The idea for this fund was triggered by the high growth rates in the financial sector and the interest by foreign investors who are prepared to pay high multiples for strategic investments."
The decision by Carlyle to close its Moscow office in 2005 after making one modest investment has not deterred other western private equity firms from heading eastwards. Chris Rowlands, head of group markets at 3i, said the investment gave the group a foothold in a fastgrowing market with 7% GDP and a population of 140 million people.
US firm Texas Pacific and UK buyout firms Permira and CVC are also rumoured to be the running the slide rule over Russian investment opportunities for their global funds.
Investors say the range of target companies is expanding, and valuations increasing. The hottest sectors are consumer services and banking and financial services. East Capital’s Financial Institutions fund last year acquired sizeable holdings in Russian banks Kedr and Probusinessbank and stakes in Kazak bank JSC and Ukrainian bank Nadra. Aurora last month acquired a blocking stake in Unistream, Russia’s leading money transfer bank.
The recent pick-up in M&A activity means private equity firms have more exit strategies than the traditional trade sale route. Russian IPOs had a bumper 2006 and the pipeline is busy again this year with many private companies keen to diversify and engineer an exit ahead of presidential elections next year.
The Russian government is to set up 10 venture capital funds with $50m of state money in each. The government will contribute 49% of the capital with the remaining 51% being raised from private investors. A shortlist of asset managers is being whittled down before the Kremlin decides who will run the funds.
A demand for investor exposure to central and eastern Europe has arisen partly due its closer integration with the European Union. Mid Europa Partners closed its second fund 30% above its target with €650m while Argus Capital Partners last month closed its second fund at €262.73m, exceeding its €200m target and its €250m hard cap.
Ali Artunkal, managing partner of Argus, said exits had improved with big European funds entering the market and a rise in secondary transactions. He said: “It’s a maturing private equity scene compared to the transactions we were doing six or seven years ago. We now have a buyout environment with a lot of entrepreneurs in the region looking to cash in their chips.”
Investors say the risk premium is declining and prices are starting to go up.
Bridgepoint, a UK private equity group, has two significant investments in the region. AKatsastus, a vehicle inspection group, has operations in Poland and Russia while Forstinger, an automotive spare parts firm, serves central Europe.
A spokesman for Bridgepoint denied a rumour it was opening an office in Warsaw. “We
have an eye on eastern Europe and we have a lot of investments with operations there but we have no imminent plans for a presence on the ground,” he said.
As the central and eastern European market has matured, more financing instruments such as leverage buyouts and dedicated mezzanine funds have become available.
Franz Hörhager, executive director of Mezzanine Management, an investment manager, said his firm had seen the market for mezzanine deals take off in Poland, the Czech Republic and Hungary. He said: “Mezzanine in central and eastern Europe has a better chance of being done than in western Europe which is stretched to snapping point.”
Hörhager said returns had come down from 19% a few years ago in Poland to the mid teens but returns of 22% were possible in undeveloped markets such as Ukraine. Mezzanine Management is launching a new fund in the coming weeks which could take up to 20% exposure to Ukraine and Russia.
Mid Europa Partners along with investment bank Lehman Brothers and Al Bateen Investment, an Abu Dhabi investment holding company, recently acquired 100% of Czech telecom provider Radiokomunikace and 40% of TMobile Czech Republic. The transaction is to be partly funded with senior and mezzanine debt financing of €750m, in addition to equity.
February 15, 2007
www.efinancialnews.com/pen
The former Soviet Union is attracting big game hunters
By Jason Corcoran in Moscow
An estimated $2.5bn (€1.9bn) was raised in Russia last year by funds using mainly foreign institutional money, and the government announced plans for a $1bn venture capital fund to stimulate investment in technology start-ups.
The market is dominated by local investors who have been around for a decade or more but there are signs Russia is arousing the interest of international private equity firms.
London-listed 3i planted its marker last year, committing $20m to Quadriga Capital Russia, based in St Petersburg. The fund has taken five significant minority stakes in companies in Moscow and St Petersburg, including a plastic container producer and a computer console game manufacturer.
Ere Kariola, the head of 3i in Finland, said the group’s next step would be to make direct coinvestments with Quadriga in the Russian midmarket. He said: “In Russia, you can’t sell private equity from a hotel rooftop. You must have a local presence to understand what is going on because it is a complicated place.”
Kariola said 3i’s relationship with Quadriga was a strategic one to pave the way for a push into the country although he declined to say whether 3i would take a stake in the Finnish firm. “It’s very critical to watch what’s happening to the Russian markets in the run-up to the presidential elections,” he said.
Last year, Russian investment banks Troika Dialog and Renaissance Capital raised almost $300m and $200m for their respective private equity funds. Former Russian finance minister Boris Fyodorov closed UFG Asset Management’s private equity fund at $280m.
Swedish investment managemement firm raised €350m to acquire stakes in the region’s banking sector and Guernsey-based Aurora raised £75m (€114m) on the Alternative Investment Market to invest in Russian mid-market companies.
Overall, foreign investment has shot up to $2.5bn from about $500m five years ago, according to Mike Calvey, managing partner at Baring Vostok Capital Partners, Russia’s largest private equity fund.
Calvey said: “Investment is increasing but it only represents about 5% of total M&A activity. Investors are scared off by geopolitical issues and what they read in the newspapers. They still don’t regard Russia as part of the global economy like China and India.”
Although many investors remain nervous of Russia’s record on corporate governance, accounting standards and lack of minority shareholder rights, Aurora director John McRoberts said its economic fundamentals were difficult to ignore. He said: “Hedge funds are sniffing around at pre-IPO funds and the big private equity funds will come as well when acquisition targets become large enough.”
The established participants say returns have been extremely good in recent years, with firms making several times their money. Baring Vostok and Renaissance Capital claimed to have notched up average historical portfolio growth rates of 40%.
Renaissance fund manager Sergey Nazov said RenFin, the group’s third private equity fund, had attracted more than 30 private and institutional investors, both international and domestic.
He said: “The idea for this fund was triggered by the high growth rates in the financial sector and the interest by foreign investors who are prepared to pay high multiples for strategic investments."
The decision by Carlyle to close its Moscow office in 2005 after making one modest investment has not deterred other western private equity firms from heading eastwards. Chris Rowlands, head of group markets at 3i, said the investment gave the group a foothold in a fastgrowing market with 7% GDP and a population of 140 million people.
US firm Texas Pacific and UK buyout firms Permira and CVC are also rumoured to be the running the slide rule over Russian investment opportunities for their global funds.
Investors say the range of target companies is expanding, and valuations increasing. The hottest sectors are consumer services and banking and financial services. East Capital’s Financial Institutions fund last year acquired sizeable holdings in Russian banks Kedr and Probusinessbank and stakes in Kazak bank JSC and Ukrainian bank Nadra. Aurora last month acquired a blocking stake in Unistream, Russia’s leading money transfer bank.
The recent pick-up in M&A activity means private equity firms have more exit strategies than the traditional trade sale route. Russian IPOs had a bumper 2006 and the pipeline is busy again this year with many private companies keen to diversify and engineer an exit ahead of presidential elections next year.
The Russian government is to set up 10 venture capital funds with $50m of state money in each. The government will contribute 49% of the capital with the remaining 51% being raised from private investors. A shortlist of asset managers is being whittled down before the Kremlin decides who will run the funds.
A demand for investor exposure to central and eastern Europe has arisen partly due its closer integration with the European Union. Mid Europa Partners closed its second fund 30% above its target with €650m while Argus Capital Partners last month closed its second fund at €262.73m, exceeding its €200m target and its €250m hard cap.
Ali Artunkal, managing partner of Argus, said exits had improved with big European funds entering the market and a rise in secondary transactions. He said: “It’s a maturing private equity scene compared to the transactions we were doing six or seven years ago. We now have a buyout environment with a lot of entrepreneurs in the region looking to cash in their chips.”
Investors say the risk premium is declining and prices are starting to go up.
Bridgepoint, a UK private equity group, has two significant investments in the region. AKatsastus, a vehicle inspection group, has operations in Poland and Russia while Forstinger, an automotive spare parts firm, serves central Europe.
A spokesman for Bridgepoint denied a rumour it was opening an office in Warsaw. “We
have an eye on eastern Europe and we have a lot of investments with operations there but we have no imminent plans for a presence on the ground,” he said.
As the central and eastern European market has matured, more financing instruments such as leverage buyouts and dedicated mezzanine funds have become available.
Franz Hörhager, executive director of Mezzanine Management, an investment manager, said his firm had seen the market for mezzanine deals take off in Poland, the Czech Republic and Hungary. He said: “Mezzanine in central and eastern Europe has a better chance of being done than in western Europe which is stretched to snapping point.”
Hörhager said returns had come down from 19% a few years ago in Poland to the mid teens but returns of 22% were possible in undeveloped markets such as Ukraine. Mezzanine Management is launching a new fund in the coming weeks which could take up to 20% exposure to Ukraine and Russia.
Mid Europa Partners along with investment bank Lehman Brothers and Al Bateen Investment, an Abu Dhabi investment holding company, recently acquired 100% of Czech telecom provider Radiokomunikace and 40% of TMobile Czech Republic. The transaction is to be partly funded with senior and mezzanine debt financing of €750m, in addition to equity.
February 15, 2007
www.efinancialnews.com/pen
Thursday 15 February 2007
Russia chief quits for $20m
By Jason Corcoran in Moscow and David Rothnie
Financial News
The head of Russia at UBS has quit to join local rival Alfa Group, amid a scramble for investment banking talent and fierce competition to win business in the region.
Ed Kaufman has resigned as head of Russia, Ukraine and Kazakhstan at UBS and will join Alfa Bank as chief executive of its investment banking business.
Kaufman who will leave UBS at the end of February, is understood to have been lured by Alfa with a guaranteed $20m (€15.4m) over two years.
Kaufman described the package as “very generous” and said he was joining Alfa Bank "for the challenge of doing something different".
Kaufman, an American, joined UBS in 2002 when the Swiss investment bank bought a stake in his former employer, Russian brokerage Brunswick.
Financial News reported last month that Alfa Bank was trying to recruit Kaufman, who said he had held talks with other parties but that none had been serious or detailed.
The departure of Kaufman, regarded as one of the top foreign bankers in Russia, comes at a time when competition for talent is intense with international banks expanding or opening offices in Moscow to capture a share of the $30bn worth of Russian listings expected this year.
A spokeswoman for UBS in Moscow said: "Replacing [Kaufman] is not an issue as such at the moment, as the local investment banking team is quite strong and there is no immediate need for one senior single head. it will be sorted out gradually."
Market observers say local banks such as Renaissance Capital and Alfa are pushing up recruitment costs for foreign entrants. Renaissance hired Bob Foresman, head of Dresdner Kleinwort’s Russian business, as deputy chairman and recruited seven other bankers from its rivals, using its shares to persuade them to leave larger investment banks.
February 13, 2007
www.efinancialnews.com
Financial News
The head of Russia at UBS has quit to join local rival Alfa Group, amid a scramble for investment banking talent and fierce competition to win business in the region.
Ed Kaufman has resigned as head of Russia, Ukraine and Kazakhstan at UBS and will join Alfa Bank as chief executive of its investment banking business.
Kaufman who will leave UBS at the end of February, is understood to have been lured by Alfa with a guaranteed $20m (€15.4m) over two years.
Kaufman described the package as “very generous” and said he was joining Alfa Bank "for the challenge of doing something different".
Kaufman, an American, joined UBS in 2002 when the Swiss investment bank bought a stake in his former employer, Russian brokerage Brunswick.
Financial News reported last month that Alfa Bank was trying to recruit Kaufman, who said he had held talks with other parties but that none had been serious or detailed.
The departure of Kaufman, regarded as one of the top foreign bankers in Russia, comes at a time when competition for talent is intense with international banks expanding or opening offices in Moscow to capture a share of the $30bn worth of Russian listings expected this year.
A spokeswoman for UBS in Moscow said: "Replacing [Kaufman] is not an issue as such at the moment, as the local investment banking team is quite strong and there is no immediate need for one senior single head. it will be sorted out gradually."
Market observers say local banks such as Renaissance Capital and Alfa are pushing up recruitment costs for foreign entrants. Renaissance hired Bob Foresman, head of Dresdner Kleinwort’s Russian business, as deputy chairman and recruited seven other bankers from its rivals, using its shares to persuade them to leave larger investment banks.
February 13, 2007
www.efinancialnews.com
Russian watchdog bares teeth at Gazprom
By Jason Corcoran in Moscow
Financial News
The head of Russia’s anti-monopoly regulator has set himself on a collision course with Gazprom by promising to oppose the energy group if it attempts to take over Russia’s largest independent gas producer, Novatek, and other domestic production assets.
In an interview with Financial News, Igor Artemyev, the director of the Federal Antimonopoly Service, said new anti-trust laws would give the commission more teeth. He said: “We will try to prevent Gazprom from buying Novatek. If they try to buy even a blocking stake, we will try to stop them from doing that.”
The main shareholders of Novatek, in which Gazprom has a 20% share, were reported by Russian media in the past week to be considering the sale of their 49.4% holding.
Artemyev said Gazprom would not be deregulated while the government was engaged in breaking up other natural monopolies.
He said: “The UES electricity monopoly, which is headed by Anatoly Chubais, will be replaced by 1,000 new companies. Gazprom is the only natural monopoly left that takes over private companies. It’s the opposite of the trend but these new laws give us the weapon to change the situation.”
The FAS wins 80% of lawsuits it takes up but only 30% when it comes up against Gazprom.
The laws will allow the FAS to take legal action against government officials and fine offending companies up to 4% of revenues, a 10-fold increase.
Artemyev, brought into the cabinet by President Vladimir Putin from the opposition liberal party Yabloko in 2004, sees little need for intervention in Russia’s fast-growing financial services.
He said: “More new and flexible banks are conquering the markets. When we join the World Trade Organisation, it will change the essence of our financial system.”
He said the FAS intended to approve the merger of aluminum companies Rusal and Sual in coming days, although tough conditions would be set.
According to Artemyev, the anti-monopoly service has been able to start operating properly because of the wane in influence of oligarchs.
“I think the president, the parliament and the government are playing a different role than 10 years ago,” he said.
February 12, 2007
www.efinancialnews.com
Financial News
The head of Russia’s anti-monopoly regulator has set himself on a collision course with Gazprom by promising to oppose the energy group if it attempts to take over Russia’s largest independent gas producer, Novatek, and other domestic production assets.
In an interview with Financial News, Igor Artemyev, the director of the Federal Antimonopoly Service, said new anti-trust laws would give the commission more teeth. He said: “We will try to prevent Gazprom from buying Novatek. If they try to buy even a blocking stake, we will try to stop them from doing that.”
The main shareholders of Novatek, in which Gazprom has a 20% share, were reported by Russian media in the past week to be considering the sale of their 49.4% holding.
Artemyev said Gazprom would not be deregulated while the government was engaged in breaking up other natural monopolies.
He said: “The UES electricity monopoly, which is headed by Anatoly Chubais, will be replaced by 1,000 new companies. Gazprom is the only natural monopoly left that takes over private companies. It’s the opposite of the trend but these new laws give us the weapon to change the situation.”
The FAS wins 80% of lawsuits it takes up but only 30% when it comes up against Gazprom.
The laws will allow the FAS to take legal action against government officials and fine offending companies up to 4% of revenues, a 10-fold increase.
Artemyev, brought into the cabinet by President Vladimir Putin from the opposition liberal party Yabloko in 2004, sees little need for intervention in Russia’s fast-growing financial services.
He said: “More new and flexible banks are conquering the markets. When we join the World Trade Organisation, it will change the essence of our financial system.”
He said the FAS intended to approve the merger of aluminum companies Rusal and Sual in coming days, although tough conditions would be set.
According to Artemyev, the anti-monopoly service has been able to start operating properly because of the wane in influence of oligarchs.
“I think the president, the parliament and the government are playing a different role than 10 years ago,” he said.
February 12, 2007
www.efinancialnews.com
INTERVIEW: Igor Artemyev, head of Russia's Federal Anti-Monopoly Service
Jason Corcoran in Moscow
bne talks to Igor Artemyev, head of Russia's Federal Anti-Monopoly Service, which is gaining a deserved reputation for holding Russian domestic producers and even state-controlled entitles to account.
Business New Europe
Much of the responsibility for having turned Russia's anti-monopoly commission into one of the country's more effective market regulators rests on the broad shoulders of its director, Igor Artemyev.
The career politician, who once played full-back for the Leningrad rugby union club in the old USSR league, has proved that he is willing and able to charge and tackle opponents considerably larger than himself.
Although the Federal Anti-Monopoly Service (FAS) is not free from political pressure, it has a track record of following the law and has been involved in a number of high-profile cases where Russian domestic producers and even state-controlled entitles, such as the savings bank Sberbank, have been held to account.
With reform of the electricity sector in progress and deregulation occurring in other natural monopolies like the railways, Artemyev told bne in an exclusive interview that the FAS is well on it on way to becoming a European-styled regulator.
"I consider the FAS to be my main project in life and I think there is tremendous potential putting its full powers in place and I put a high value on this. I want the anti-monopoly service to be a truly European body in terms of its contents and style," he says.
New anti-trust legislation will allow the FAS to take legal action against government officials and to fine companies up to 4% of their revenues, a 10-fold increase on existing fines, though still some way short of the EU levy of 10%.
"Until 2004, the maximum fine was RUB500,000, or $17,000, for any client," explains Artemyev. "This meant that after a year of litigation, the company would just pay the fine, which was peanuts, and keep going as before."
"For more dangerous crimes, such as forming cartels, there may be imprisonment of three, five, seven or even 10 years and we would like this law to be force by the end of this year. Then the FAS will be a more powerful lobby. At the moment, we are just beginning and we are still having very little impact on real economics," he says.
Sanctuary from the law
Overall, Artemyev claims that FAS wins 80% of its cases, although that figures drops to 30% when it comes up against the state-controlled Gazprom. The FAS has tangled continuously with what Artemyev refers to as Russia's last zapovednik, or sanctuary, of natural monopolies.
Although he says there had been no pressure from the Kremlin, the FAS has only been able to delay the energy giant's wresting of control over companies such as Mosenergo and Northgas.
The FAS will continue to oppose Gazprom's growing monopolism, but Artemyev is realistic about what can be achieved. "We normally launch about 20 suits against Gazprom a year and there have never been any complaints from the government or the Kremlin. But there is one rational reason why Gazprom won't be reformed and that is because Russia is carrying through a reform of its electricity industry that no other country has done before in terms of its scale. It's impossible to carry out this kind of reform simultaneously with reform of Gazprom. This definitely can't be done. There may be irrational reasons as well."
High profile campaigns have also put the spotlight on Russia's leading mobile phone companies, the construction and banking industries.
The FAS makes no distinctions for foreign companies and last week fined beverage maker PepsiCo Holdings for breaking advertising laws.
"Russian companies are more often the target of such action, but recent cases [against foreign firms] are Nissan, Ushan, Visa, Adidas International and Western Union," he says. "It's all about having good lawyers and being able to explain the new law. We have taken a neutral and friendly position with foreign business and we meet executives from foreign companies to try to explain our position."
Artemyev is a unique figure in the cabinet, as he was co-opted from the opposition Yabloko party in 2004. Far from leaving the party, he retained his position as a deputy to party chairman Grigory Yavlinsky and says the two roles don't conflict.
"Under the laws of the state service, I must be loyal to my employers and I am loyal to them. I know that both the president and the prime minister have good knowledge of my years and so far I have never been able to break any etiquette as regards Yabloko and as regards my employers," he says.
Artemyev, who served as vice-governor of St Petersburg from 1996 to 1999, says he will stay on at the FAS for as long as his prime minister and president want him. A survivor of the rough and tumble of St Petersburg public life, he is philosophical about the dangers of shining light on murky business practises in Russia.
"I knew the banker Andrei Kozlov very well and he is a tremendous loss," he laments. "As for being afraid, I have been through this before when I was deputy governor of St Petersburg. What was happening in St Petersburg in the mid-1990s is a lot worse than what happens today. At that time I was very anxious. I think you should just do what you are able to do and just trust your stars."
February 13 2006
bne talks to Igor Artemyev, head of Russia's Federal Anti-Monopoly Service, which is gaining a deserved reputation for holding Russian domestic producers and even state-controlled entitles to account.
Business New Europe
Much of the responsibility for having turned Russia's anti-monopoly commission into one of the country's more effective market regulators rests on the broad shoulders of its director, Igor Artemyev.
The career politician, who once played full-back for the Leningrad rugby union club in the old USSR league, has proved that he is willing and able to charge and tackle opponents considerably larger than himself.
Although the Federal Anti-Monopoly Service (FAS) is not free from political pressure, it has a track record of following the law and has been involved in a number of high-profile cases where Russian domestic producers and even state-controlled entitles, such as the savings bank Sberbank, have been held to account.
With reform of the electricity sector in progress and deregulation occurring in other natural monopolies like the railways, Artemyev told bne in an exclusive interview that the FAS is well on it on way to becoming a European-styled regulator.
"I consider the FAS to be my main project in life and I think there is tremendous potential putting its full powers in place and I put a high value on this. I want the anti-monopoly service to be a truly European body in terms of its contents and style," he says.
New anti-trust legislation will allow the FAS to take legal action against government officials and to fine companies up to 4% of their revenues, a 10-fold increase on existing fines, though still some way short of the EU levy of 10%.
"Until 2004, the maximum fine was RUB500,000, or $17,000, for any client," explains Artemyev. "This meant that after a year of litigation, the company would just pay the fine, which was peanuts, and keep going as before."
"For more dangerous crimes, such as forming cartels, there may be imprisonment of three, five, seven or even 10 years and we would like this law to be force by the end of this year. Then the FAS will be a more powerful lobby. At the moment, we are just beginning and we are still having very little impact on real economics," he says.
Sanctuary from the law
Overall, Artemyev claims that FAS wins 80% of its cases, although that figures drops to 30% when it comes up against the state-controlled Gazprom. The FAS has tangled continuously with what Artemyev refers to as Russia's last zapovednik, or sanctuary, of natural monopolies.
Although he says there had been no pressure from the Kremlin, the FAS has only been able to delay the energy giant's wresting of control over companies such as Mosenergo and Northgas.
The FAS will continue to oppose Gazprom's growing monopolism, but Artemyev is realistic about what can be achieved. "We normally launch about 20 suits against Gazprom a year and there have never been any complaints from the government or the Kremlin. But there is one rational reason why Gazprom won't be reformed and that is because Russia is carrying through a reform of its electricity industry that no other country has done before in terms of its scale. It's impossible to carry out this kind of reform simultaneously with reform of Gazprom. This definitely can't be done. There may be irrational reasons as well."
High profile campaigns have also put the spotlight on Russia's leading mobile phone companies, the construction and banking industries.
The FAS makes no distinctions for foreign companies and last week fined beverage maker PepsiCo Holdings for breaking advertising laws.
"Russian companies are more often the target of such action, but recent cases [against foreign firms] are Nissan, Ushan, Visa, Adidas International and Western Union," he says. "It's all about having good lawyers and being able to explain the new law. We have taken a neutral and friendly position with foreign business and we meet executives from foreign companies to try to explain our position."
Artemyev is a unique figure in the cabinet, as he was co-opted from the opposition Yabloko party in 2004. Far from leaving the party, he retained his position as a deputy to party chairman Grigory Yavlinsky and says the two roles don't conflict.
"Under the laws of the state service, I must be loyal to my employers and I am loyal to them. I know that both the president and the prime minister have good knowledge of my years and so far I have never been able to break any etiquette as regards Yabloko and as regards my employers," he says.
Artemyev, who served as vice-governor of St Petersburg from 1996 to 1999, says he will stay on at the FAS for as long as his prime minister and president want him. A survivor of the rough and tumble of St Petersburg public life, he is philosophical about the dangers of shining light on murky business practises in Russia.
"I knew the banker Andrei Kozlov very well and he is a tremendous loss," he laments. "As for being afraid, I have been through this before when I was deputy governor of St Petersburg. What was happening in St Petersburg in the mid-1990s is a lot worse than what happens today. At that time I was very anxious. I think you should just do what you are able to do and just trust your stars."
February 13 2006
EasyJetski of the Russian skies
Jason Corcoran in Moscow
Business New Europe
Some new life was breathed into Russia's aging aviation industry last week when a Siberian businessman launched SkyExpress, the country's first budget airline, and the government said its "SuperJet," the first new design of a Russian plane since Soviet times, went into production.
The Kremlin announced plans to produce 700 SuperJet passenger aircraft in the coming years. State-owned aviation giant Sukhoi will make the SuperJet 100 to replace the ageing Tu-134 aircraft, which is widely used by Russian airlines.
The 40-metre fuselage, a wing and a tail fin of the very first SuperJet 100 were delivered on January 29 to the Zhukovsky Central Aerohydrodynamic Institute to the southeast of Moscow for stationary tests under a cloak of secrecy.
"It's all a big mystery so far," says Marina Alexeenkova, vice president of research at Renaissance Capital. "Nobody has seen the Superjet and we don't know who is going to supply parts and the components or what the price will be."
According to Defence Minister Sergei Ivanov, the Sukhoi SuperJet will make its maiden flight later this year, while mass production is expected to begin in 2008.
Sukhoi said it had contracts to sell over 50 of the 100-seater SuperJets to Aeroflot, Dalavia, Air Union and other airlines, while 70% would be reserved for sale on the international market.
The Kremlin's aviation holding company United Aircraft Company (UAC) has said it may cooperate with European Aeronautic Defence and Space Company (EADS), which makes the Airbus planes, on civilian aircraft.
UAC, one of the national champions set up to "rescue" struggling key sectors, was officially registered in November and is expected to begin operations sometime in the next two months. The company will finance its further development with an IPO in late 2007 or early 2008.
Ivanov said UAC's plans involve, "raising the share of Russian-made civilian aircraft on the world market to 5-7% before 2012 and to 10-12% by 2015."
Shares in EADS jumped by 1.7% to €25.00 on January 29 following a report in business magazine Capital suggesting it might sell a 20% stake in Airbus to Russian state interests. EADS strongly denied the report, though state-owned bank VTB already owns a 5% stake in EADS and President Vladimir Putin said in September the stake may be transferred to the UAC. And Renaissance's Alexeenkova says the government is certainly interested in investing in foreign aviation assets given the globalisation of the industry.
Russian companies are now involved in the R&D and production of Airbus planes. Irkut, the Russia defence company which is part of UAC umbrella, has broadened its cooperation with Airbus since signing a 10-year contract in 2004 to supply parts for the A320. It's also supplying parts for the A330/A340 family and will assist in the conversion of the A320 into freighters.
EasyJetski
Meanwhile, budget airline SkyExpress completed its inaugural flight on January 29, safely delivering 91 passengers to Sochi from Moscow's Vnukovo Airport.
Passengers paid as little as RUB900 ($35) for a return ticket to Sochi - a fraction of what the former state airline Aerolfot charges.
The airline, which is starting with just two planes, aims to gain a 7% share of domestic Russian flights by the end of 2007, and 25% by 2011.
Scheduled flights to Rostov-On-Don will begin on February 9 with two flights a day and service to Murmansk on Russia's icy northeast coast with one daily flight will commence on February 14.
Billionaire Mikhail Fridman's Alfa Group is also considering setting up a low-cost airline, but could wait to see how SkyExpress fares.
Aeroflot, previously known as "Aeroplop" because of it safety record and outrageous delays, has its plans to move with the times. Its chief executive, Valery Okhulov, said last year Aeroflot would attempt to build domestic market share to 30% by 2010 from the current 14%.
The airline, which recently introduced internet booking, is expanding European and Asian services and is investing $150m in Moscow's new Sheremetyevo-3 terminal, with banks chipping in another $300m-400m.
February 6, 2006
http://www.businessneweurope.eu
Business New Europe
Some new life was breathed into Russia's aging aviation industry last week when a Siberian businessman launched SkyExpress, the country's first budget airline, and the government said its "SuperJet," the first new design of a Russian plane since Soviet times, went into production.
The Kremlin announced plans to produce 700 SuperJet passenger aircraft in the coming years. State-owned aviation giant Sukhoi will make the SuperJet 100 to replace the ageing Tu-134 aircraft, which is widely used by Russian airlines.
The 40-metre fuselage, a wing and a tail fin of the very first SuperJet 100 were delivered on January 29 to the Zhukovsky Central Aerohydrodynamic Institute to the southeast of Moscow for stationary tests under a cloak of secrecy.
"It's all a big mystery so far," says Marina Alexeenkova, vice president of research at Renaissance Capital. "Nobody has seen the Superjet and we don't know who is going to supply parts and the components or what the price will be."
According to Defence Minister Sergei Ivanov, the Sukhoi SuperJet will make its maiden flight later this year, while mass production is expected to begin in 2008.
Sukhoi said it had contracts to sell over 50 of the 100-seater SuperJets to Aeroflot, Dalavia, Air Union and other airlines, while 70% would be reserved for sale on the international market.
The Kremlin's aviation holding company United Aircraft Company (UAC) has said it may cooperate with European Aeronautic Defence and Space Company (EADS), which makes the Airbus planes, on civilian aircraft.
UAC, one of the national champions set up to "rescue" struggling key sectors, was officially registered in November and is expected to begin operations sometime in the next two months. The company will finance its further development with an IPO in late 2007 or early 2008.
Ivanov said UAC's plans involve, "raising the share of Russian-made civilian aircraft on the world market to 5-7% before 2012 and to 10-12% by 2015."
Shares in EADS jumped by 1.7% to €25.00 on January 29 following a report in business magazine Capital suggesting it might sell a 20% stake in Airbus to Russian state interests. EADS strongly denied the report, though state-owned bank VTB already owns a 5% stake in EADS and President Vladimir Putin said in September the stake may be transferred to the UAC. And Renaissance's Alexeenkova says the government is certainly interested in investing in foreign aviation assets given the globalisation of the industry.
Russian companies are now involved in the R&D and production of Airbus planes. Irkut, the Russia defence company which is part of UAC umbrella, has broadened its cooperation with Airbus since signing a 10-year contract in 2004 to supply parts for the A320. It's also supplying parts for the A330/A340 family and will assist in the conversion of the A320 into freighters.
EasyJetski
Meanwhile, budget airline SkyExpress completed its inaugural flight on January 29, safely delivering 91 passengers to Sochi from Moscow's Vnukovo Airport.
Passengers paid as little as RUB900 ($35) for a return ticket to Sochi - a fraction of what the former state airline Aerolfot charges.
The airline, which is starting with just two planes, aims to gain a 7% share of domestic Russian flights by the end of 2007, and 25% by 2011.
Scheduled flights to Rostov-On-Don will begin on February 9 with two flights a day and service to Murmansk on Russia's icy northeast coast with one daily flight will commence on February 14.
Billionaire Mikhail Fridman's Alfa Group is also considering setting up a low-cost airline, but could wait to see how SkyExpress fares.
Aeroflot, previously known as "Aeroplop" because of it safety record and outrageous delays, has its plans to move with the times. Its chief executive, Valery Okhulov, said last year Aeroflot would attempt to build domestic market share to 30% by 2010 from the current 14%.
The airline, which recently introduced internet booking, is expanding European and Asian services and is investing $150m in Moscow's new Sheremetyevo-3 terminal, with banks chipping in another $300m-400m.
February 6, 2006
http://www.businessneweurope.eu
FIM joins growing list of Nordic funds taking on Russia
Business New Europe
Jason Corcoran in Moscow
A plucky Finnish investment manager is about to launch Russian domiciled mutual funds, though the major Western firms remain decidedly cagey about setting up shop in Moscow.
FIM Asset Management, which is Finland's fourth-largest fund manager by income, is targeting Russia's emerging middle class with the launch of three mutual funds later in this quarter.
"The Russian mutual fund market is about a tenth of the size of the Finnish market. This represents a huge opportunity and we feel FIM has the competitive edge and the experience of investing in Russia to make serious in-roads," says Jan Forsbom, chief executive of FIM Asset Management.
The three rouble-denominated funds – FIM Russian Equities, FIM Russian Portfolio and FIM Russian Bonds – will closely match existing FIM funds that invest in Russia.
An emerging market specialist, FIM has been investing in Russian stocks since 1997 and its large- and small-cap Russian funds already have over €500m under management. The large-cap fund is one of the top-three mutual funds investing in Russia over five years with a return of 40%, against a benchmark of 38%.
Analysts at FIM have recently begun equity research operations in Russia with a specified focus on small- and mid-cap stocks. The funds will be mainly distributed in Russia but they are also available for international investors.
Forsbom admitted the success of FIM's Russian gamble hinges on the number of distribution agreements it can set up with insurance brokers, financial advisors and other third parties. He said a number of agreements had already been signed, but declined to give details.
FIM's target for its first year in Russia is to develop a distribution network and to gain €100m in funds under management. With a total of €3bn in assets under management, FIM has been able to add business by arranging third-party distribution agreements with the likes of BNP Paribas Asset Management and Nomura Asset Management. In Russia, Citigroup has spurred the growth of fund inflows through its open-architecture platform and FIM’s Forsbom wouldn't discount the possibility of doing deal with the US giant.
Russia's fund industry matures
The Russian fund management sector is set to undergo radical consolidation with many firms going bust or being bought up by the market leaders, according to Aren Apikyan, managing director at Alfa Capital, which manages over $400m.
"There are about 150 asset management firms in Russia but 90% of the sales are down to six or seven players. The remainder have 10% of the market, but this is going to change with more bankruptcies and the rest being bought up by foreign asset managers," Apikyan says.
Benelux manager Fortis set up a joint venture last year with CIT Finance Asset Management of St Petersburg and more Western fund firms are rumoured to follow. Yet in 2005, State Street Global Advisors, a US institutional fund manager, ended its seven-year partnership with local manager Pallada Asset Management.
"The big retail managers are piling into China and India, but Russia is still viewed as a basket case because of its lack of transparency and its cumbersome regulatory regime," said a London-based fund manager.
FIM, which listed on the Helskinki Stock Exchange last spring to fund its overseas expansion, is just the latest Nordic player to enter the Russian retail financial sector. The saturation of the Scandinavian market has prompted Swedbank, the Nordic region's fifth-largest bank by market value, to launch retail services in Russia via its ownership of the Baltic bank Hansabank. And in November last year Danske Bank acquired Finland’s Sampo Bank to expand its reach in the Nordic and Baltic regions.
"In the last few years, [FIM] grew fast at the rate of 40% but now we have reached a ceiling in Finland as have Dankse and Nordea. Our plan is to develop further in Russia, in Sweden through the public defined contribution pension plan (PPM) and to register funds in Luxembourg to sell to the mid-European fund supermarkets," says Forsbrom.
February 1, 2007
Jason Corcoran in Moscow
A plucky Finnish investment manager is about to launch Russian domiciled mutual funds, though the major Western firms remain decidedly cagey about setting up shop in Moscow.
FIM Asset Management, which is Finland's fourth-largest fund manager by income, is targeting Russia's emerging middle class with the launch of three mutual funds later in this quarter.
"The Russian mutual fund market is about a tenth of the size of the Finnish market. This represents a huge opportunity and we feel FIM has the competitive edge and the experience of investing in Russia to make serious in-roads," says Jan Forsbom, chief executive of FIM Asset Management.
The three rouble-denominated funds – FIM Russian Equities, FIM Russian Portfolio and FIM Russian Bonds – will closely match existing FIM funds that invest in Russia.
An emerging market specialist, FIM has been investing in Russian stocks since 1997 and its large- and small-cap Russian funds already have over €500m under management. The large-cap fund is one of the top-three mutual funds investing in Russia over five years with a return of 40%, against a benchmark of 38%.
Analysts at FIM have recently begun equity research operations in Russia with a specified focus on small- and mid-cap stocks. The funds will be mainly distributed in Russia but they are also available for international investors.
Forsbom admitted the success of FIM's Russian gamble hinges on the number of distribution agreements it can set up with insurance brokers, financial advisors and other third parties. He said a number of agreements had already been signed, but declined to give details.
FIM's target for its first year in Russia is to develop a distribution network and to gain €100m in funds under management. With a total of €3bn in assets under management, FIM has been able to add business by arranging third-party distribution agreements with the likes of BNP Paribas Asset Management and Nomura Asset Management. In Russia, Citigroup has spurred the growth of fund inflows through its open-architecture platform and FIM’s Forsbom wouldn't discount the possibility of doing deal with the US giant.
Russia's fund industry matures
The Russian fund management sector is set to undergo radical consolidation with many firms going bust or being bought up by the market leaders, according to Aren Apikyan, managing director at Alfa Capital, which manages over $400m.
"There are about 150 asset management firms in Russia but 90% of the sales are down to six or seven players. The remainder have 10% of the market, but this is going to change with more bankruptcies and the rest being bought up by foreign asset managers," Apikyan says.
Benelux manager Fortis set up a joint venture last year with CIT Finance Asset Management of St Petersburg and more Western fund firms are rumoured to follow. Yet in 2005, State Street Global Advisors, a US institutional fund manager, ended its seven-year partnership with local manager Pallada Asset Management.
"The big retail managers are piling into China and India, but Russia is still viewed as a basket case because of its lack of transparency and its cumbersome regulatory regime," said a London-based fund manager.
FIM, which listed on the Helskinki Stock Exchange last spring to fund its overseas expansion, is just the latest Nordic player to enter the Russian retail financial sector. The saturation of the Scandinavian market has prompted Swedbank, the Nordic region's fifth-largest bank by market value, to launch retail services in Russia via its ownership of the Baltic bank Hansabank. And in November last year Danske Bank acquired Finland’s Sampo Bank to expand its reach in the Nordic and Baltic regions.
"In the last few years, [FIM] grew fast at the rate of 40% but now we have reached a ceiling in Finland as have Dankse and Nordea. Our plan is to develop further in Russia, in Sweden through the public defined contribution pension plan (PPM) and to register funds in Luxembourg to sell to the mid-European fund supermarkets," says Forsbrom.
February 1, 2007
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