Monday, 31 March 2008

Russians square up to western rivals

Financial News

Jason Corcoran in Moscow

31 March 2008

Renaissance and Troika are winning battles for talent and business

Russian investment banks have built up their strength and fought back against a year-long siege in Moscow by their western bulge-bracket rivals. A new investment banking hierarchy has emerged since Financial News last took a snapshot of the Russian market almost a year ago.

Local brokerages Renaissance Capital and Troika Dialog are going toe to toe with international heavyweights and are winning battles for talent and business in equity capital markets.

Ruben Aganbegyan, chief executive of Renaissance Capital Russia, said: “We have a long-established presence on the ground – we are strongly opposed to the ‘fly in, fly out’ investment banking model in all the markets where we operate. We believe our clients have the right to expect their bankers to be next to them all the time.”

Financial News last week disclosed Renaissance had hired William Donaldson, the former head of the US Securities and Exchange Commission, as a senior adviser to build links with Wall Street.

Domestic boutiques KIT Finance and Metropol Invest have emerged as top-four players in Russian M&A over the past year. Both banks earned their positions on the strength of utility sector transactions.

State-controlled bank VTB is setting up a full-service investment bank headquartered in London and last week hired Yuri Soloviev, deputy chairman of Deutsche Bank’s Russian arm, to run the business.

Russia’s leading lender Sberbank is looking at co-operating with Goldman Sachs in international capital markets and is considering a move into investment banking.

Deutsche Bank was last week hit by another departure from its Moscow business. Co-head of investment banking Dmitry Snesar left the bank to join a boutique founded by Ilya Sherbovich, whose resignation from the bank last year led to Snesar’s promotion.

However the German bank has yet to see a dent in its market-leading position, in spite of the departure of some of its top rainmakers over the past year.

Competition has increased remuneration. Bankers at managing director level can earn from $3m (€1.9m) to $5m, while juniors on sales and trading desk are pulling in an average of $1m.

Recruiters say Russian banks have been more successful at hiring and retaining talent lately because of their deeper pockets and the direct involvement of chairmen and chief executives in the hiring.

Jonathan Astbury, a managing director at headhunter Sandton Group, said: “Renaissance Capital and Troika offer strong cultures and are still in growth mode so they can often offer roles with a bigger remit and a chance to make an impact. Because on a per capita basis they perform well, they are able to compete with tier-one bulge brackets in terms of salary and bonuses.”

Russian initial public offerings raised a record $29.4bn last year, according to media research company PBN, half that due to Sberbank’s and VTB’s listings and some analysts believe the liquidity crisis will have a serious effect on equity issuance this year.

Russian corporate borrowing has slowed as a result of the credit crunch. Debt issuance rose to $48.7bn last year, from $43.2bn in 2006, but almost 90% of the year’s issuance took place in the first three quarters.

Dealmaking, particularly in the financial and consumer sectors, has filled the void, with 179 deals worth $22.7bn in the first two months of this year, according to data provider Dealogic.

Meanwhile with Moscow’s market close to saturation, banks are looking to Ukraine, Kazakhstan and other former Soviet states. Deutsche Bank, Morgan Stanley, Credit Suisse and UBS are all expanding in Ukraine’s capital Kiev.

Financial News profiles how some of the leading banks are faring. Rankings given are for the last 12 months, according to data from Thomson Financial, with the previous year’s rankings in brackets.


ECM: 10th (5th) DCM: 1st (10th) M&A: 15th (4th)
Rainmaker: Charles Lucas, head of central and eastern Europe and Middle East

The acquisition of ABN Amro by UK bank RBS led to the demise of its international equity capital markets joint venture with Rothschild. A company source said most of the venture’s staff in Moscow had taken positions at ABN Amro. RBS last week also revealed it was terminating another joint venture with Renaissance, which was providing currency, interest rate and credit derivatives to the Russian bank’s clients. It was adviser to last year’s $1bn initial public offering by LSR Group, a Saint Petersburg-based real estate company.


ECM: 3rd (13th) DCM: 2nd (4th) M&A: 9th (13th)
Rainmaker: Irackly Mtibelishvily, head of investment banking in Russia

Citigroup climbed the rankings in equity capital markets thanks to its advisory role in the initial public offering of state-run bank VTB and the listing of chemical producer Uralkali. A Moscow spokeswoman said Citigroup was building its business and had promoted Slava Slavinskiy to director of investment banking and hired Andre Lu as a senior banker.

Credit Suisse

Staff: 160. ECM: 14th (2nd) DCM: 9th (2nd) M&A: 11th (2nd)
Rainmaker: Steve Hellman, managing director, investment banking.

Credit Suisse has doubled its numbers in investment banking and equities over the past year in a push to gain market share. The bank this month acted as adviser to Russian steelmaker’s Evraz $4bn acquisition of pipe and plate business Ipsco Tubular. Charlie White-Thomson is relocating to Moscow to head the Russian equities franchise and Boris Reyzelman has been named head of sales and trading. A London spokeswoman said: “We now have a strong local equities sales force, as well as Moscow-based equity research analysts.”

•Deutsche Bank

Staff: 900. ECM: 1st (6th) DCM: 3rd (1st) M&A: 6th (1st)
Rainmakers: Andrew Chulack and Dmitry Snesar, co-heads of global banking in Russia

The German bank continues to lead the way in Moscow’s capital markets despite an exodus of senior bankers. Last week Dmitri Snesar, co-head of investment banking, left to join a boutique run by Ilya Sherbovich, whose resignation last year as head of Russian investment banking at Deutsche led to Snesar’s promotion. Deutsche has a culture of promoting within and has not been drawn into the war on talent. A lot of credit for the bank’s success is given to chief executive Charlie Ryan, whose contract expires later this year. In 2008, Deutsche won an advisory mandate on French carmaker Renault’s $1bn acquisition of a blocking stake in Russia’s AvotVaz.

•Dresdner Kleinwort

Staff: 150. ECM: 8th (4th) DCM: 8th (7th) M&A: – (5th)
Rainmaker: Igor Lojevsky, chairman of global banking and capital markets Russia

Dresdner Kleinwort is trying to re-establish its leading position in Russia’s capital market by hiring 60 bankers. A push is also being made in corporate broking and a new onshore private banking business is being set up in Moscow and Saint Petersburg.

The bank received a fillip last month after being named as adviser on three Russian mergers and acquisitions deals, including vodka maker Copecresto Enterprises’ sale of an 85% stake to drinks distributor CEDC, national electricity grid UES on the $392m sale of its 33% stake in its subsidiary TGK-2 and PepsiCo’s $1.4bn deal to acquire a 75% stake in juice maker Lebedyansky. The deals were too late to affect its league table ranking for this survey.

•Goldman Sachs

Staff: 100. ECM: 5th (16th) DCM: 11th (11th) M&A: 14th (11th)
Rainmaker: Sergei Stankovski, head of their Moscow financing business

Goldman Sachs is believed to be doing a lot of business in Russia in special opportunities, which are beneath the league tables’ radar. Its private equity arm is teaming with US private equity firm TPG to do deals and has made several investments. It advised and provided the financing for the UK private equity firm Lion Capital’s leveraged buyout of juice maker Nidan Soki.

•JP Morgan

Staff: about 100
ECM: 12th (1st) DCM: 5th (5th) M&A: 1st (15th)
Rainmaker: Natasha Tsukanova, head of Russian investment banking

The bank is building a brokerage from scratch after hiring a 15-strong team from MDM Bank last year. Jeffrey Costello, former head of UBS in Russia, re-emerged in February after nearly four years out of the industry as the first chief executive of the Russian business. Sir Roderic Lyne, former UK ambassador to Russia, joined as a senior adviser on public sector issues.

•Lehman Brothers

Staff: no comment
ECM: – (-) DCM: – (-) M&A: – (-)
Rainmaker: Nick Jordan, head of investment banking Russia

Lehman is continuing to expand its investment banking operations in Russia under Nick Jordan, who was hired last year from Deutsche Bank to build the business. Recent hires include head of capital markets for Russia Peter Ghavami, who was previously head of commodities at UBS. A spokeswoman in London said: “We are still in the building mode and it is no surprise that we are not featuring in the league tables.” The firm received a broker/dealer licence from the local regulator this year and will be occupying new office space in Moscow this year.

•Merrill Lynch

Staff: 70. ECM: – (12th) DCM: 13th (9th) M&A: 2nd (2nd)
Rainmaker: Bernie Sucher, head of global markets Russia

Merrill Lynch continues to fight with JP Morgan for Russia’s M&A crown. The bank is rumoured to be close to hiring a investment banking big hitter to lead the business. On a recent visit to Moscow, chief executive John Thain said the bank was going to expand rather than lay off employees in Russia. Merrill Lynch last year advised aluminium producer Norilsk Nickel on the sale of 25% plus one share stake for $15.7bn to rival Rusal.

•Morgan Stanley

Staff: 100. ECM: 4th (3rd) DCM: 4th (8th) M&A: 5th (7th)
Rainmaker: Elena Titova, co-head Russian investment banking

Morgan Stanley has been the most consistent performer in Russia of all the banks. It plans to open an office in Kiev and has hired Ihor Mitiukov, former Ukrainian Finance Minister and Ukrainian ambassador to the UK, to run it. The bank has managed the IPOs of several Ukrainian Government Eurobonds and provided loans to Ukrainian state companies.

•Renaissance Capital

Staff: 1,000. ECM: 2nd (5th) DCM: 20th (15th) M&A: 16th (17th)
Rainmaker: Ruben Aganbegyan, promoted in December to CEO for Russia from head of investment banking

Renaissance is trying to leverage its strong position at home to build a broader emerging markets business in sub-Saharan Africa, the Middle East and central Asia. It has expanded aggressively and has tapped Goldman Sachs to hire both Jeppe de Boer as head of real estate banking and Remi Olajoyegbe as global head of equity syndicate.

Recent departures include Daniel Broby, head of investments at its fund management unit, and Richard Bruens, head of strategy and investor relations. The bank managed a $1bn IPO by chemical company Uralkali in October and last month advised drinks distributor CEDC on the purchase of vodka maker Copecresto Enterprises.

•Troika Dialog

Staff: 900. ECM: 6th (8th) DCM: – (-) M&A: 10th (19th)
Rainmaker: Jacques Der Megreditchian, head of capital markets

Troika has almost doubled its staffing in Moscow over the past two years to 900. The privately owned bank, which rejected overtures from western suitors, is trying to catch up with Russian rival Renaissance. It has hired the Kremlin’s PR advisers Ketchum to improve its communications and spent money on a Moscow investor conference in January and an event at Davos, Switzerland.
The group recently acquired a fund manager in Kazakhstan and a bank in Armenia, the home country of its chief executive Ruben Vardanian. It acted as a financial adviser to Russian carmaker AvtoVaz in its sale of a blocking stake to France’s Renault in January.


Staff: 265. ECM: 7th (9th) DCM: 6th (6th) M&A: 7th (8th)
Rainmaker: Pavel Malyi, head of investment banking Russia

UBS has suffered several departures from its Moscow office over the past year in most of its key departments. Chief executive Ed Nicholson is retiring soon and will be replaced by Steven Meehan, a New York-based managing director in UBS’s global healthcare group and head of life sciences.
Nicholson’s deputy Marlen Manassov is also stepping back from the business. New head Meehan, who has a Russian wife, is keen to build the business and expand private banking operations in Russia and the CIS.

Deutsche hit by more Russian departures

Financial News

Jason Corcoran in Moscow and Harry Wilson

31 March 2008

Charlie Ryan, the chief executive and country head of Deutsche Bank in Russia, is expected to join the exodus from the German bank in Moscow when his contract expires in the autumn, according to Moscow market sources.

Ryan has been at the helm since Deutsche Bank bought a stake in UFG, the investment boutique he set up with former Russian finance minister Boris Fedorov, which was taken over by the bank for $700m (€443m) in 2004.

Plans to appoint Yuri Soloviev, the bank’s deputy head in Russia, as Ryan’s successor were thrown into disarray last week after he left to lead state-run bank VTB’s investment banking business.

Last week, VTB recruited four senior staff from Deutsche Bank’s Moscow office. Soloviev was joined by Deutsche’s head of real estate and infrastructure projects Victor Makshantsev, head of research Alexei Yakovitsky and chief strategist Alexei Zabotkin.

The bank was also hit by the resignation of Dmitri Snesar, co-head of investment banking in Russia, who left to join United Capital Partners, the Moscow-based investment boutique set up by Ilya Sherbovich, Deutsche’s former head of Russian investment banking, who left last year.

A source close to Deutsche Bank dismissed rumours that Andrew Chulack, who was left as sole head of investment banking following Snesar’s exit was also set to leave.

Thursday, 27 March 2008

Russia boost for Dresdner

Financial News

Jason Corcoran in Moscow
26 Mar 2008

Dresdner Kleinwort landed a hat-trick of advisory mandates in Russia last week, including a role as counsel on the largest ever deal in the country’s consumer sector, as the German investment bank bids to re-establish its position in Russia's capital markets after sliding down the league tables last year.

The German bank has been hired as an adviser, alongside domestic bank Renaissance Capital, by US soft drinks giant PepsiCo and Pepsi Bottling Group on its $1.4bn (€891m) acquisition of Russia’s leading juice maker Lebedyansky. The deal is the biggest in Russia’s booming consumer sector to date.

The deal allows PepsiCo to leapfrog rival Coca Cola in Russia's juice market. Coca Cola paid $500m for number two player Multon in 2005.

A banker close to the PepsiCo deal said: "The turbulence in the credit markets over the past six months has meant that the balance of power in competitive auctions has shifted from financial sponsors back to strategic players such as PepsiCo in this instance."

Dresdner also had a role on the $180m sale of an 85% share in the Parliament vodka brand by Copecresto Enterprises to Polish spirit maker Central European Distribution Corp. Renaissance Capital advised Parliament alongside Dresdner.

A banking source indicted there was significant interest from international spirit companies Bacardi and Diageo in the Parliament sale.

Its position as adviser on these deals completed a hat-trick of mandates for Dresdner last week after it acted as joint financial adviser, together with Alfa Bank, on the sale of a 33.47% stake in the electricity utility TGK-2 for $392.9m to Kores Invest company, a joint venture created by RWE and Sintez Group.

The German bank is recruiting an additional 60 bankers to cover Russia in an attempt to regain its position as one of the pre-eminent banks in the region after faltering in the past year.

Dresdner dropped out of the top 22 banks in data provider Thomson Financial's equity capital markets tables last year. It had topped the poll in 2006 thanks to its joint-bookrunner mandates on the Rosneft and TMK initial public offerings.

In mergers and acquisitions tables, Dresdner was ranked 18th last year, compared with its ninth position in 2006.

Senior representatives from the bank are currently working on a potential $85bn metals merger between Norilsk Nickel and Metalloinvest.

The tie-up has been devised in a bid to block a rival takeover attempt by aluminium giant Rusal, which is majority-owned by oligarch Oleg Deripaska.

Rusal has appointed six investment banks, led by Merrill Lynch and Credit Suisse, in its bid to buy a blocking stake and take control in nickel producer Norilsk.

Monday, 24 March 2008

Russian bank hires former SEC chairman

Financial News

March 24, 2008

Jason Corcoran in Moscow

Russian banking group Renaissance Capital had hired former chairman of the US Securities and Exchange Commission William Donaldson as a senior adviser.

Donaldson, who stepped down from the SEC in July 2005, has been brought on board to build links between the investment bank and Wall Street.

The former co-founder, chairman and chief executive of US investment banking firm Donaldson, Lufkin & Jenrette, served just over two years following his appointment by his friend President George Bush in April 2003.

Donaldson, the 27th chairman at the SEC, retired after
drawing sharp criticism over the Sarbanes-Oxley legislation, which is designed to increase corporate accountability, and his zealous approach to regulation.

He presided over investigations into mutual fund trading abuses, hedge funds and equity research. Under his leadership, the SEC, frequently working with other state and federal regulators, drew billions of dollars in fines and restitution from firms found guilty of fraud or wrongdoing.

Donaldson, who also served as chairman and chief executive of the New York Stock Exchange, was appointed as advisory council chairman of boutique Perella Weinberg last year.

At Renaissance’s investor conference in Kiev last year, Donaldson spoke on the same platform as the bank’s founder Stephen Jennings.

The pair have known one another since DLJ partnered with Renaissance to bring Russian telecommunications firm Vimpelcom to the New York Stock Exchange in 1997.

In the same year, DLJ announced it would open an office in Moscow just prior to the Russia’s financial crash.

DLJ was one of a roster of Western banks that lost $40 billion when the Russian government defaulted.

On a trip to Moscow a decade ago, Donaldson said the biggest barriers for Russian companies listing overseas were the conversion to Western-style accounting and corporate governance.

Leading Russian search engine Yandex plans to float shares on New York’s Nasdaq this Autumn and Renaissance is one of the three banks who have been hired to organise the offering.

Abramovich behind ultra rich hospital

Wealth Bulletin

20 March 2008

Jason Corcoran, Moscow

Billionaire's investment vehicle is behind a clinic for Russia's millionaires

Russian oligarch Roman Abramovich has opened a luxury hospital in Moscow for the city's millionaires.

The hospital has been established by Abramovich's investment vehicle Millhouse Capital, which invested about $10m in the project, according to Russian newspaper reports.

The clinic for millionaires will distinguish from the vast majority of the city's hospitals, where most of equipment dates back to the Soviet era. Russia's ultra rich previously had to travel to go to Israel, Switzerland or the US for first class medical services.

The hospital is capable of servicing up to 50 VIP patients at a time and the average annual fee will be 1.5 million rubles (about $64,000) per patient.

It is located in the north-west of Moscow, close to the so-called reservation of millionaires, known as Rublyovka. President Putin has a luxury bungalow located in Rublyovka, where houses go for anywhere from $5m to $20m.

Artyom Tolokonin, a spokesman for the hospital, said the hospital hopes to attract not only wealthy Russians, but Western millionaires too.

Chelsea football club owner Abramovich runs his multi-billion dollar assets through Millhouse, which includes a 44% stake in Russian steelmaker Evraz Group.

Russian magazine Finans last month said Abramovich had increased his fortune by 9.5% to $24bn last year.

Tuesday, 18 March 2008

Polar explorers in Ukraine

Business New Europe

Jason Corcoran in Moscow
March 18, 2008

UK-listed investment group Polar Capital is shutting its Moscow office in March after deciding to relocate its Eastern European operations to the Ukrainian capital Kyiv, citing a lack of quality deals in Russia and the growing attractiveness of Ukraine's economy.

"Russia is entering a period of sub-par returns compared to historical margins and some of the value had disappeared," Anton Khmelnitski, Polar's Moscow-based director, told bne. "Ukraine is insulated from the credit fallout and there's no downside to its top-five stocks, which we won't be able to short. The underlining reason is that we simply need to be closer to our investments."

Polar, which runs traditional and hedge funds, has cut the Russian exposure of its $220m Elbrus fund to 15% from 70% six months ago, and has sold down its holdings in blue-chips such as Russia's electricity monopoly UES and Golden Telecom. "There's a lot of good stuff still in Russia, but we are a boutique and we have more room to manoeuvre in smaller countries like Ukraine, which is about five years behind Russia," Khmelnitski says.


Polar's view on Russian stocks is at odds with Moscow's analyst community, who feel there could be 60% upside this year when the current sell-off ends. Russia's RTS index is down around 13% from the record high hit on December 12, after falling by as much as 20%. "A 20% fall from the high is regarded as a bear market for equities and, historically, in global markets it is a level when buying resumes," says Chris Weafer, chief strategist at Moscow's UralSib.

However, Khmelnitski believes that Ukraine will outpace Russia or any other place in a bull market and during a global slowdown because it's "cut off from the international capital markets." Ukraine's main stock exchange, the PFTS, grew last year 135.4% and is down by about 10% from the start of this year.

"The investment banks are all wrong because they are driven by other considerations. Just ask any banks in Europe which market has received most bank M&A activity, its Ukraine," explains Khmelnitski. "The Russian top-down situation qualifies best, as I often say, as a macro-trap with little value bottom up. See the performance of IPOs - excess liquidity will fall to 15% and eventually to zero."

Khmelnitski joined Polar Capital in April 2006 from Kazimir Partners, which was previously known as Brunswick Asset Management. He spent three years at Kazimir as head of equities. Prior to Brunswick, Khmelnitski was at Swiss group Pictet Asset Management in London where he spent almost six years managing the Eastern European Trust, a $100m exchange-listed company, which collected a number of awards for its performance and investment style. At the same time, he was also responsible for $500m of equity investments in Emerging Europe and Pictet's global emerging market oil and gas sector. Khmelnitski was born in Moscow, but grew up and received his education in Switzerland. A cerebral and quietly spoken man, he holds a Certificate in Financial Engineering from the FAME Foundation.

Khmelnitski says Polar will launch a new Ukrainian fund to invest $500m in public and private companies at early stages and those launching IPOs. Four analysts are to be hired, in addition to the two fund managers transferring from Moscow. Polar has already taken stakes in Ukrainian insurance company Oranta and locally listed property developer Dragon Ukrainian Properties and Development fund. The fund also made money through a series of pre-flotation Ukrainian investments, taking stakes in companies shortly before they listed.

The new Kyiv operation will primarily focus on property, domestic food, pharmaceuticals, high-tech firms and insurance companies. "The property market is at the beginning of its cycle and there are a lot of obvious opportunities in food, consumer goods and the beverage market," says Khmelnitski. "Accession to the WTO is a milestone event and will be key to this economy. "

Polar joins Sweden's East Capital as one of the few foreign investors to set up in Ukraine. East Capital's Bering Ukraine fund has grown to $304.68m and is up 180% since its inception. Investment banks are also being drawn to one of the best performing stock exchanges in the world last year. Credit Suisse opened a representative office in April, while Russia's Renaissance Capital has a full-service operation, competing with domestic market leaders Dragon Capital and Concorde. In November, Deutsche Bank said it was going to open an affiliated branch in Ukraine when the country joins the World Trade Organization.

Russian bank hires in Europe and Asia

Financial News

Jason Corcoran in Moscow

10 March 2008

Russian state-controlled bank VTB has hired senior western bankers before the launch of its subsidiary’s full investment banking services.

Nick Reilly, former global head of global operations in investment banking at Deutsche Bank, has joined as chief operating officer of VTB Europe and Peter Cardosa has joined as managing director of VTB Singapore from Deutsche's Asian business.

The board of directors has also been bolstered by former diplomat Anthony Loehnis and former Citigroup banker Julian Simmonds as non-executives.

Loehnis, who served in Moscow as a diplomat, is a former executive director of the Bank of England and a former vice-chairman of SG Warburg’s investment banking division. Simmonds was global head of foreign exchange and structured products businesses at Citigroup until retiring in 2005.

VTB is closing in on a high-profile appointment for the chief executive role of VTB Europe, the London-based investment banking business. The bank established its London office late in 2006 and received authorisation from UK regulators last year.

The business, with the working name of “Investment Banking 21st Century”, will have two main hubs in London and Moscow, along with staff in Singapore.

A spokeswoman for VTB said its growing London personnel were expecting to move into new offices on 14 Cornhill in September or October. The 6,360sq m space is double that of its King William Street offices and is sufficient for a trading floor.

Sberbank to team up with Troika

Financial News

Jason Corcoran in Moscow
04 March 2008

Russia's biggest lender, Sberbank, is to sign an agreement to distribute mutual funds for Troika Dialog which could lead to greater co-operation between the two banks.

German Gref, the new chief executive of State-controlled Sberbank, said last month it was considering moving into investment banking, but no decision has yet been made on whether it will be developed internally or via acquisition.

Troika, a privately-owned investment bank, has previously rejected takeover approaches from JP Morgan and Credit Suisse.

Having hired Goldman Sachs to look into a flotation, Troika last year shelved plans for a listing until after Russia's presidential elections, which took place this weekend.

Pavel Teplukin, one of the founders of Troika and the head of its asset management unit, said the third-party distribution deal with Sberbank could lead to further co-operation.

He said: "We are trying to explore various avenues for our co-operation with Sberbank after the change in its management. Sberbank is one of the largest banks in the world and we have plenty of ideas."

Troika has over $5bn (€3.3bn) in funds under management but only $500m of that is from retail funds, known in Russia as public investment funds (PIFs).

Teplukin said the bank wanted to grow its mutual fund business to $7bn by 2012.

State-controlled Sberbank raised $8.8bn in May last year on the domestic market to recapitalise its balance sheet and finance lending growth.

The bank, which delayed a $1.5bn London share offering until the third quarter, has been overhauling its senior management team following the appointment of former economy minister Gref as chief executive late last year.

Anton Karamzin recently joined Sberbank from Morgan Stanley's Russian office as chief finance officer and deputy chairman.

Monday, 3 March 2008

Poster power looms large in Putin’s Russia

Financial News

By Jason Corcoran

03 March 2008

Letter from Moscow

A massive billboard featuring President Vladimir Putin walking next to a grinning Dmitry Medvedev looms large on the plaza leading to Red Square.

The words underneath the image of the outgoing President and his hand-picked successor read: “Together we will win.”

Yesterday’s presidential election wasn’t a question of if President Putin’s protégé would win, but by how much.

A carefully choreographed campaign and a near monopoly by the Kremlin ruling party of television and outdoor advertising almost guarantees Medvedev will be confirmed as the next President of Russia this week.

The image of Medvedev and Putin adorning the scaffolding of the city’s forthcoming Four Seasons Hotel had replaced a Rolex ad featuring tennis player Marat Safin in action.

A Moscow advertising source claimed officials from Putin’s United Russia party had secured billboard space for the elections in locations around the city at well below market rates.

Advertising has become big business in a city where designer brands have become important status symbols for nouveau riche Russians and the wannabes.

Companies spent a record 123bn roubles on advertising in Russia in the first nine months of last year, 24% higher than in the same period last year, according Russia’s Association of Communication Agencies.

Russia’s biggest player in billboard advertising is News Outdoor Group.

Its parent said last year it might sell the company, which owns more than 50,000 ad displays on billboards and bus shelters throughout Russia and the other Commonwealth of Independent States countries. Goldman Sachs has been retained to look at “strategic options”, which could also include attracting private equity partners.

The Moscow City Government claimed the company owed about $15.5m in unpaid fees for advertising space. It said the company has unjustly claimed discounts of up to 90%.

News Outdoor denied an inspection by ministry officials was related to the payment demands and assured customers and partners the incident would have no impact on its work.

Gallery Group, Russia’s second-largest operator recently acquired small operator Gorod Media and is plotting an initial public offering to fund more acquisitions and to challenge News Outdoor’s position.

While other forms of advertising on television and online are growing, the outdoor market in Moscow seems to be reaching saturation point.

Pressure on the industry is due to increase following the Government’s announcement it will create three advertising-free zones by the end of year.

The first zone being proposed is the area around the Kremlin’s embankments and the nearby Cathedral of Christ the Saviour.

Other zones concern the space surrounding the city’s Novodevichy Convent and Kolomenskoye Estate.

This move will require the demolition of thousands of advertising hoardings, which generate their owners an estimated $15m a year.

The operators generally have five-year contracts to operate the billboards and are expected to receive some form of compensation.

It is not yet clear whether the Moscow authorities will preclude Government-sponsored advertising in these zones. Some of the most pervasive advertising over the past few months has been for “Putin’s Plan”, “Medvedev’s Course” and, last summer, for VTB’s “People’s IPO”.

Polar switches its focus from Moscow to Ukraine

Financial News

Jason Corcoran in Kiev

03 March 2008

The decision by UK investment group Polar Capital to relocate its east European operations from Moscow to Kiev comes amid rising interest among international investors in Ukraine’s economy.

Polar, which runs traditional funds and hedge funds, said the move was prompted by a lack of opportunities in Russia and the growing importance of Ukraine.

Investors are lured to Kiev by attractive valuations and improvements in corporate standards, despite its low liquidity and lack of transparency.

Anton Khmelnitski, a director of Polar, said: “Russia is entering a period of sub-par returns compared with historical margins, and some of the value has disappeared. Ukraine is insulated from the credit fallout and its stock market has been a star performer in global equities. The main index was up 135% last year, which was only bettered by China.”

Investors believe Ukraine will grow following its admittance last month to the World Trade Organisation and the announcement of its co-hosting the 2012 European football championships with Poland.

Polar will shortly launch a Ukrainian fund to invest $500m (€332m) in public and private companies at early stages and those launching initial public offerings. It plans to hire four analysts in addition to the two fund managers transferring from Moscow.

The manager has taken stakes in Ukrainian insurance company Oranta and locally listed property developer Dragon-Ukrainian Properties & Development. The group has also made money for its investors through a series of pre-flotation Ukrainian investments, taking stakes in companies shortly before they listed.

The new Kiev operation will primarily focus on property, domestic food, pharmaceuticals, high-technology companies and insurance businesses.

Khmelnitski said: “The property market is at the beginning of its cycle and there are a lot of obvious opportunities in food, consumer goods and the beverage market. Accession to the WTO is a milestone event and will be key to this economy.”

Polar cut the Russian exposure of its $220m Elbrus fund from 70% to 15% six months ago and has sold its holdings in blue chips, including Russia’s electricity monopoly UES and Golden Telecom.

Khmelnitski believes Ukraine will outpace Russia or any other market in a bull market or even during a global slowdown because it is “cut off from the international capital markets”.

Russian bank Troika Dialog has also set up an office in Kiev, where it has secured an asset management licence.

Stephen Cohen, chief executive of Troika’s hedge fund business, said: “We are managing money for a Ukrainian pension fund and looking at different opportunities. The political climate is friendly for doing deals and people want to believe the story. If it’s this good without any government, how good
can it be?”

Ukraine’s legislative programme is at a virtual halt under President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, who are in a coalition for the second time after elections last autumn.

But Troika’s hedge fund has zero exposure to Ukraine and Cohen believes Russia is a better play.

The Ukraine’s main stock exchange, the PFTS, has fallen 5.9% since the start of the year, compared with Russia’s RTS index, which is off by 9.1% – Cohen believes Moscow is undervalued.

Moreover, turnover on Kiev’s stock market is just $28m a day, compared with about $6bn on Moscow’s. Cohen said: “Liquidity is difficult. If you start talking about an investment, you prevent yourself from executing.”

Tom Adshead, head of research at Sito Capital, an emerging markets hedge fund manager with offices in Kiev, said: “It is a very illiquid market but there is great value from buying and holding stocks benefiting from strong domestic growth.” Sito recently launched a Ukraine fund with $50m under management, which is about 40% invested in banks and 40% in steel.

Sweden’s East Capital and Baltic investor Parex Asset Management have also dedicated Ukrainian funds offering foreign investors access to the market.

US-owned, Moscow-based, Pio Global has announced plans for three mutual funds in Kiev focusing on emerging mid-cap companies. Russian commercial bank Uralsib is also establishing retail funds, a segment that is dominated by local participants.

Ukraine’s gross domestic product rose 7.3% last year, beating original targets. GDP growth this year is expected to slow down only fractionally. The value of domestic funds is not yet measurable as a percentage of Ukraine’s GDP. This compares with 5% of GDP in Russia and 10% in the US.

Alexander Pertsovsky, chief executive of Moscow-based investment bank Renaissance Capital, believes a growing boom in the number of retail investors this year will help market conditions.

Pertsovsky said at a Renaissance Capital conference last month in Kiev: “Once the boom starts in Ukraine, the mutual fund and asset management sector will grow dramatically, helping to expand domestic liquidity.”