Moscow-ed

Barclays and HSBC march on Moscow

2009-11-03T10:40:00.000-08:00

The Independent

BarCap boss putting 'considerable' money to work in Russia

By Jason Corcoran in Moscow

Monday, 2 November 2009

Banking giant Barclays is spearheading a new British invasion of Russia’s high street, according to one of its most senior bankers, as relations between the two countries bounce back from last year’s low point.

Barclays, as well as rival HSBC, have become increasingly visible across central Moscow with new branches and high-profile advertising as part of a move to aggressively expand in Russia’s major cities.

Hans-Joerg Rudloff, chairman of Barclays Russia and the investment banking arm Barclays Capital, said the group was making significant capital and trading commitments to Russia in light of an improving investment climate.

He said: “The battle against the command economy has been won and there are signs that ongoing reform will be favourable for the investment community and that is part of the reason I am putting considerable amounts of money to work in Russia.” Barclays has 36 branches across the country and is expanding its operations to offer full-service retail banking from previously offering support mainly to small and medium enterprises. Stuart Lawson, head of HSBC Russia said last month that the group would be “aggressive” in expanding its existing four branches in Moscow and one in St Petersburg.

A year ago, British firms were afraid they might become outcasts in Moscow following a dispute at Anglo-Russian joint energy venture TNK-BP, the closure of the British Council’s offices in Russia and the Kremlin’s refusal to extradite Andrei Lugovoi, the chief suspect in the London killing of dissident Alexander Litvinenko. Diplomatic relations between the two Governments sank to their lowest point since the Cold War but the economic crisis and the need for foreign investment stimulus has since helped to paper over political differences.

Mr Rudloff said BarCap, which lost £250m after Russia’s sovereign default in 1998, would also help build a domestic capital market. He added: “Right now, we are entering a phase where everything seems to go on green light. It is evident that Russia is now making huge strides to move forward, be responsive and get things going. It’s a big offensive directed at foreign investment and will undoubtedly lure investors into the market.”

Barclays, which acquired local player Expobank last year for $745m, has recently hired two senior financiers on the ground to build their businesses.

Nikolai Tsekhomsky joined from state bank VTB last month to head up Barclays retail and commercial banking business. American Bob Foresman,the former deputy chairman of Russia’s Renaissance Capital, will start work as Barclays country manager on December 1. He will be responsible for building investment banking on the ground as well as the launch of a new local asset management business to cater to Russia’s wealthy.

HSBC, which already has corporate and investment banking interests in the country, is spending $200m rolling out a retail and private banking network. Royal Bank of Scotland’s blue and white livery has also surfaced in Russia thanks to its acquisition of Dutch Bank ABN AMRO’s operations. Mr Lawson believes the UK banks offer a better service than domestic rivals. He said: “In addition to providing conduits for Russian corporates to access international debt markets, foreign banks are helpful to the Russian market as they import innovative products and also provide sources of training for Russian bankers.”

Foreign banks burnt by Russia’s sovereign default in 1998 turned off the taps to international credit in the aftermath of the current economic crisis. The banks are reluctant to open new lines of credit until oligarchs agree to painful debt restructuring of $437bn (£265m) in foreign debt.

BarCap has billions of debt in the Russian public sector although virtually no exposure to the troubled private sector. Railway monopoly RZD repaid $1.5bn late last year.

A lack of regulation of Russia’s local bond market have resulted in over 100 defaults since the crisis hit. Bondholders, who have very limited statutory rights, have in some cases accused issuers of ducking their responsibilities and stripping assets.

Eric Kraus, a strategist with investment bank Otkritie: said: “By allowing the bond holders to be robbed outright, the financial regulators have ensured that no second or third-tier company will be able to raise finance again.”

Rudloff would like to see tougher regulation and the establishment of arbitrage courts to resolve disputes. He said: "There should be a review of the bankruptcy procedures. That would be one of the most important measures to establish clear procedures if a default occurs."

Rudloff, who sits on the board of oil giant Rosneft, stepped down from the Russian media company RBC due to a conflict of interest over $18 million (£11m) in debt owed to him and his friends.

RBC, which may yet be acquired by Russia’s richest oligarch Mikhail Prokhorov, has offered creditors to restructure half its debt and asked them to accept a 64% discount on the remainder.

Rudloff’s own family office has operated in Russia since 1995. As chief executive of Credit Suisse First Boston in the early 1990s, he sent bankers Stephen Jennings and Boris Jordan to Russia to scout for deals. The pair became involved in the state's pilot voucher auctions and soon left to set up investment bank Renaissance Capital.

http://www.independent.co.uk/news/business/news/barclays-and-hsbc-march-on-moscow-1813272.html

INTERVIEW: DST drives social networking in Russia and beyond

2009-11-03T10:37:00.000-08:00

Business New Europe

October 27, 2009

By Jason Corcoran in Moscow

Yuri Milner two strong bets in the horse race for global domination of social networking. The heavily fancied Facebook is the frontrunner, but Russian challenger Vkontakte has caught the attention of some punters and is showing good form on its home turf.

Digital Sky Technologies (DST), which Milner founded with his partner Gregory Finger in 2005, leapt to international attention in May after it acquired an initial 1.96% stake worth $200m in Facebook. It was DST's first foray out of Russia where it has sizeable stakes in a string of internet companies such as the social networks Vkontakte and Odnoklassniki, web portal Mail.ru, game developer Astrum Online and the online classified business Headhunter.ru.

Facebook and Vkontakte are now going head-to-head in 12 new markets besides the Russian one, where Facebook is only the seventh most popular social network. Milner insists a conflict of interest does not arise, because DST does not interfere operationally or with its companies' products. "For us, the fundamental issue is that we don't get involved operationally and that's how we really resolve the conflict of interest situation. Vkontakte is doing what they want to do, as is Facebook, and we don't get in the middle of it," he tells bne in an interview.

DST will continue to build its share of Facebook "opportunistically" by buying from shareholders of the California-headquartered company. It initially spent about $200m acquiring 1.96% and has since invested another $100m, which increased its holding to 3.5%. Milner insists a potential merger of Facebook and Vkontakte, which looks like a clone of its US rival in design and functionality, has "never been an issue."

"It's about the vision," he explains. "It's about being long term and our mutual understanding that social networks will play a significant role going forward in the people-sharing information."

Vkontakte claims on its homepage to have attracted over 46m registered users, which still pales in comparison to Facebook's 250m-plus users. But the company has recently snapped up the domain name Vk.com for an undisclosed amount and plans to use it to brand and market Vkontakte in 12 other languages, starting this month.

Entrepreneurial spirit

From his 57th floor office in Moscow City Naberezhnaya Tower, Milner can survey the growth of the capital's emerging business district, which is close to where he grew up in nearby Kutuzovsky. Sipping on expensive bottled Voss water, Milner points out the building where he grew up and the Number 4 School he attended. A trained particle physician, Milner has not followed the typical career path of a Soviet Academy of Sciences graduate. After leaving the academy for US-based Wharton School of Business in 1989, he turned to the world of banking and worked for the World Bank for a few years helping to develop Moscow's embryonic financial markets.

Milner was lured to Bank Menatep, founded by the now-jailed oil tycoon Mikhail Khodorkovsky, to build its brokerage and investment banking arm. He left the bank and got involved in private equity before stumbling on the internet's early boom in the late 1990s. Milner's international and banking contacts have helped DST to raise about $1bn to invest in its portfolio of Russian and Eastern European internet companies. Investors include Renaissance Partners, Tiger Global, Goldman Sachs and steel billionaire Alisher Usmanov, who is rumoured to hold a 32% stake.

Yet Milner, 46, says his most prized contacts are the young internet entrepreneurs running his portfolio companies rather than the bankers and investors. "The founder of Vkontakte is 25 and the chief executive of Mail.ru is 30. The internet is mostly the game of the young. Social networks started in colleges and grew, which means these guys started these businesses young and will run these companies for another 15-20 years."

Milner says his business model is more long term than other private equity firms investing in technology. An IPO is the favoured exit for investors, but only when the investment climate is absolutely right. "We would rather DST goes public and gives them liquidity that way. I don't have a date for that. A lot depends on the market and other things we don't control," he says.

Some warn that the growing investor interest in online social networks like Twitter and Facebook could yet feed another dot.com bubble, which burst spectacularly at the beginning of the decade. Milner is conscious of past mistakes and he has own experience of launching three Internet businesses during the same period. The e-commerce vehicle failed to take off while the online auction site Molotok and the Geocities-styled Narod have since been folded into Yandex and Mail.ru, respectively. "The problem with e-commerce was transaction trust and low penetration, because you need a critical mass of buyers," explains Milner. "Russia is still not today a perfect play for e-commerce, but in a few years it will be."

DST's portfolio companies have been pioneers insofar as showing their western counterparts how to monetise and to make social networking a profitable enterprise. Vkontakte and Odnaklassniki generate their incomes from the traditional model of online advertising, but have also experimented successfully with premium paid services and micro-payments, allowing users to buy and sell items with the site taking a portion of the revenue.

Russia's other competitive advantage is its legacy from the Soviet system of producing great mathematicians. Milner cites how three teams from Russia featured in the top four places of last year's 32nd Annual ACM International Collegiate Programming Contest World Finals. Russian students from St Petersburg and Saratov rose to the top against 6,700 teams from 1,821 universities globally in the event, which is seen as the Olympics of computer programming.

Milner added: "Russia could encourage sectors outside natural resources and the technology sector could be one. We have a competitive advantage because we have always produced good mathematicians and Russians have the entrepreneurial flair too which is required."

VTB Capital: Putin's favourite bank ?

2009-11-03T10:36:00.000-08:00

Financial News

September 22, 2009

By Jason Corcoran in Moscow

Russian markets bounce back after rollercoaster ride of a year 28 Sep 2009
VTB Capital can expect to be informally crowned Russia’s investment banking state champion by Prime Minister Vladimir Putin at its inaugural investor forum starting tomorrow in Moscow. It will be the first time the Russian leader has appeared at a brokerage event, underlining the rise of VTB Capital, which has become pivotal in managing the state’s interests since its launch a little over a year ago. Its parent, VTB Bank, is 77% owned by the Russian Government.

More than 300 international investors are scheduled to attend the “Russia Calling” forum, which is expected to feature a three-line whip of the Kremlin’s top brass and the country’s leading industrialists. Deputy Prime Minister Igor Sechin and Finance Minister Alexei Kudrin are scheduled to attend, along with oligarchs such as Oleg Deripaska.

In an interview with Financial News, global chief executive of VTB Capital Yuri Soloviev said Putin had demonstrated an active interest in the business. He said: “The Prime Minister has a domestic-focused portfolio, and so his perspective is an important component to any discussion of the Russian economy. Prime Minister Putin has confirmed his participation in the event and it will be the first time that he will have addressed and taken a role in such an investment forum.”

VTB Capital does not have the market dominance of an energy state champion such as Gazprom but it has made enough impact for sceptics to sit up and take notice.

The business was officially launched last September amid the collapse of Lehman Brothers, the US-Government backed bailout of insurer AIG and the destruction of confidence in global banking. Its parent had committed in the first half of last year to spend $500m (€341m) over three years in building the investment banking business. At the time of its launch, the heads of Moscow’s largest brokerages were privately scornful that a Kremlin-sponsored investment bank could prosper in a highly competitive market.

However, the global credit crisis has since wreaked havoc on the Russian investment banking landscape, forcing market leaders Renaissance Capital and Troika Dialog to cede sizeable stakes to stay afloat, while KIT Finance and other banks have been effectively nationalised. Meanwhile, state-controlled financial institutions such as VTB, Sberbank and Gazprombank have come to the fore as lifeboats for cash-strapped oligarchs and indebted corporates.

Soloviev accepted the importance of his operation’s relationship with the state and its luck in escaping the brunt of the financial crisis. He said: “We were quite fortunate that we managed to stay away from the most turbulent time of the crisis because we were rehiring, rebuilding, managing the whole franchise. So we didn’t go into an abyss together with other market participants just because we had to provide liquidity.”

Kremlin connections are vital and VTB Capital has secured business from its parent and other state entities during the economic crisis. Bankers have been seconded for long periods by the parent to lead restructurings, under which companies agree to sell non-core assets or pledge their holdings as collateral for securitised loans.

State-run diamond monopoly Alrosa last month disclosed it would sell two oil and gas assets to VTB, its main creditor, for $620m (€420m). In a complex deal, VTB Capital is advising Alrosa and is also expected to resell the asset on behalf of its parent for a considerable profit.

Bankers from VTB Capital and other VTB subsidiaries have also been involved in restructuring clients in Russia’s heavily indebted real estate sector. VTB Bank has acquired a controlling stake in Sistema-Hals, the real estate subsidiary of Russian industrial group Sistema, for a mere $2m. A year ago, it had a market capitalisation of $1.7bn.

Soloviev said: “The team was extremely busy working for VTB as our biggest client. With the market down by 70%, there was a huge portfolio of loans against the shares and we were immediately put to work on a number of those.”

VTB’s bankers expect to play a key role in a wave of privatisations when the state lenders put seized assets back on to the public market, as a reward for rolling debt owed to its parent.

With the international credit markets shut for most Russian issuers this year, VTB took advantage to dominate the rouble bond market. According to data provider Cbonds, it arranged 15 issues in the first half of the year and is the second-biggest arranger this year of Eurobonds in Russia and the Commonwealth of Independent States, according to Thomson Reuters. VTB Capital also benefited from its parent’s balance sheet in areas including derivatives trading, credit and foreign exchange.

Soloviev said: “Almost anyone can issue a Eurobond, but what differentiates us from local competitors is our ability to offload that from the balance sheet and sell it on.”

Soloviev is keen for the business to stand on its own two feet and points to several secondary public offerings, where companies issue more stock following their initial public offering, and convertible bond mandates won independently from the state.

VTB recently headed a syndicate in which steelmaker Evraz raised $900m in a combination of convertible bonds and equity. It also co-arranged with Merrill Lynch a $265m convertible bond issue for Russian oil producer Alliance Oil in June and is slated to arrange a $300m secondary public offering for supermarket chain Magnit this year. However, government connections will continue to bring in business and Soloviev is confident VTB will play a big role when Russia issues $15bn in sovereign Eurobonds next year.

Critics suggest VTB will struggle to win mergers and acquisitions mandates in the non-state market although Soloviev maintains its bankers have had success but declined to comment further.

Soloviev’s next big challenge is to reorganise VTB’s asset management activities, which are split into three divisions for public funds, venture capital and infrastructure and real estate. VTB Asset Management was launched several years before the investment bank and has yet to make much impact.

A consortium led by VTB’s infrastructure team won a competitive tender to revamp St Petersburg’s Pulkovo Airport in what is set to be Russia’s first big public-private partnership. Soloviev acknowledged VTB’s relationship with the finance ministry, the transport ministry and the regional St Petersburg government in charge of the project.

VTB has set up joint ventures, including a private equity partnership with Deutsche Bank to invest in prime real estate in Russia’s cities.

The private equity team also made its first noteworthy deal this month, by joining US buyout firm TPG to buy a 35% stake in grocer Lenta.

Barclays To Launch Funds Unit In Russia

2009-09-27T08:21:00.000-07:00

Wall Street Journal Europe

September 20, 2009

By Jason Corcoran

Barclays is planning to launch an asset management business in Russia, building on its retail and investment banking activities in the country.

The bank will launch an asset management group focused on wealthy onshore clients and, potentially, the pension scheme and corporate sectors. Bob Foresman, who last week joined Barclays Capital as local chief executive and country head from Renaissance Capital, will lead the venture. Foresman’s appointment at BarCap was first revealed by Financial News on Friday.

Hans-Joerg Rudloff, chairman of Barclays in Russia, said the recruitment of Foresman demonstrated the bank’s commitment to the country.

Rudloff said: “These are good long-term investments – buying a bank, rebranding and getting into asset management onshore. When you hire lots of very high-profile people in a short period of time, it shows you are committed to the country. We also confirmed our intentions when Barclays bought Russian bank Expobank last year for a high price.”

Barclays’ retail bank acquired Russian lender Expobank last year for $745m. It has since rebranded and revamped Expobank’s 36 branches in western Russia. BarCap employs nearly 30 bankers in Russia, plus 70 Russian-dedicated bankers in London.

Barclays Capital fills top Russian role

2009-09-27T08:18:00.000-07:00

Wall Street Journal Europe

By Jason Corcoran

September 18, 2009

Barclays Capital has filled one of the most hotly-contested positions in Russian banking, hiring the deputy chairman of Renaissance Capital as its chief executive in the country, where it is leading a fresh assault on the investment banking market.

Bob Foresman, who has only recently stepped down as one of RenCap’s most senior bankers, will lead Barclays Capital, the investment subsidiary of Barclays, in Russia.

RenCap declined to comment but a source close to the group confirmed that Foresman had left to join Barclays after completing a deal whereby the state development bank Venesheconombank agreed to become a cornerstone investor in a Macquarie Renaissance joint infrastructure vehicle.

A London spokesman for Barclays Capital could not immediately be reached for comment. Foresman could not be reached for comment.

Headhunting sources said they expected a spate of mandates from Barclays for more bankers in light of Foresman’s appointment to one of the most coveted investment banking jobs in Russia.

Foresman emerged from a tough shortlist, which has featured at different stages many of Russia’s top bankers. One headhunter familiar with the situation said Foresman could command an annual salary of between $2m (€1.4m) and $3m.

Foresman joined RenCap in September 2006 from Dresdner Kleinwort Wasserstein, where he was chairman of the management committee for Russia and the Commonwealth of Independent States. Prior to joining Dresdner in 2001, he was head of investment banking for Russia and the Ukraine at ING Barings and had worked at the International Finance Corporation in various roles.

At Dresdner, he played an important role on most of Russia’s large energy sector transactions in recent years, including advising state controlled Rosneft on its $10.4bn initial public offering in 2006, and state energy giant Gazprom on its acquisition of a 72.7% stake of in oil producer Sibneft for $13.1 billion in 2005.

Hans-Jörg Rudloff, chairman of Barclays Capital, told Financial News in April that the bank was a launching a fresh campaign in Russia and would be building on its traditional stronghold in debt capital markets into equities and mergers and acquisitions.

BarCap has steadily been growing its Moscow operation over the past year having hired extensively for back and middle office functions.

Alexander Zakharchenko was recruited about a year ago as head of M&A advisory from ABN Amro RBS in Moscow, while earlier this month Stefano Marsaglia joined Barclays Capital in Russia as chairman of its worldwide financial institutions group and Nikolai Tsekhomsky became chief of its retail and commercial banking business in Russia.

Marsaglia joined from Rothschild and Tsekhomsky from state-owned bank VTB.

Sweden publishes its recipe for recovery

2009-09-19T04:46:00.000-07:00

By Jason Corcoran

September 14

Letter from Stockholm

Sweden’s Finance Minister Anders Borg wouldn’t look out of place carrying an amp on a heavy metal road tour. He may sport a ponytail and loop earring but he isn’t known to be a headbanger. A trained economist, Borg can still play a crowd and his recent call for European Union restrictions on bankers’ pay has gone down well at home and abroad.

Borg, who chairs European Union finance ministers’ meetings as Sweden is the current holder of the EU presidency, has argued that “the banks were partying like it was 1999, but it is actually 2009”. He said the bonus culture must come to an end when the G20 meets in the US this month.

The former chief economist at ABN Amro Bank in Stockholm in the late 1990s warned there could be “social tension in our societies” if bankers’ compensation is not reined in. However, there was not much sign of social tension in Stockholm’s trendy Södermalm district last week where its inhabitants were enjoying the sunshine in crowded outdoor bars and restaurants.

The Swedish capital seems to have been relatively insulated from the global economic crisis compared with the country’s industrial cities, where national automotive icons such as Saab and Volvo are ailing and could end up in the hands of the Chinese.

Locals said the social democrats, which ruled for much of the past 60 years, were winning support in the regions but were still deeply unpopular in the capital. Borg’s centre-right Alliance party, headed by Prime Minister Fredrik Reinfeldt, swept to power in 2006 with a mandate to shrink Sweden’s welfare state. The Government wants market forces to dictate outcomes and has resisted calls to rescue the struggling car industry.

Borg’s recipe for growth has been to slash taxes and to axe some unemployment and sickness benefits in the Organisation for Economic Co-operation and Development.

As US President Barack Obama uses Sweden as his template for taking over corporations outright, the Swedish Government has been busy unloading its industries. State-owned pharmacies have been sold and the Government plans to sell its remaining 37% share of telecoms operator TeliaSonera.

Last year, it offloaded Absolut Vodka, which Borg said was a core function for neither a welfare state nor a nightwatchman’s state.

Borg maintains Sweden is better positioned to recover from the crisis than the UK or US because the state did not spend money on interventions and emergency measures.

He said last week he had revised his economic prognosis for economic growth upwards to 0.6% for next year. He expects Sweden’s public finances to balance within the next four to five years, with gross domestic product growth rising to 3.1% in 2011 and 3.7% in 2012.

Some 7.9% of the workforce in Sweden were out of a job in July, which was lower than expectations of a 8.3% rate.

The property market in Stockholm has rallied strongly after a dip last year. Policymakers are expected to raise interest rates sooner than the European Central Bank if and when the recovery takes hold.
There have been calls in the Swedish press for Borg to shed his ponytail.

But one civil servant drinking in the vast Mosebacke Terass bar overlooking the city said there was a fear the finance minister could lose his radicalism without his long tresses: “He’s our Viking-styled Samson and he would be just been another politician without his ponytail.”

Fresh fundraising signals hope for Russia

2009-09-19T04:45:00.000-07:00

Private Equity News

Jason Corcoran in Moscow
09 September 2009

Moscow-based private equity start-up Quadro Capital Partners has so far raised $200m (€139m) for its first fund amid signs that the moribund fundraising market in Russia is recovering.

Quadro was formed in April by Giedrius Pukas, the former managing director of Troika Capital Partners who quit the alternative asset manager subsidiary after a dispute over the running of the business with Ruben Vardanian, the majority owner of parent investment bank Troika Dialog.

Pukas, who has been joined at Quadro by former Troika Capital directors Vladimir Kozlov and Nikolay Sergeev, said: “We tried to buy the business from Reuben but he wouldn’t let us so we set up Quadro on our own. We have so far raised $200m (€138m) and we have a target of $350m.”

The fund, which includes several investors in Troika’s private equity funds, will invest in distressed debt and across the consumer, lifestyle and finance sectors.

Quadro joins a host of other funds raising private equity funds in the country. Russia Partners has recently raised an $800m fund while new player PPF Partners announced in June it had raised €615m ($891m) to invest in assets in central and eastern Europe, with Russia the key market.

UFG and Delta, which are closing in on final merger talks, are both currently trying to raise funds. Many of the commitments made by investors to UFG’s Private Equity Fund 11 were generated by Boris Fedorov, the firm’s founder who died late last year. A source close to the firm said some investors had withdrawn since Fedorov’s death.

Aim-listed Aurora Investment Advisors has recently raised £50m for its second fund which will be primarily used to reinvest in its current investments.

James Cook, joint founder of Aurora, believes a demand for private equity financing will return as companies who survived the crisis seek fresh capital to grow.

He said: “We are seeing heavily reduced valuations which will likely yield high returns for private equity capital invested in 2009/10. As companies continue to find debt financing hard to secure, there is increasing demand for private equity capital to finance growth.”

Private equity deals have been thin on the ground over the past two quarters as funds had their allocations reduced or pressure was exerted by limited partners not to draw down commitments for investment. However, last week it was reported that US buyout fund TPG and the Russian state bank VTB had bought a 35.4% stake in Russian hypermarket chain Lenta for about $115m.

TPG is thus far the only international buyout fund with an office in Moscow but has found deals elusive. In the summer of 2007, a protracted deal to acquire the grocer Seventh Continent collapsed over price, while in April last year, TPG signed a contract to buy half of SIA International, Russia's largest pharmaceutical distributor, for $800m. TPG later withdrew and paid a fine of $50m.

Departing VTB finance chief takes Barclays role

2009-09-19T04:42:00.000-07:00

Wall Street Journal Europe

September 9, 2009

Jason Corcoran in Moscow

The chief financial officer of Russian state lender VTB, who left the bank today, is to become head of Barclays' global retail and commercial banking business in Russia in move the bank says is vital for it to "diversify internationally".

Nikolai Tsekhomsky, whose appointment is subject to approval from the Central Bank of Russia, will take over from Sergey Radchenkov at the helm of Expobank, Barclays’ retail and commercial business in Russia.

Tsekhomsky joined VTB with a specific remit to spearhead it the bank’s $8bn (€5.5bn) initial public offering on the London Stock Exchange in May 2007, which is the second-largest listing by a Russia company. Domestic press and investors have criticised the bank followed the IPO as its share price has plummeted by 70%.

He has previously been chief financial officer for Renaissance Capital and financial controller for Brunswick, a Moscow brokerage subsequently sold to Switzerland’s UBS.

Tsekhomsky has been replaced as chief financial officer at VTB by Herbert Moos, who had been executive of VTB Bank Europe, an investment arm of VTB. A spokeswoman for VTB said no decision had been taken yet about a replacement for Moos. “Herbert will stay with us to help with a transition until we announce someone for the role,” she said.

Barclays reacquired Russian lender Expobank in March last year for $745m. The bank, which employs 1,800 staff in Russia, has since re-branded and revamped Expobank’s 36 branches in the west of the country Russia.

Analysts said last year that the $745m price tag, at four times Expobank's net asset value, was hefty but that the acquisition was relatively small and gave Barclays a place in a fast growing market.

In a statement issued to Financial News, the chairman of the board of directors of Barclays in Russia Hans-Joerg Rudloff, said: “This is an important step in the strategic development of Barclays in Russia and integral to Barclays ambitions to diversify internationally. We are optimistic about the growth opportunities in Russia and remain committed to the market in the future," he added.

Rudloff told Financial News in April the bank was launching a fresh campaign in Russia and would be building out further in investment and commercial banking, as well as retail.

Barclays' investment banking subsidiary Barclays Capital has steadily been growing its Moscow operation over the past year having hired extensively for back and middle office functions and yesterday announced the hire of Rothschild’s global co-head of financial institutions, Stefano Marsaglia, as chairman of its worldwide financial institutions group.

A senior hire to head up the investment banking team in Russia is expected with a number of senior Russian bankers in the frame.

VTB recruits for global expansion

2009-09-19T04:41:00.000-07:00

Financial News

Jason Corcoran in Moscow
07 September 2009

VTB Capital, the Russian state-controlled investment bank, has hired a three-man mergers and acquisitions oil and gas team from Dresdner Kleinwort and two Morgan Stanley bankers in a worldwide recruitment drive.

The brokerage, which was launched in April last year, has lifted a hiring freeze that had led to a cut in personnel, costs and a halt on business expansion.

Yuri Soloviev, VTB Capital chief executive, said he had recruited an M&A energy advisory team from Dresdner in London, headed by Alex Metherell, along with Giles Coffey and Andrew Hollins. The bank has also hired a sales team from ING plus Morgan Stanley pair Alexei Mitrofanov, a financial institutions group banker, and Alexey Makhnyov, head of consumer and retail.

VTB Capital, which has recruited more than 500 personnel since launching last April, said it was also hiring financial controllers, traders, salespeople, commodities professionals, corporate finance professionals in M&A, and equity capital markets coverage bankers for roles in Moscow, London, Dubai and Singapore, where staffing had been cut to a third of previous levels.

Soloviev said the bank was likely to hire an initial team of a dozen bankers on Wall Street having ruled out buying a boutique investment bank stateside. VTB Capital has leveraged its parent’s balance sheet and government contacts to win business and has broken into the top three bookrunners for arranging eurobonds and rouble bonds in Russia and the Commonwealth of Independent States.

Renaissance Investment founder raids firm for new venture

2009-09-19T04:38:00.000-07:00

Wall Street Journal Europe

September 4, 2009

By Jason Corcoran
Of FINANCIAL NEWS

Andrei Movchan, the founder and former chief executive of Russian fund manager Renaissance Investment Management, has recruited 20 personnel from the firm he launched to help set up a new wealth management business.

The firm name, Third Rome, alludes to Movchan's previous roles at Renaissance and Troika Dialog and also to what he describes as Russia's third cycle following the 1998 default and last year's banking crisis.

In an interview with Financial News, Movchan said the firm had hired a total of 30 personnel and had already won $200 million in client assets from Renaissance.

He said: ???In the private client world, the conversion rate is usually 100% because people like to stick to advisers they trust. There will be hurdles but expect we will have a very high ratio of clients defecting to us from Renaissance over time."

Movchan had been sole head of RIM from its inception in 2003 to 2007, when Rod Barker was hired from London-based hedge fund RAB Capital to take up the role of co-chief executive alongside him.

Movchan quit in February this year after the disagreement with the founder of parent group Renaissance Capital Stephen Jennings over the strategic direction of RIM. Jennings had wanted RIM to become a diversified asset manager involved in retail, institutional and international funds while Movchan wanted to focus on the high net worth segment.

Third Rome will focus exclusively in discretionary asset management accounts for high net worth clients and will steer clear of mutual funds and pension fund management, which Movchan believes are negligible. Clients will require a minimum of $1 million to invest.

"We are going to focus on discretionary management accounts rather than setting up funds. Clients want liquidity rather than additional legal structures. We will set up funds at a later stage," Movchan added.

Danilo Lacmanovic and Alexander Granovski have both been hired as senior partners of new firm. Lacamanovic worked at Renaissance for almost five years and latterly as a director advising high net worth clients and corporates, while Granovski worked at Renaissance for third years on discretionary client programs for high net worth individuals.

Other arrivals from Renaissance include business development director Dmitry Zhuk and Max Yanpolsky, who has joined as chief operating officer and chief technical officer.

RIM, which focused primarily on high net worth client referrals from Renaissance Capital, had built up client assets to $6 billion by early 2008.

Those assets have since fallen due to client redemptions and a fall in equity valuations. It has assets of $3.6 billion as of January 16, 2009.

Renaissance declined to comment.

Pension funds start building with Brics

2009-09-19T04:37:00.000-07:00

Financil News

Jason Corcoran

24 August 2009

UK consultants advise clients to invest up to 15% in emerging markets
Emerging markets have finally gone on the pension scheme radar as the stock market boom in China and India outpaces the recovery in the west. While developed world equities have advanced by 15% this year, markets in China, Russia and India have clocked up 44%, 52% and 61% respectively.

In the absence of economic growth, western markets are starting to acquire some of the dysfunctional characteristics of developing countries, as governments agonise over the future.

Figures from global fund tracker EPFR show dedicated emerging-market equity funds took in $1.6bn (€1.1bn) in the first week of August, bringing total year-to-date inflows to $36.1bn.

Investor demand for emerging market bonds means the cost of insuring against debt defaults has fallen below western governments for the first time. Russian default swap prices, for example, have fallen to 255 basis points, or 20 basis points less than those linked to California.

Investment consultants in the UK remain cautious but none the less they are advising pension fund clients to invest up to 15% of their portfolios in emerging markets through equity, debt, currency, swaps and other strategies.

Hewitt Associates recommends that schemes should invest a maximum of 10% in emerging markets. Consultant Tapan Datta said: “The general fear factor associated with emerging markets has diminished. Their debt and equities are now on a par with developed markets.” Mercer recommends a 10% to 15% exposure and advises schemes to tap into the skills of specialist managers rather than broadening the remit of global teams.

Deborah Clarke, a principal at Mercer, said there was evidence that money has been switched out of UK and US equities into global and emerging market mandates.

She said: “We are seeing global and emerging market mandates picking up this year after going very quiet in 2008. A number of global equity managers are broadening their mandates.”

The risk aversion of pension fund trustees has historically been a factor working against increased asset allocation to emerging countries. The repeated occurrence of financial crises in countries such as Argentina, Mexico and Russia heightened perception that emerging markets were excessively volatile.

In the past, schemes in the UK and the US have viewed emerging markets as deserving their own asset class. They were seen as a sub-component of global equities, within Morgan Stanley’s All Country World Index for equities or Citigroup’s World Government Bond Index for bonds.

The upheaval in developed markets over the past two years and the reduced contagion to emerging economies suggests a greater migration of capital from the West is under way.

Mark Humphreys, a member of Schroders’ Strategic Solution group, said: “Pension funds should look at emerging markets more closely. They represent 12% of the MSCI all countries index and we expect that to increase.”

Asset managers and investment banks have been positioning themselves to benefit as emerging markets recover more quickly from the global economic crisis.

A survey by Bank of America Merrill Lynch published last week showed a net 52% of fund managers wanted to be overweight developing economies.

UK-headquartered bank Standard Chartered has raised £1bn (€1.1bn) to allow the group to expand in Asian markets. Standard chief executive Peter Sands said the group believes Asian markets will benefit from a faster recovery than the west.

Fund manager Mark Mobius plans to double Templeton Asset Management emerging-market assets to $50bn within two years. China is the top Mobius pick. Other managers see the country as a catalyst to a global recovery.

Jerome Booth, head of research at Ashmore Investment, has caused waves with his recent suggestion that investors should increase their level of exposure to emerging markets to between 35% and 50% based on the share of global GDP.

Long-only managers and emerging market specialists said Booth’s allocation is excessive and would blow a hole in pension scheme risk budgets.

Bill O’Neill, a portfolio strategist at Merrill Lynch Global Wealth Management, said: “Fifty per cent is way beyond what funds should be putting in. We think 12% should be a starting point. The story is right but the key problem is that the opportunity was more compelling early in 2009 when emerging markets were seriously undervalued.”

Aviva Investors supports Booth’s views in terms of how he has highlighted the potential for emerging markets, relative to developed markets, to contribute more substantially towards portfolio outperformance.

It believes that as emerging markets are growing, developing and arguably maturing, investors need to take a more sophisticated approach to tapping main growth markets.

Instead of allocating on a country or regional basis, Aviva makes the argument for using different emerging market styles. Aviva recently reorganised its emerging markets team on this basis, and instead of having regional experts it has managers dedicated to emerging macro, emerging special situations, emerging small cap, and so on, with the aim of delivering greater alpha.

Baring Asset Management is cautious on developed markets. Percival Stanion, head of asset allocation at Baring, said pension schemes should be downsizing their structured weightings to developed markets.

He said: “The industry is seeing a big ramp-up in searches and appointments in the UK and the US for emerging markets mandates. We have about 25% of our portfolio invested in emerging markets, which would be considered aggressive elsewhere.”

Baring stresses that emerging market portfolio exposures should depend on client risk appetites. But it believes investors’ allocation to emerging markets should, on a long-term strategic basis, be about 20%.

In multi-asset portfolios, Baring can argue that you need an investment manager that can tactically manage this exposure to emerging markets as conditions dictate, rather than maintaining a certain level of exposure at all costs.

Jonathan Harrison, global head of research at UBA Capital, the investment arm of the United Bank for Africa, recommends pension funds commit 40% to emerging economies.

He said: “Developing markets are, almost by definition, growth leaders and therefore more attractive investment destinations than developed markets. The global crisis has not altered the fundamental thesis but has illustrated that it is not only developing markets that are prone to periodic economic earthquakes.”

Swiss private bank Lombard Odier Darier Hentsch said allocations stretching to 50% are neither realistic nor pragmatic. Curtis Butler, head of emerging market equities at Lombard, said many inflows were a reaction to the correction from last year’s slump.

He said: “We believe in gradually increasing exposure. Emerging markets have not yet achieved the stability on an annualised basis. We need to see another decade of stability. There are still those who see emerging markets as a fair-weather friend but they have not yet learned to have them as a permanent place in their portfolios.”

Deal-hungry RenCap wins mandate for Sistema issue

2009-08-23T13:56:00.000-07:00

Financial News

Jason Corcoran in Moscow

18 August 2009

Russia’s Renaissance Capital has been appointed as lead manager and bookrunner for a 20bn rouble bond (€441m) by conglomerate Sistema, capping a string of deals worth over $2bn (€1.4bn) that the bank has worked on in the past few weeks.

The Sistema rouble bond is the biggest of the year and beats the recent 15bn rouble issue by Russia’s biggest lender Gazprom.

The seven-year bond, which will be issued via a Dutch auction on Tuesday, will be used to refinance foreign debt owed by Sistema.

The other deals won by Renaissance mark a new entry into new markets in Poland, Zambia, Sierra Leone, as well as the convertible bonds sector.

Renaissance was a co-lead manager on a follow-on $200m public offering by Polish vodka producer CEDC on July 20. The deal was four times over-subscribed and pricing was close to the market.

On July 29, RenCap priced a combined $300m equity and convertible bond issue for Zhaikmunai, a Kazakh oil and gas company. It was the first convertible bond structured and priced by Renaissance and the first convertible offering structured and led by a Russian bank.

Renaissance acted as sole bookrunner on a follow-on offering for AIM-listed African Minerals that raised $105.5m. The placing raised growth capital to finance the company’s drilling campaign at an iron ore project in Sierra Leone.

The transaction is the only second equity offering to have priced at a premium in EMEA this year.

Current deals include a $49m rights issue by Zambia Sugar which would become the bank’s third African capital markets transaction this year.

The sting of fixed income mandate wins follow tthe recruitment of Yury Gruzglin from Deutsche Bank last October to run the debt product group.

Renaissance, which was forced to pare back its staff by 40% following the banking crisis, has recently started hiring again and has raised salaries to pre-crisis levels.

Russian banking carousel spins once more

2009-08-23T13:55:00.000-07:00

Financial News

Jason Corcoran

17 August 2009
Letter from Moscow

The great purge in Moscow’s banking sector is over. Pay and staff were cut to the bone, but wages are now back to near pre-crisis levels, with annual guarantees of $2m to $3m ensuring that the hiring carousel is back in action.

Russian markets have rallied a year after being pistol-whipped by the international credit crunch, and roiled by a five-day war in Georgia, a domestic banking crisis and a series of investor scandals.
Russia’s RTS and Micex stock exchanges have won back trading lost to the London Stock Exchange and have recovered from their 80% plunge in value.

The upheaval caused by the market’s meltdown resulted in the effective nationalisation of brokerage KIT Finance and mid-tier lenders Globex and Svyaz Bank. Renaissance Capital was forced to accept a $500m investment last September from billionaire Mikhail Prokhorov in return for the sale of a 50% holding while Troika Dialog sold a 30% stake to South Africa’s Standard Bank.

RenCap, once the standard-bearer for Russian investment banking, slashed its staff by about half, and Troika by 35%.

Western banks, which had built aggressively in Moscow since 2007, were also forced to retrench as equity and credit markets shrivelled.

RenCap is hiring for selective areas and has increased salaries in Moscow by 20% and in London by 10%, which returns most surviving staff’s pay to pre-crisis levels. Deutsche Bank, the largest foreign investment bank in Russia, said it had never cut wages and had raised them in some departments by 15% to 20% from July 1.

As dealmaking has returned in oil and gas and in pockets elsewhere, owners and country heads are starting to worry about hanging on to their best people. Credit Suisse has fought to retain its sales staff in Moscow after an attempted raid by Goldman Sachs.

The Swiss bank was forced to authorise $2m guarantees after Goldman tried to swoop, according to a source close to the matter.

Goldman, which has struggled to break into the top five in any of the Russian league tables, has been linked with a move for several of Moscow’s best-known rainmakers.

The rumour mill went into overdrive this month after Alfa Bank’s Edward Kaufman had lunch with Chris Barter, co-chief executive of Goldman Sachs in Russia. Kaufman insists the issue never came up and that he is happy to stay at Alfa, where he is taking charge of “a revenue opportunity” to merge the group’s investment bank and the corporate bank. He said its fixed-income and equities divisions had recorded their best two quarters and corporate finance deals were growing rapidly.

At the height of the war on talent in 2007, Kaufman gained notoriety after being hired from UBS for a reputed $15m over two years. Sources close to Alfa suggest Kaufman has in the past few weeks signed a new two-year contract that is more lucrative than the original package.

Goldman is not the only outsider looking to land a senior banker to break into Russian dealmaking. Merrill Lynch has hired a co-head for its global market team in Russia from MDM Bank and is rumoured to be close to be bringing a head trader on board.

Barclays Capital is understood to be whittling down a short list of top bankers to head its expanded business in Moscow.

Swiss bank UBS is close to naming senior hires for investment and private banking while state-controlled VTB Capital continues its build-out into equities following its startling progress this year in debt capital markets.

One leading headhunter said: “The merry-go-round of hiring is back on. It won’t be as dizzy as 2007, but we have more work than we can handle and we are having to partner with other firms.”

Russia's Alfa to merge banking units

2009-08-23T13:54:00.000-07:00

Financial News

Jason Corcoran in Moscow

10 August 2009

Russia’s Alfa Bank, is merging its investment banking and corporate banking businesses into one division in a move it believes is a "revenue opportunity".

The new unit will be aimed at increasing Alfa’s ability to sell products ranging from loans to advice on takeovers to its 40,000 plus corporate clients. The move mirrors a decision taken by Citigroup in the aftermath of last year’s financial crisis.

Ed Kaufman, co-head of corporate and investment banking at Alfa Bank, said: “It’s not a cost issue but a revenue opportunity. The client managers on the corporate banking side will be put together with the corporate finance team to offer the best products to our clients.”

Kaufman dismissed rumours among Russian bankers that the group was closing its investment bank and said it had just posted its best two quarters. “There were a lot of trading opportunities in fixed income where we invested heavily and booked the profits. We have also done well in equities and made more money from making educated bets.”

Kaufman and Vladimir Tatarchuk, head of corporate banking, will co-lead the combined division.

Alfa, which is controlled by the billionaire Mikhail Fridman, employs 135 in its investment bank and 600 in its corporate bank. The group has already downsized in many areas of corporate and investment banking over the last year. “We would look to see how markets develop if there needs to be reductions or additions in any specific areas but there are no layoffs due to the merger,” Kaufman said.

The bank insisted there would be no conflict of interest resulting from combining the two businesses.
Kaufman added: “We do not believe that corporate bank relationship managers will be able to sell M&A or corporate finance products but they are a key part of the coverage model and will be trained to understand the products and also to know when they need to bring in product specialist.”

The president of Alfa Bank, Pyotr Aven, has been one of the most bearish commentators on the prospects for bad loans in Russia’s banking sector. Aven has warned that the country's banks' non-performing loans could rise to 30% of assets, from an estimated 10% today.

Alfa hit headlines in March this year when it clashed with the oligarch Oleg Deripaska in a bid to protect itself against the possible default of a $1bn (€780m) loan. It comes as Deripaska faces a struggle to restructure his outstanding debt to other creditors.

Bloomberg reported on July 31 that Deripaska’s Basic Element unit is close to agreeing with Alfa on revising terms of $800m in debt.

Russian banks back on the hunt for talent

2009-08-09T05:29:00.000-07:00

Financial News

Jason Corcoran in Moscow
31 Jul 2009

VTB Capital and Troika Dialog have both boosted their equity sales and trading desks as recruiters report a summer uptick in hiring by Moscow-based investment banks.

State-controlled VTB has hired Vlad Markovskiy from UBS and Denis Gorvat from ING for its equity trading operation.

The bank, which launched just over a year ago, wants to build on its success in debt capital markets by building out an equity brokerage. VTB is ranked number two in the league table of arrangers of Eurobonds in the Russia and Commonwealth of Independent States debt capital markets for the first six months of 2009, according to data provider CBonds.

Separately, domestic peer Troika has hired Jim Bevan and Marcus Martin in London to replace a sales and trading team that quit for VTB in June. Both join from Nomura International in London.

The pair, will replace Will Lynch, Peter Walker and Richard Phillips who left to join VTB’s growing presence in London, one of its three global hubs.

VTB and Troika are the latest hires from banks in Moscow, where recruitment is beginning to pick up, according to headhunters.

Taras Rybak, a managing partner at headhunters Brain Source, said: “The hiring freeze at the bulge brackets and the Russian banks in Moscow ended several months ago. Most banks are looking to hire selectively now that the domestic recovery has spread from M&A and the equity markets to the debt capital markets.”

Bank of America Merrill Lynch last week recruited Sergey Babayan from Russian bank MDM as managing director and co-head of the bank’s global markets team in Moscow. Russian brokerages Aton Captial and Otrkritie have been also hiring.

The relaunched investment banking business of Aton has hired Ivan Nikolaev and Maxim Kabanov as a senior analyst and vice president of equity and fixed income sales, respectively. Both had previously been employed by Renaissance Capital.

Otrkrite has also tapped a former Rencap employee having hired George Zarya as senior sales executive for DMA (direct market access), which allows buy-side institutions to access liquidity venues without having to go through an execution desk. Zarya had been at Rencap for over three years working on international DMA sales until a month ago.

Ashmore opens in Japan and China

2009-08-09T05:28:00.000-07:00

Financial News

Jason Corcoran in Moscow

27 July 2009
Emerging markets fund specialist Ashmore Investment Management is expanding by opening offices in China and Japan.

A source close to Ashmore said it was already recruiting for an operation in China and for a sales office in Japan. Ashmore is also expected to start working in Russia at the end of this year or in early 2010, the source said.

Ashmore, which manages about $25bn (€18bn), last year opened operations in Brazil and Turkey in a bid to increase its local presence in emerging markets, to raise more capital and to add more country-focused funds.

In 2007, Ashmore entered into a joint venture with private equity firm Alchemy Partners to invest in distressed debt and special opportunities in India.

Jerome Booth, head of research at Ashmore, declined to comment on specific geographical expansion plans. He said: “Our overall objective is underpinned on the need to grow and so far a lot of that has been organic in Brazil, Turkey and India. It’s a natural extension to build on further.”

Ashmore, which has traditionally raised most of its capital from US and European institutional investors, is attempting to raise money in emerging markets. Booth added: “We already manage money for central banks and sovereign wealth funds but eventually hope to manage funds for small investors in emerging markets.”

Ashmore has strong links with several sovereign wealth funds, with 15% of its assets under management coming from government institutions.

Booth said Asia sovereign funds, scarred by investing in western investment banks, were taking a fresh look at emerging markets.

Norway’s $370bn state pension fund, one of the world’s largest sovereign wealth funds, earlier this year increased its exposure to Russia by two and a half times and hired Prosperity Capital to run a country mandate. Norges Bank, the wealth fund’s manager, also wants to raise the emerging market weighting in its benchmark portfolio to 10% from 5%.

Banks press Russian authorities for market reforms

2009-08-09T05:27:00.000-07:00

Financial News

Jason Corcoran in Moscow
27 July 2009

International custodians headed by Dutch bank ING are forming a lobby group to pressurise the Russian financial regulator and the Government to improve the market’s infrastructure.

The mission of the International Custodians League is to address regulatory and infrastructural market issues in the interests of local and international investors and their global custodians and sub-custodians.

In a policy paper, ING described the Russian securities market as “fragmented, decentralised, non-standardised and inefficient”.

It added: “There are many legal deficiencies and white spots in the securities, tax and corporate legislation that prevent many local and international investors from entering the Russian securities market or make their investments quite costly and cumbersome.”

Natalia Sidorova, head of securities service of ING Wholesale Banking in Moscow, said the main international custodians in Russia had been approached about joining the group.

Sidorova said: “We want to have an informal working group with other Russian custodians who are well aware of best international practices and foreign clients’ concerns with regard to the deficiencies of the Russian securities market infrastructure towards its development. In particular, such development would entail creation of a centralised system of handling of securities.”

A main goal of the group is to push for the creation of a central depository, an issue that has dogged the Russian market for almost a decade.

The Government has put forward several plans to create a central depository, but the politics of choosing one depository to form the base of the single company have been a stumbling block.

The National Depository Centre, Micex’s settlement depository and the Depository Clearing Company, the depository of the rival RTS exchange, continue to compete to be the central clearing company.

The league also wants the authorities to look at the issue of legal recognition of foreign nominee concept, setting up internationally recognised standards in the interaction between custodians and registrars, recognition of non-true legal entities, of partial and split voting and tax pre-clearance.

Custodians blame politics and bureaucracy for the slow pace of reform in the Russian securities market. To bring about change, they believe custodians and investors with similar interests must be heard as one voice.

However, Russia’s custody industry is fragmented and it remains to be seen if it can unite.

A spokeswoman for UniCredit, one of the leading sub-custodians in the Russian market through its ownership of International Moscow Bank, dampened enthusiasm for the initiative.

She said: “UniCredit managers are represented in the boards of various bodies that control the stock market. Though currently we do not yet have a clear picture what this new initiative will be aiming at, it remains to be seen if there is room for a privately organised custody lobby of such a format.”

Founder departs top-performing Russia hedge fund

2009-08-09T05:26:00.000-07:00

Financial News

Jason Corcoran in Moscow
17 July 2009

Dmitry Kryukov, the co-founder of one of the best long-term performing hedge funds operating in Russia and the former Soviet Union, has left to pursue other projects.

Kazimir Partners, a hedge fund firm with offices in Moscow, London, New York and Baku, was set up by Frank Mosier and Kryukov in 2002 after the pair left the investment bank Renaissance Capital.

Kazimir declined to comment on Kryukov’s departure but a source close to the firm said: “Dmitry wanted to spend more time with his family and to explore other projects. We have a large and deep team so it shouldn’t have any impact on the business.”

The fund was one of one of the few hedge funds to focus on Russia and the former Soviet Union. Its flagship long/short fund, Kazimir Russia, shot up by more than 650% in five years from its inception in 2002.

The Kazimir Russia fund maintained a top ranking amid last year's banking crisis. The fund was rated third in a peer group of 40 Russian and regional investment vehicles for the year to November 28, according to Bloomberg charts.

In 2005, Kazimir acquired the funds business of investment bank Brunswick Capital, which was disposing of assets after entering into a joint venture with Swiss bank UBS.

A number of hedge funds operating in Russia and the former Soviet Union were forced to close or restructure earlier this year following a collapse in the region's equity markets and subsequent client withdrawals.

However, a Kazimir source said the group had not needed to restructure nor seek additional capital.

Kazimir has a Caspian fund which invests in the frontier markets of Kazakhstan, Azerbaijan and Turkmenistan. Sources close to the firm said the fund had exited positions in Kazakhstan before the country’s banking and construction sectors collapsed.

Kazimir, which has mainly institutional clients, declined to provide its current assets under management which are believed to have been about $1bn (€708,462) a year ago.

Third Senior Banker Leaves Troika Dialog Brokerage

2009-08-09T05:23:00.000-07:00

WALL STREET JOURNAL EUROPE

By JASON CORCORAN in Moscow

July 17, 2009

The head of sales at Troika Dialog has become the third senior banker at the Russian brokerage to step down in less than three months.

Gerrit Heyns, who has stepped down from his position after joining Troika in 2002, follows the resignation of the firm's chief executive for the U.K. division, Howard Snell, and the departure of Giedrius Pukas, the managing director of Troika Capital Partners in late May.

A Troika Dialog spokeswoman said Mr. Heyns hadn't left the firm and would be retained in some capacity. "Gerrit has gone on a kind of academic leave," she said. "There's no arrangement yet. He has gone away to think about his future but he is still with Troika."

Troika Dialog entered a strategic alliance with South African bank Standard Bank in March after selling a 33% stake in itself for $200 million and is reorganizing its business lines to integrate it with the Standard's Moscow-based operations.

Mr. Heyns, who is one of the senior partners at Troika, is one of the most experienced and well-known bankers in Moscow.

Prior to joining Troika, he helped to establish the equity business of Kleinwort Benson in Asia as its first head of equity sales in Hong Kong. He later joined Lehman Brothers to establish and manage an institutional equity sales team as its head of sales and went on from there to be head of sales for J.P. Morgan Securities.

He began in the equity broking business in Bangkok as a salesman and then head of sales with Crosby Securities, which later became SocGen Securities Asia.

He couldn't be reached for comment.

Russian banks are hiring in numbers as domestic corporates queue up to issue new debt. After a 10-month break, the euro-bond market has been pried open for Russian issuers by OAO Gazprom and Russian Agricultural Bank, which recently raised a combined $3.25 billion on it.

UBS promotes for equities and structured products

2009-08-09T05:19:00.000-07:00

Financial News

July 10, 2099

Jason Corcoran in Moscow

The head of emerging European equities at UBS has been promoted to a newly-created role as dedicated co-ordinator for structured products and equity capital markets for Europe and the US.

In a memo to clients, UBS said the promotion of Tulga Cordan was prompted by the growing importance of corporate financing for the bank’s franchise customers.

Cordan will act as a liaison between the bank’s structured products business RMP and equity capital markets.

Cordan, who been with UBS for eight years in a number of roles in specialist sales and sales trading, will site on the bank’s loan review group for both regions in addition to acting as liaison to ECM.

Additional responsibilities will include sitting on the equity global client committee and assisting the capital commitment team.

Cordan joined UBS from ABN Amro in 2001, where he had been a top-rated equity analyst.

UBS said there was nothing to announce yet regarding Cordan’s successor as head of emerging European equities.

Russian bondholders form pressure group after defaults

2009-07-09T11:42:00.000-07:00

Financial News

Jason Corcoran in Moscow
06 July 2009

A group of disgruntled bondholders in Moscow have formed a club to uphold their rights in the wake of 60 Russian corporate bond defaults since last September.

Members claim some Russian issuers are avoiding liability by disposing of assets and initiating voluntary bankruptcy and insolvency procedures.

A third of Russian domestic bond issuers have defaulted since the final quarter of last year, according to Russian law firm Liniya Prava.

The Moscow Club, whose members include international banks, Russian banks, asset management companies and pension funds, is being spearheaded by US law firm Baker & McKenzie and Anglo-Russian consultancy RB Partners.

Members are known to include representatives from Italian bank UniCredit, Russian brokerage Otkritie, investment fund VR Group and private equity firm SCP.

Max Gutbrod, a partner at Baker & McKenzie, said the lack of regulation, the uncertainty of rules and increasingly errant corporate behaviour had brought bondholders together. He said: “Our immediate focus is on the really bad defaults where everything has disappeared. Issuers are taking advantage of the lack of organisation of bondholders and are making unreasonable proposals and profiting from the chaotic restructuring processes.”

Members cited defaults by factoring firm Eurokommerz, media holding RBC, baby food producer Nutritek and sugar producer Razgulay for their action.

Rating agency Moody’s last week cut Eurokommerz’s long-term ratings to C from Caa2. It said the company was in default on the majority of its obligations after it first defaulted on its coupon payment for 3bn roubles ($107m) in domestic bonds last December. It said that “bankruptcy is now the most likely scenario”. Eurokommerz did not return calls for comment.

RBC, whose debts are believed to be $200m, first defaulted on a $45 rouble bond payment in March.
A spokesman said a new chief executive had been installed and the company could not comment. Board members voted last week to terminate the power of the company’s head, Yuri Rovenski, who was one its founders.

Razgulay and Nutritek declined to comment.

The Moscow Cub said it aimed to develop a strategy to negotiate with issuers and their agents.

VTB wins tender for airport development

2009-07-09T11:41:00.000-07:00

Financial News

Jason Corcoran in Moscow

26 June 2009

A consortium led by the investment bank VTB Capital has won a competitive tender to revamp St Petersburg’s Pulkovo airport in what is set to be Russia’ first large public-private partnership.

The consortium consisting of VTB Capital, the state-controlled investment bank, Fraport, the owner and operator of Frankfurt airport and the Greek investment and business group Copelouzos, won the €1.4bn ($1.9bn) open tender to redevelop Pulkovo, the fourth-largest airport in Russia. The PPP is to be run over 30 years, in conjunction with the government of St Petersburg.

In the final round, the VTB consortium beat off competition from the Basic Element investment holding of oligarch Oleg Deripaska and Vienna airport operator Flughafen Wien in partnership with Leader, the pension fund manger of energy giant Gazprom.

The municipal government had in a previous round whittled down the list of consortia to six. Those that didn't make it on to the shortlist included Macquarie Renaissance, a joint venture formed by the investment banks Macquarie and Renaissance Capital to invest in Russian and CIS infrastructure; Germany's Hochtief in partnership with oil and mining tycoon Viktor Vekselberg; India's GMR; and Turkish TAV Airports.

VTB said their tender bid submitted has been recognised “as the best based on a combination of technical, legal and financial criteria”.

The overall amount of investments required for the first stage of constructing the new terminal and upgrade of existing infrastructure will amount to €1.4 bn. The European Bank of Reconstruction and Development and the state development bank VEB have already expressed interest in providing credit support to the project.

In a statement, VTB capital global chief executive Yuri Soloviev said: “We are sure that the Pulkovo project will convincingly prove the possibility of successful implementation of large infrastructure projects in Russia in the current market conditions."

Many infrastructure projects have been postponed or moth-balled due to the lack of available finance from domestic and international capital markets. And the Kremlin's much touted public-private partnership (PPP) programme to stimulate investment has yet to take off, while bankers hired to capitalise on an anticipated deal-making boom have been twiddling their thumbs for the past nine months.

The government is now targeting selective projects in St Petersburg, Moscow and the Winter Olympic venue of Sochi as priorities for completion until the investment climate for foreign and private capital improves

The St Petersburg municipal government has said it will delay $13bn (€9.2bn) of infrastructure projects, which had attracted bids from international companies including Alstom, Siemens and Oleg Deripaska's Basic Element, due to the credit crisis deterring most private investors.

Projects facing prolonged delays include the $10bn highway, known as the Western High-Speed Diameter, and the Orlov tunnel under the Neva River. Banking sources said the Orlov tunnel and a fast-speed train link to the airport are likely to be postponed indefinitely.

The WHSD roadway encircling St Petersburg was meant to be the pioneering large PPP project in Russia, but the winning consortium formed by oligarch Oleg Deripaska and Strabag has not yet signed the concession contract governing the project.

EBRD invests in Moscow buyout firm

2009-07-09T11:40:00.000-07:00

Financial News

Jason Corcoran in Moscow
19 June 2009
The European Bank for Reconstruction and Development has approved a $50m (€36m) investment with Moscow-based private equity firm UFG Asset Management, as fund-raising activity in Russia bounces back.

The investment comes days after it was disclosed that Robert Sasson, the former head of the St Petersburg office of the EBRD, is to join UFG as a senior managing partner of its private equity business. Sasson is to co-head UFG Private Equity alongside Charles Ryan, a former chief executive of Deutsche Bank Russia who started his career at the EBRD.

A spokesman for the EBRD in Moscow said Sasson had left the development bank some time ago and had worked for the hedge fund Moore Capital before taking up his UFG position.

The UFG Private Equity Fund II, whose target is to raise $200m, has just had its first closing at $150m and is aiming for the second and final closing towards the end of the year. The fund will invest in a diversified portfolio of investments over three years and take stakes in mid-market companies, particularly those requiring a restructuring of their capital base

The EBRD, which has committed over $900m to Russia-focused private equity funds since the Bank made its first such investment in 1993, previously invested $50m with UFG’s first fund. It has also previously invested $35m in the Russian New Growth fund, a joint venture between Troika Dialog and Singapore sovereign wealth fund Temasek.

UFG is just one of several raising funds to be raising cash in the region. Russia Partners, a wholly-owned subsidiary of New York based Siguler Guff & Company, recently raised an $800m fund to invest in consumer and basic industries in Russia and other former Soviet states.

Italian insurance firm Generali last week launched a new private equity firm with PPF, a financial group set up by Czech financier Petr Kellner/ The firm PPF Partners, which has already raised €615m ($855m), will focus on purchasing assets in Central and Eastern Europe, with Russia the key market.

Swedish investment group East Capital also said in April it is raising a new private equity fund aiming at Eastern European listed companies. The East Special Opportunities Fund is targeting a $100m maximum size with €35m being seeded by the company.

Troika receives $150m boost ahead of Russia 'bad debt peak'

2009-07-09T11:38:00.000-07:00

Financial News

Jason Corcoran in Moscow
17 June 2009

The European Bank of Reconstruction and Development has approved a $150m (€108m) five-year loan for Troika Dialog as part of package to fortify Russian banks against a second wave of bad debt, which is expected to spike in two months' time.

The loan comes three months after South Africa’s Standard Bank took a 33% stake in the Moscow investment bank in a $200m deal, which increased the bank’s capital base to $850m.

The IFC, the World Bank's investment arm, last week announced plans to invest $200m to buy stakes in Russian banks struggling with a second wave of bad loans. Banking analysts in Moscow have forecast that non-performing loans could hit 20% by the end of year. The Russian Central Bank maintains that bad loans are unlikely to exceed the threshold of 10% to 12% of the banks' total loan portfolio.

A spokesman for the EBRD in Moscow said: “We have already committed $500m in subordinated loans to Russia’s banking system and to boost their capital bases. A total of $5bn has been designated to Russia, which represents a 20% increase.”

Pavel Teplukhin, president of Troika Dialog, yesterday told the Prime-Tass press service the problem of bad debt in Russia's banking sector will hit a peak during August to September. “At that time, the problem of bad debt will intensify, and it will be necessary to make a decision on the capitalisation of Russia's banking system,” he said.

A spokeswoman for Troika Dialog in Moscow said the $150 loan from the EBRD would support the bank’s trading and brokerages activities and reduce its dependency on the repo-market for short-term lending. "The funds received from Standard Bank are aimed at the development of our commercial banking business."

The facility will consist of two separate tranches and the funding will support Troika’s trading and brokerage activities.

The EBRD, which has previously invested $35m in Troika’s private equity arm, opened a three-year credit line in November 2007 worth $100m. A spokesman declined to comment on the terms of the new loan.

The new loan, which will consist of two separate tranches, require a single repayment at maturity.

Troika, which is currently re-organising its business lines to integrate it with the Standard’s Moscow-based operations, has cut costs and staffing by 35% since last Autumn’s bank crisis.

UK banks splash out for Russian mission

2009-06-19T13:48:00.000-07:00

Financial News

By Jason Corcoran

15 June 2009

Letter from Moscow

The opening last week of HSBC Bank’s first branches in central Moscow heralds a new British retail invasion of Russia.

The bank is spending $200m rolling out a retail and private banking network in Russia’s biggest cities. A large marquee was pitched on Moscow’s pedestrianised Tverskoi Boulevard as part of a week-long HSBC-sponsored festival of classical music.

The bank has hired 300 staff and some were on hand to welcome curious Muscovites. The main branch’s air-conditioning was appreciated, although many may perhaps have balked at the required minimum deposit of 75,000 roubles ($2,420), in a city where the average monthly salary is $800.

Other British high street banking brands have been popping up around the city. Barclays has just completed a rebranding of 36 branches of Expobank, which it acquired in March last year for $745m.

Royal Bank of Scotland acquired three offices in Moscow and one in St Petersburg following its acquisition of ABN Amro.

A year ago, British businessmen and investors were afraid they might become pariahs in Moscow following a dispute at Anglo-Russian joint venture TNK-BP, the closure of the British Council’s offices in Russia and the Kremlin’s refusal to extradite Andrei Lugovoi, the chief suspect in the London killing of dissident Alexander Litvinenko. Diplomatic relations between the two Governments sank to their lowest point since the Cold War.

The global economic crisis has helped paper over some of the political differences while the British seem happy to renew their interest in Russian expansion.

Russia remains one of the world’s last great untapped consumer markets even though rising unemployment, high inflation and a slowing growth rate make it a harder nut to crack.

The financial crisis took its toll on the luxury industry with boutiques in Moscow featuring British designers Alexander McQueen and Stella McCartney forced to close in January, but now the consumer economy is picking up, helped by a stronger rouble and oil hitting $70 a barrel last week.

Upmarket UK department store Harvey Nichols is understood to be scouting for locations for a flagship store in central Moscow while British toy chain Hamleys has signed a franchise agreement to set up in the city.

Foreign direct investment into retail remains a safer bet than energy and other sectors where the Kremlin has erected “strategic investment” barriers.

Mergers and acquisitions almost tripled in volume during May compared to April as dealmaking returned. Barclays investment banking arm BarCap and other institutions are ramping up to capitalise on a recovery in capital markets.

But a startling resurgence in the domestic equity markets is not expected to translate into any initial public offerings until next year. Future foreign listings could also be hampered if a proposed law is passed limiting IPOs on foreign markets to 5% of Russian companies.

The new regulations are part of a drive to channel investment in Russian securities away from foreign markets and on to domestic exchanges, where low liquidity causes volatility. Such moves have boomeranged in the past, however, due to concerns about restrictions on foreign investment into Russia.

The target of this campaign is the London Stock Exchange, which has historically been the desired destination for Russian blue chips to list. The LSE abandoned a plan to open a representative office in Moscow last year after 43 companies from Russia and the Commonwealth of Independent States pulled their IPOs in the wake of the worst trading crisis in Russia since its sovereign default in 1998.

Russian bank recruits as market rebounds

2009-06-19T13:45:00.000-07:00

Financial News

By Jason Corcoran

June 15, 2099

Russia’s relaunched investment bank Aton Capital has recruited three executives to run its sales, research and private equity arms. And Moscow-based rival Troika Dialog has handed its head of research control of its London office.

Aton has hired Ilya Veller and Alexei Yazykov, both previously at Renaissance Capital, to run the sales and research teams respectively, according to sources close to the bank. This brings to 12 the hires it has made in the past month.

Dmitri Moiseyev has been recruited as managing director of the private equity division of Aton Capital Partners. He was previously an investment director of Technoprom, a private equity company.

The Russian stock market has been one of the world’s best performing this year, rising more than 70%, almost wiping out last year’s loss of about three quarters of its value. Meanwhile, Troika Dialog has declared it handed control of its London office to its head of research Paolo Zaniboni, following the resignation last month of Howard Snell.

Snell’s departure came in the same week that Giedrius Pukas, managing director of Troika Capital Partners, the bank’s alternative asset management division, left the firm to launch his own business.

Evgeny Yuriev, the founder of Aton Capital, is re-entering the investment banking market two years after selling the group’s institutional business to UniCredit for $424m. UniCredit dropped the Aton brand in February this year and the Russian business was renamed UniCredit Securities.

Aton declined to comment.

Aton plucks Russian strategy head from JP Morgan

2009-06-19T13:44:00.000-07:00

Financial News

Jason Corcoran in Moscow
09 June 2009

Peter Westin, head of Russian strategy at JP Morgan, has left the bank and is believed to be rejoining Aton Capital, the Moscow-based group that has been hiring aggressively in its bid to relaunch as a full-service investment bank.

Westin, one of the best-regarded analysts in Moscow, had previously worked with Aton, which is relaunching after the original business was sold to Italy’s Unicredit in July 2007 for $424m (€306.5m).

A source at JP Morgan confirmed Westin had left the company and said his role was being covered temporarily by its Russian head of research Alex Kantarovich.

Swedish national Westin was part of a group of 20 bankers poached by JP Morgan from Russia’s MDM Bank almost two years ago.

Westin had previously worked for Aton, joining in 2001 as a senior economist. He had worked as chief analyst at the Stockholm Institute for Transition Economics, where he was responsible for monitoring macroeconomic developments in Russia.

Aton, which is hiring up to 50 staff for its equity brokerage, declined to comment although two sources close to the company indicated Westin had joined its new business.

A growing recovery in Russia’s capital markets is leading to a renewal in hiring with VTB Capital leading the way. Financial News revealed yesterday that VTB had hired a team of sales and traders from rival Troika.

Separately, Russian bank UralSib said it had hired Gareth Johnson as head of trading from Alfa Capital.

VTB Capital recruits from rival

2009-06-19T13:42:00.000-07:00

Financial News

Jason Corcoran in Moscow
08 June 2009

VTB Capital, the investment banking arm of Russia’s VTB Bank, is hiring a three-man sales and trading team from rival Troika Dialog as a growing recovery in Russia’s capital markets leads to a wave of hiring.

Will Lynch, Peter Walker and Richard Phillips have quit Troika to join VTB’s growing presence in London, one of its three global hubs.

A Troika Dialog spokeswoman said the bank was hiring to replace the three and would soon announce recruits to its private equity and investment banking teams. She said: “Troika Dialog remains committed to building one of Russia’s largest and most significant financial institutions and we continue to bring on-board strong talent to strengthen our business in this challenging environment.”
VTB was unavailable for comment.

Russia’s RTS index has leapt 85% this year, making it the world’s best-performing large equity market, after a 72% decline last year. Mergers and acquisitions have bounced back too with volumes almost tripling in April to $8.3bn (€5.9bn), up from $3bn in March.

The recovery has spread to the debt markets with oil company Gazprom Neft, mobile phone operator MTS and Russian Railways successfully returning to local and foreign debt markets. Agricultural bank Rosselkhozbank is set to issue the first Eurobond by a Russian bank since last summer.

Jonathan Astbury, managing director at the headhunter Sandton Group, said banks in Moscow were looking for staff in cash equity sales, equity trading, oil and gas M&A, in addition to chief operation officers and senior support staff in risk.

He said: “Russia has seen a good recovery in recent weeks, with increased cautious optimism regarding the future and sustained rises in oil prices.

“This is a much-needed boost to the recruitment market and once again banks are starting to add staff.”

Crisis bites deep into Russian infrastructure programme

2009-06-19T13:40:00.000-07:00

Business New Europe

Jason Corcoran in Moscow
June 5, 2009

Russia's Stalinist-like trillion-dollar infrastructure programme to revamp its crumbing roads, bridges, ports and airports over 10 years has been shaken by the global financial crisis. Many infrastructure projects have been postponed or cancelled due to the lack of available finance from domestic and international capital markets. And the Kremlin's much touted public-private partnership (PPP) programme to stimulate investment has yet to take off, while bankers hired to capitalise on an anticipated deal-making boom have been twiddling their thumbs for the past six months.

Senior financiers held a meeting with Deputy Prime Minister Sergei Ivanov at the start of the financial crisis in November last year and were told that the infrastructure programme for 2009 was being cut by 30%. The 2009 budget for infrastructure is believed to have been slashed again by a similar amount following the ruble's devaluation and dwindling federal revenues from lower commodity prices.

The government is now targeting selective projects in St Petersburg, Moscow and the Winter Olympic venue of Sochi as priorities for completion until the investment climate for foreign and private capital improves. Joerg Bongartz, chairman of the board of Deutsche Bank Russia, said the government was stepping in to meet the shortfall in showcase projects. "In Russia, there has been a reality check on infrastructure spending since the start of the crisis," Bongartz tells bne in an interview. "A significant amount of foreign capital was expected to be made available for a number of large infrastructure projects structured as public-private partnerships, but it appears now that if the government wants these projects to materialise, a larger share of the funding and the coverage of particularly the foreign exchange rate risk will need to come from the budget and government funds."

Bongartz said Deutsche Bank is still hoping to get involved in infrastructure via its corporate finance specialist team, its infrastructure and property management unit Rreef and DB Partners, and its joint venture with the Austrian construction firm Strabag.

Planes, trains and automobiles

The St Petersburg municipal government has said it will delay $13bn of infrastructure projects, which had attracted bids from international companies including Alstom, Siemens and Oleg Deripaska's Basic Element, due to the credit crisis deterring most private investors. Projects facing prolonged delays include the $10bn highway, known as the Western High-Speed Diameter (WHSD), the Orlov tunnel under the Neva River and a planned $1bn upgrade of Pulkovo airport. The Orlov tunnel and a fast-speed train link to the airport are likely to be postponed indefinitely.

The WHSD roadway encircling St Petersburg was meant to be the pioneering large PPP project in Russia, but the winning consortium formed by oligarch Oleg Deripaska and Strabag hasn't yet signed the concession contract governing the project. St Petersburg Governor Valentina Matviyenko said in April that some of the major projects of the city's road infrastructure would be built at the expense of the federal budget after private investors pulled out. The federal government is to allocate $617m for the construction of the WHSD roadway provided the city authorities keep their word to invest $198m.

A decision on the winning consortium for Pulkovo airport has been pushed back to June 25. The municipal government on May 21 whittled down the list of bidders to upgrade Pulkovo airport to three - Deripaska's Basic Element, Flughafen Wien in partnership with Leader, an investment house founded by Gazprom structures, and German Fraport in tandem with state bank VTB. Those that didn't make it on to the shortlist include Macquarie Renaissance, a joint venture formed by the investment banks Macquarie and Renaissance Capital to invest in Russian and CIS infrastructure; Germany's Hochtief in partnership with oil and mining tycoon Viktor Vekselberg; India's GMR; and Turkish TAV Airports.

A spokesman for Renaissance Capital in Moscow declined to comment on "specific transactions," but said the alliance sees the number and quality of potential deals increasing as industrial groups look to exit non-core investments, including infrastructure assets. Macquarie Renaissance's first fund raised half of its $1.5bn target last year. Most of the funds raised came from Russian and CIS multinational development agencies such as Vnesheconombank (VEB), the Kazakhstan State Development Bank and the Eurasian Development Bank.

VEB, which is the government agency responsible for infrastructure spending, has declined repeated requests for an interview. However, VEB's chairman, Vladimir Dmitiev, recently claimed on the VEB website that international agencies such as the International Finance Corporation and European Bank for Reconstruction and Development (EBRD) had expressed an interest in participating in the Macquarie Renaissance fund. Dmitriev said the fund's resources will soon be used for implementing infrastructure projects in CIS countries and more credit will be made available by VEB, the Kazakhstan State Development Bank and the Eurasian Development Bank.
"And we are absolutely sure that as soon as the [the Macquarie Renaissance Fund] starts operating, we'll get a number of private and institutional investors to participate in it, including ones from the Middle East," Dmitriev said in a statement on the VEB website.

Renaissance said fund raising continues to progress, and is making solid progress, but declined to give any specifics. The Russian investment bank, which has its own financing difficulties, insists that private investment still has a role to play in priority projects alongside government funding. "The process of private investment alongside the government will be evolutionary," explains the Renaissance spokesman. "Macquarie Renaissance Investment Fund, for example, is the first dedicated infrastructure fund to be focused on Russia and the CIS. As in other markets, investor interest will follow as the opportunities to invest ramp up."

One location where investors can be certain that most planned projects will be undertaken is Sochi, the Black Sea resort which will host the Winter Olympics in 2014. "Sochi is one of the priority areas for the government because of the reputational issue attached to hosting the Olympics," says Deutsche's Bongartz. "This has to be successful and there has to be a clear timeline for projects as the date is fixed. There still remains a great deal of interest from abroad from companies keen to get involved in services and construction."

UniCredit chief quits as Aton relaunches

2009-06-08T13:28:00.000-07:00

Financial News

Jason Corcoran in Moscow
03 June 2009

UniCredit Securities in Moscow, which has lost staff to resurrected investment bank Aton in recent weeks, has been dealt another blow with the departure of its chief executive and head of investment banking.

UniCredit confirmed Alexander Kandel was leaving the bank for “personal reasons”.

A spokeswoman declined to comment on whether Kandel would join Aton at a later stage. “Alexander will remain with the group for the forseeable future to ensure a smooth handover of his responsibilities,” she said.

Kandel was chief executive of Aton Capital for three and half years until UniCredit bought its institutional business in July 2007 for $424m .

The Aton brand was subsequently dropped in February this year and the Russian business was renamed UniCredit Securities.

However, Evgeny Yuriev, the president and founder of Aton Capital, is re-entering the investment banking market after retaining the Aton Line discount brokerage and Aton asset management businesses.

Aton is building a full service investment bank and is looking to hire up to 50 bankers, according to recruiters.

Sources close to UniCredit said they were dismayed by the move. Both operations are located in the same building in central Moscow. UniCredit confirmed Aton had already recruited four of its staff, including head of equity trading Denis Sarantsev.

UniCredit said Steven Dashevsky, its head of equities, would remain with the group.

Sources close to UniCredit said Martin Rauchenwald, head of markets and investment banking for Russia, had left at the end of last year and is working as a self-employed adviser in Vienna.

Rauchenwald, an Austrian and a former global head of equities at UniCredit, was brought on board to help integrate UniCredit’s acquisitions of Aton and the International Moscow Bank in Russia.

Kremlin fuels surge in Russian oil deals

2009-06-08T13:25:00.000-07:00

Financial News

Jason Corcoran in Moscow

01 June 2009

The state is thought to be using the crisis to tighten its grip on the country’s energy industry

The recent spurt in acquisition activity in Russia’s oil and gas sector underlines the power state-controlled entities enjoy in dealmaking.

Industry analysts claim the Kremlin is using the economic crisis to exert greater control over oil and gas assets, sometimes at the expense of foreign-owned and independent energy companies.

Thomas Beck, director of corporate finance at KPMG in Russia, said that recent deals had largely been driven by the Government and realism on pricing by both sellers and buyers.

He said: “There has certainly been an uptick in M&A activity during the second quarter so far. A lot of this is in the very early stages and, where we have seen deals, most of them have been Government-driven. This modest recovery should continue at the same pace until the end of the year when we should see some improvement in the real economy.”

Last week, mid-sized oil company Sibir Energy agreed to a takeover offer from Gazprom Neft in the state’s first big play for the assets of indebted tycoons. Gazprom Neft, the oil arm of state energy company Gazprom, had previously seen off a rival bid for an initial 16% stake in Sibir by Anglo-Russian joint venture TNK-BP. A source familiar with the situation said: “TNK-BP was either naive or called it badly. The Kremlin may have given the nod to Gazprom which is something TNK-BP would have struggled to get.”

Credit Suisse had started an accelerated bookbuild of Sibir’s shares, offering 430p a share on behalf of TNK-BP, but was trumped after Renaissance Capital intervened and offered investors 500p a share on behalf of Gazprom Neft.

Andrew Cornwaithe, co-head of investment banking at Renaissance, said: “Our structure to counter TNK-BP’s offer on a first-come first-served basis proved to be an attractive one for shareholders. In two and a half hours, we had achieved our client Gazprom Neft’s objective in acquiring a sizeable minority position in Sibir.”

Gazprom Neft has since amassed a 27.5% stake in Sibir, which stopped trading in February after it became known that Shalva Chigirinsky, one of the firm’s major private shareholders, owed the company $325m (€230m).

Gazprom is now expected to acquire an additional 23.3% stake which is owned by businessman Igor Kesayev and has been held as collateral by state lender Sberbank.

Gazprom Neft has shown an acquisitive streak in recent years, most recently by taking stakes in Russian oil producers Slavneft and Tomskneft. Its 50% stake in Tomskneft in December 2007, for example, accounted for 11% of its total oil production in 2008 and prevented a year-on-year decline in production.

Gazprom also gained control of Serbia’s national oil monopoly NIS in December last year, and has formed alliances with European energy firms to build two pipelines to pump Russian gas to northern and central Europe, bypassing Ukraine.

Analysts said the completion on May 22 of a $2.5bn deal by conglomerate Sistema to acquire six oil production, refining and marketing companies in the Bashkortostan region of Russia had all the hallmarks of a Government-sanctioned deal.

Pavel Sorokin, an oil analyst at UniCredit in Moscow, said: “If you look at Sistema’s loan conditions, they don’t have to pay interest to the state for two years. They are primarily involved in telecoms and I can see them selling the assets on to state-controlled Rosneft.”

Sorokin said independent oil and gas producers could compete better for assets in western Europe and in the neighbourhood of the Commonwealth of Independent States than at home. Novatek and Lukoil are looking to do deals domestically and overseas but even these come within the Government’s sphere of influence.

Independent oil company Lukoil recently considered a bid for Spanish energy firm Repsol and last year added a joint venture with Italian refiner ERG to other European assets. On a trip to Spain, Russian President Dmitry Medvedev criticised the reaction in Spain to a possible bid from Lukoil. He said claims that the proposal would endanger Spain’s security were based on “stereotypes” and contradicted “the idea of a united Europe”.

The board of gas producer Novatek last week approved the purchase of a 51% stake in the Yamal Liquefied Natural Gas (LNG) project in east Siberia for $650m.

Yamal was previously thought to belong entirely to Gazprombank, although Novatek said it had acquired the stakes from three companies related to Volga Resources, which is reportedly controlled by Gennady Timchenko, a prominent businessman with close links to Russian Prime Minister Vladimir Putin.

Oleg Maximov, a senior oil and gas analyst at private investment bank Troika Dialog, said: “Volga Resources is a circa 5% shareholder in Novatek. Whatever the case, such a large field could only have been transacted with Gazprom’s blessing.”

Timchenko, who also has a major stake in Gunvor, the largest trader of Russian crude oil and products, is thought to have a stake of about 5% in Novatek as he seeks to diversify his businesses. Russian daily newspaper Kommersant said the sale of Yamal would enable him to double his stake in Novatek to about 10%.

Investment banks are beginning to capitalise on the M&A activity. Deutsche Bank has recently hired William Donovan, former head of M&A for oil and gas at Goldman Sachs, while UBS has tapped Maxim Moshkov from US hedge fund giant Farallon Capital Management to run the bank’s oil and gas research team. Citigroup and Nomura are also understood to be adding to their energy research teams in Moscow.

The Kremlin is assembling a unit to advise on foreign mergers and acquisitions in the energy sector and this month hired Natasha Tsukanova, head of investment banking at JP Morgan in Russia.

The purchase of 21.2% of Hungarian oil and gas company MOL for $1.9bn in March by Surgutneftegas indicated Russia’s appetite for foreign downstream assets in the west. Surgut, which has close links to the Kremlin, has long been seen as the most conservative Russian energy company, quietly hoarding a cash pile of around $23bn.

Deals come back into vogue after lean start to year

2009-06-08T13:23:00.000-07:00

Financial News

Jason Corcoran in Moscow

01 June 2009
The volume of mergers and acquisitions deals in Russia and eastern Europe recovered in April after a barren time for advisers in the first few months of the year.

Data from Thomson Reuters showed the volume of dealmaking in Russia soared to $8.3bn (€5.9bn) during April, compared with $2.4bn and $3bn recorded during February and March, respectively. The number of deals also rose to 340 in April, from 238 in March and 254 in February.

Across eastern Europe, the rally began in March and was just as pronounced. Volumes rose to just under $6bn for both March and April, compared with $1bn for January and February combined.

However, compared with last year, volumes fell 67.5% in Russia and 76% in eastern Europe in the first five months of this year.

The fall would have been greater, were it not for three big deals in the oil and gas sector. According to figures from data provider Mergers.ru, Russia’s M&A market value in the first quarter of this year was $12.5bn – and about half of that came from those three deals: investment group Basic Element acquiring Russian private oil firm RussNeft, India’s ONGC Group’s acquisition of London-listed Imperial Energy, and Gazprom taking control of the NIS oil monopoly in Serbia.

Mergers.ru noted that several deals were likely to close in the second quarter, such as the merger of MDM Bank and Ursa Bank, and South Africa’s Standard Bank taking a 33% stake in Russian investment bank Troika Dialog.

Oil company TNK-BP said it would continue to seek acquisition opportunities in Russia after losing out to Gazprom Neft for a stake in the troubled UK-listed Russian oil producer Sibir Energy.

Apart from the energy sector, bankers believe the buoyant retail and consumer segment remains the most attractive for foreign entrants.

Russian daily Kommersant last week reported that a UK supermarket chain had appointed Goldman Sachs to explore an expansion strategy into Russia. A Goldman Sachs spokeswoman declined to comment.

Wal-Mart, America’s largest retailer, said it might expand into Russia to take advantage of its fragmented retail market while French retailer Carrefour has been circling Seventh Continent, an upmarket grocery chain, for several months.

Troika Dialog Managers Leave Firm; Layoffs on Tap

2009-05-31T08:25:00.000-07:00

WALL STREET JOURNAL EUROPE

May 29, 2009

By JASON CORCORAN and HARRY WILSON

Two senior managers have left Troika Dialog after a tumultuous nine months for the Moscow-based financial group that included a collapse in Russian stock prices and the sale of a stake to Standard Bank Group Ltd. in March.

The chief executive of Troika Dialog's U.K. business, Howard Snell, has resigned. Giedrius Pukas, the managing director of Troika Capital Partners, the group's alternative-asset-management division, is leaving with a senior team to launch his own firm, according to the bank.

Mr. Snell resigned from Troika this week but will remain on the board of directors of the U.K. business for a couple of months. He said he would take the next months off to assess his options. Two people close to the situation said his departure wasn't connected to a Troika program to reduce its head count.

Mr. Pukas, who is leaving along with two colleagues, joined Troika in early 2004 and said he was leaving with a senior team to set up an investment and private-equity firm called Quadro Capital Partners.

His responsibilities as managing director and chief investment officer of Troika Capital Partners are to be divided between Mikhail Broitman, managing director of the strategic-projects division, and Kanako Sekine, who joined as chief operating officer last year.

A spokeswoman for Troika Dialog said, "Troika Capital Partners initiated a separation with Giedrius Pukas. As a result of a semiannual performance review of staff, a number of Troika Dialog group employees were terminated as well."

She added that following the review, performed from March to April, the bank had separately decided to make a "small number" of cuts and will announce several senior appointments in London and New York imminently. At the start of the year Troika revealed plans to cut 25% of its total head count, although the bank now says the layoffs are likely to reach 30%.

Troika Dialog entered a strategic alliance with Standard Bank in March after selling a 33% stake for $200 million and is reorganizing its business lines to integrate it with the South African bank's Moscow-based operations. It is still awaiting regulatory approval before it can work as a joint team. Standard Bank has its own private-equity team in Moscow, to be integrated with Troika Capital Partners, which has about $2.3 billion in funds under management in private equity and venture capital.

Goldman Banker Makes Exit as Hiring in Moscow Picks Up

2009-05-25T03:32:00.000-07:00

Wall Street Journal Europe

May 22, 2009

JASON CORCORAN

MOSCOW -- Goldman Sachs Group Inc.'s head of mergers and acquisitions for oil and gas in Russia has become the second senior executive this month to quit the bank's Moscow business, as resurgent rivals in the country start rehiring.

William Donovan is leaving Goldman Sachs to join Deutsche Bank AG in Russia for a similar role. Mr. Donovan joined Goldman Sachs in 2007 having spent more than seven years at U.S. brokerage AG Edwards, which is part of the Wells Fargo banking group.

Goldman trimmed its headcount in Russia by 10% last year after the financial crisis spread.

A spokesman for Deutsche Bank in Russia confirmed Mr. Donovan had joined recently to take up a similar position covering the energy sector. Deutsche Bank said it was "hiring selectively" and had never put a freeze in place unlike many other banks in Moscow.

However, investment-banking hiring has picked up in Moscow with Russia's VTB Capital, part of VTB Group, leading the way. Morgan Stanley, Nomura, Barclays PLC's investment-banking arm Barclays Capital and Troika Dialog are actively hiring or trying to fill selected positions, according to local headhunters who have been tapped for executive searches.

A Goldman Sachs spokeswoman in London couldn't be reached for comment.

Renaissance Investment's Remaining CEO Is Departing

2009-05-21T08:02:00.000-07:00

Wall Street Journal Europe

May 20, 2009

By JASON CORCORAN

Rod Barker, the U.K.-based chief executive of Renaissance Investment Management, is quitting the Russian fund manager at the end of the month.

Mr. Barker's exit from Renaissance follows the departure of his Moscow-based co-chief executive, Andrei Movchan, in February following a disagreement with RIM's parent, Renaissance Group, over the firm's strategic direction.

Mr. Movchan had been sole head of the division from its inception in 2003 to 2007, when Mr. Barker was hired from London-based hedge fund RAB Capital to take up the role of co-CEO. Mr. Barker is to be succeeded by Brian O'Callaghan, chief operating officer of RIM UK.

"I'm leaving with effect from the end of May to pursue other opportunities," Mr. Barker said. "I'm not yet in a position to disclose what I'll be doing."

Renaissance confirmed Mr. Barker's immenient departure.

The exit of Mr. Barker, a regular on London's television social circuit, coincides with a clearout of its top executives. The Renaissance Group, which includes RIM and the investment bank Renaissance Capital, has cut its staff by 40% since the banking crisis hit Russia late last year. Staffing in their London office had been cut to 71 at the end of April, from 151 a year ago.

Mr. Barker, previously head of prime brokerage of Credit Suisse First Boston, was responsible for building RIM's international distribution and the development of funds focusing on the Middle East, North Africa and South Asia.

RIM, which focused on high-net-worth clients, had built up assets under management to $6 billion by early 2008. Those assets have since fallen due to client redemptions and a drop in stock prices. It managed It had $3.7 billion in assets as of January 1 2009, according to the group's Web site.

JP Morgan names Russia investment banking chief

2009-05-17T11:45:00.000-07:00

Financial News

Jason Corcoran in Moscow
15 May 2009

Jeffrey Costello, chief executive of JP Morgan in Russia, has taken over as head of investment banking in Moscow following the surprise departure of Natalia Tsukanova to take up a role as an adviser to the Kremlin.

JP Morgan said Costello had taken over Tsukanova’s duties temporarily following her departure last month to advise the Russian government on it foreign acquisition plans.

Investment banking sources said Tsukanova had been tapped by Igor Sechin, deputy prime minister and energy giant Rosneft chairman, to advise the government on foreign acquisitions in the oil and gas sector.

“Tsukanova was with JP for 12 years and wanted to try something new. This was an offer she felt she couldn’t refuse,” said a banker close to the situation.

A Moscow spokeswoman for JP Morgan said Costello was taking over until a suitable replacement could be found. It was too early to say whether internal or external candidates will be sought.

Tsukanova’s investment banking team has had a good run over the past few years. Its bankers acted as joint bookrunner on the $10.7bn (€7.9bn) flotation of Rosneft and was one of the two international placement agents for Sberbank’s $8.8bn flotation. It has traded leading M&A adviser status in Russia with Credit Suisse over the past three years.

Russia’s capital markets have quietened down this year compared to the boom in mergers and acquisitions last year. JP Morgan is the second leading adviser for the year to date, having advised on two deals worth $7.5bn. In 2008, JP Morgan advised on eight deals during the entire year worth a total of $18.1bn.

Costello was hired in March last year as JP’s first Moscow chief executive. He spent five years as chief executive of UBS' Moscow-based investment banking joint venture UBS Brunswick until taking time out of the banking industry in 2004.

Medvedev makes his mark

2009-05-17T11:39:00.000-07:00

The Guardian

Comment is free

A year after his arrival, measures from the Russian president suggest a power shift in the Kremlin, and an era of glasnost-lite

By Jason Corcoran

Comments (31) Tuesday 12 May 2009 20.30 BST

A new era of glasnost sponsored by the Russian president, Dmitry Medvedev, is casting light into some of the darkened corridors of the Kremlin. Medvedev has recently made a string of striking public outreach gestures and this week signalled he could ease political restrictions imposed by his predecessor Vladimir Putin.

Some of the measures hark back to the late 1980s when then USSR president Mikhail Gorbachev first announced a policy of glasnost, which translates as openness or transparency. Gorbachev's policy of glasnost, along with his restructuring of the economy and the political system, ushered in a momentous period of change and turmoil, which ultimately led to the break-up of the Soviet Union. Many of the post-Soviet freedoms were subsequently rolled back during Putin's eight-year reign.

A year on from his inauguration, the substance of Medvedev's presidency is beginning to synch with the mood music.

Earlier this week, Medvedev said the 7% threshold for political parties to win seats in the State Duma may be lowered.

Putin had introduced the threshold in the wake of the 2004 Beslan hostage massacre arguing the need to preserve the integrity of the state. The ruling meant that only four political parties – none of them opposed to Putin – surpassed the 7% threshold in the parliamentary elections of December 2007.

Like Gorbachev, Medvedev is a trained lawyer and his pledge last May to eradicate "legal nihilism" no longer seems utterly hollow.

Federal and regional politicians, along with and security figures embroiled in scandals over the last few months, are actually being held to account. Under Putin's reign, many scandals were raked over and the figures would be allowed to carry on as if nothing happened, as long as the party line was toed.

For example, when photos surfaced of a January helicopter crash in Siberia that appeared to involve government officials on an illegal hunt, wildlife campaigners assumed the Kremlin would hush up the incident. Yet state-run media covered the story, a senior official in the region resigned and federal prosecutors investigated.

Another example last month was a decree by Medvedev dismissing Police Colonel General Vladimir Pronin, head of the Moscow directorate of the interior ministry. Pronin had described a police major guilty of a drunken killing spree in a supermarket as "a good professional".

In politics, there is a mountain to climb before Russia's centralised and authoritarian system of "sovereign democracy" breaks down like its Communist forerunner.

Opposition candidates suggested that local officials had fixed the recent mayoral elections in Sochi, the venue of the 2014 Winter Olympics. The Kremlin-backed candidate Anatoly Pakhomov won a landslide victory. Challengers had little space to campaign; local television blacked out news coverage and advertising of opposition candidates. Seven candidates were disqualified due to clerical errors, but at least liberal leader Boris Nemtsov was allowed on the ballot. Opposition figures couldn't get on the ballot during last year's presidential elections.

In the courts, the former head counsel of Yukos, Svetlana Bakhmina, was released on parole in April after being locked up as a young mother years earlier. In the trial of her former boss, Mikhail Khodorkovsky, spectators were surprised when Kremlin opponent Gary Kasparov appeared and publicly blasted the prosecutors. Khodorkovsky's fate, however, is likely to be another stretch for the same tax evasion and fraud charges that he was charged with in 2004.

Gorbachev allowed human rights dissident Andrei Sakharov to return to Moscow in 1986 from his forced internal exile in a move that showed the world that the regime had changed. It would be unthinkable for Medvedev to make such a move as long as Putin remains sitting on his shoulder as the all-powerful prime minister.

There are signs though in the Kremlin that the balance of power could be tipping more to the liberal faction and away from the statists and secret service henchmen. Charges against deputy finance minister Sergei Storchak of embezzling $44m in state funds have been dropped in a case widely perceived to be politically motivated and part of a power struggle between finance minister Alexei Kudrin and Igor Sechin, deputy prime minister and chairman of oil giant Rosneft.

Kudrin, the leader of the liberals, triumphed in the battle over the country's purse strings having argued for steep budget cuts as Russia readjusts its spending plans amid falling oil revenues, which is at odds with the security services' desire for increased funding for defence-related industries.

Russia's small liberal press and its NGOs are enjoying something of a revival under the new regime. Medvedev recently gave a full press interview to liberal paper Novaya Gazeta, his first one-on-one interview to any Russian newspaper. Another departure has been regular meetings with the leaders of Russian NGOs and human rights activists, with the full transcript of meetings and occasional critiques of Kremlin's policies published on the president's site.

Nobody knows how far this glasnost-lite will go. It may just be for the timeline of the crisis or until his mentor Putin decides Medvedev's usefulness has expired.

http://www.guardian.co.uk/commentisfree/2009/may/12/medvedev-russia-glasnost

VTB puts recruitment back on the cards

2009-05-17T09:50:00.001-07:00

Financial News

Jason Corcoran in Moscow
14 May 2009

VTB Capital, the investment banking arm of Russia’s state-controlled VTB Bank, has put hiring back on the agenda, recruiting two senior sales executives from Deutsche Bank and Goldman Sachs after putting in place a recruitment freeze last year.

The bank has hired Andrey Yumatov from as Deutsche Bank as head of fixed income and deputy head of fixed income trading, while Michael Capone has joined from Goldman Sachs in Moscow as executive director of equity sales.

At the end of 2008, VTB introduced a hiring freeze across the group and a number of cost-cutting measures, including the postponement of the move to new headquarters and headcount reductions in some VTB businesses.

A Moscow spokeswoman for VTB Capital said the investment bank was hiring selectively and the move to its new offices in the emerging business district of Moscow City was back on the cards.

Yumatov was head of global debt capital markets and financial sales at Deutsche. He was previously a member of the board at UniCredit Bank supervising financial markets and investment banking services. Capone had been an executive director at Goldman Sachs since December 2007 and had also spent three years at Deutsche Bank in Moscow as a vice-president in equity sales.

VTB also recently boosted its research team by hiring Wiktor Bielski as global head of commodities research from Morgan Stanley, where he was head of European metals & mining research.

In late March, VTB took a 20% stake in Moscow brokerage Otkritie, on which it might now try to build. Data provide Dealogic last year ranked Otkritie ninth among the largest M&A advisers by volume of transactions in Russia and Eastern Europe. In 2008, the company advised on 49 deals worth of $12 bn in the region.

Yuri Soloviev, global chief executive of VTB Capital, said the investment bank had claimed a strong position in fixed income trading over the past year.

VTB Capital was launched in April last year as a full service investment bank and grew quickly to over 500 employees by the end of the year.

Its three main hubs operate from Moscow, London and Singapore while new sales and representative offices have been opened in Dubai and New York.

Ryan scales back Deutsche duties for VC firm

2009-05-17T09:44:00.000-07:00

Financial News

Jason Corcoran in Moscow

05 May 2009

Charlie Ryan, one of the highest profile bankers in Moscow, has scaled back his duties as chairman of Deutsche Bank Russia after joining a new venture capital firm Almaz.

Ryan, who founded one of Russia’s first investment banks, UFG, in 1994, has been focusing on managing private equity since stepping down last year as country head and chief executive of Deutsche Bank in Russia. Ryan had stayed on as non executive chairman following the arrival of Igor Lojevsky in August last year to replace him.

Deutsche Bank said Ryan continued to hold the position as non executive chairman despite his commitments to Almaz and UFG Asset Management.

Almaz, which has offices in Moscow and Silicon Valley, is backed by technology group Cisco Systems and UFG Asset Management, which Ryan co-founded with Boris Fedorov in 1996.

Almaz, which raised a $60m fund with Cisco as the anchor investor, had made its first two investments in an internet telephony firm Apollo Project and computer software provider Parallels. Ryan is a partner and works in its five-member investment team.

A Deutsche Bank insider said Ryan commutes from Philadelphia in the US and concentrates on UFG’s private equity and venture capital investments. Ryan remains a chairman at UFG, which has about $1bn (€750m) in assets under management.

In 1998, UFG sponsored an early-stage technology investment company called ru-Net Holdings, which invested in Yandex, Russia’s leading search engine and Ozon, the Amazon.com of Russia.

Ryan is believed to have made the biggest personal fortune of any foreign banker in Russia. He masterminded the 40% sale of UFG investment bank for $70m to Deutsche in 2004, and the remaining 60% for a reported $600m in 2006. Last year, Ryan and Fedorov collected about $65m following the sale of a 40% stake in UFG Asset Management to Deutsche.

Ryan told Financial News two years ago that his role of integrating the Russian economy with the west was “God’s work”.

Nomura's Nick Jordan Won't Get Russia Post

2009-04-28T06:50:00.000-07:00

Wall Street Journal Europe

April 28, 2009

By JASON CORCORAN

MOSCOW -- Nick Jordan, one of the highest-profile bankers in Russia, has lost out on a top job at his employer, Nomura Holdings, putting his future at the Japanese bank in doubt and possibly heralding the end for Moscow's best-paid foreign "rainmakers."

Mr. Jordan had been named in an internal memo last month as the future head of the combined Nomura-Lehman Brothers business in Russia and the Commonwealth of Independent States.

But now Maxim Seltzer, who joined Nomura in 2006 and was made general director of Nomura CIS in March 2007 when Nomura opened an office there, is getting the job, according to a Nomura spokesman.

It wasn't immediately clear what had prompted the rethink at the Japanese bank. People familiar with management's thinking said Mr. Jordan was felt to be much too expensive in the current climate. Also, he is London-based and travels to Moscow while Mr. Seltzer has always been based full-time in Moscow.

The American banker was hired two years ago by Lehman Brothers from Deutsche Bank to lead the U.S. bank's second foray into Russia. He had spent a decade at Deutsche Bank AG working on deals involving energy company Gazprom and other companies closely linked to the Kremlin.

Most of the team Mr. Jordan recruited over the past two years in Moscow have left or have been let go, according to people familiar with the situation. These include Peter Ghavami, who had been head of capital markets and who joined Standard Bank earlier this year.

Mr. Jordan declined to comment. Nomura said it "was committed" to Russia and the CIS and had "an active" mergers and acquisition and initial public offering pipeline.

Competition between the largest international and domestic banks to sign Russia's leading bankers had resulted in multi-million dollar guaranteed remuneration packages in recent years. But the slowdown in capital markets has forced banks with Russian business to cut their costs and salaries.

A second foreign rainmaker, Bob Foresman, is relocating with his family back to the U.S. and will commute to Moscow for 12 working days a month as deputy chairman of Renaissance Capital, part of Renaissance Group. A Renaissance Capital spokesman said Mr. Foresman had a young family and he wanted them to go to school in the U.S. and learn to play American sports.

Cash-strapped oligarchs forgo art and sushi

2009-04-28T06:49:00.000-07:00

Financial News

By Jason Corcoran
27 April 2009

Letter from Moscow
The opening of upmarket Japanese restaurant Nobu this month on Moscow’s elite shopping drag of Stoleshnikov Lane is long overdue, but its timing may be suspect.

Sushi and sashimi have long overtaken borscht and blini as the preferred staple of moneyed Moscovites. In fact, local Mexican and Italian eateries nearly always provide an extensive sushi menu, along with the obligatory hookah water-pipe, to cater for the demand.

The Nobu chain, which was co-founded by Hollywood actor Robert De Niro, opened in Moscow a fortnight ago after three years of planning.

Both De Niro and his partner Nobu Matsuhisa flew in for the occasion and had to bat away questions about opening a high-end dining establishment during an economic crisis.

Some of the area’s previous tenants have fallen victim to the credit squeeze, with fashion boutiques owned by Alexander McQueen and Stella McCartney shutting up shop earlier this year. Moscow’s fickle restaurant trade has also been badly hit with sales plummeting by as much as 50% since the financial crisis began, according to consulting group Restcon.

Sushi is a saturated market and there is some evidence to suggest patrons are favouring mid-market chains Yaposha and Tanuki rather than splashing out in upmarket versions owned by the ubiquitous Arkady Novikov, who is Russia’s answer to Gordan Ramsay.

Sourcing huge volumes of fish for a land-locked city must also add to the expense and Nobu’s prices may put off some cash-strapped oligarchs.

US magazine Forbes says the economic downturn has wiped more than $500bn from the fortunes of the 100 wealthiest Russians in the past year. In its annual rating, Forbes estimates the combined wealth of Russia’s 100 wealthiest people is about $197bn. Last year, it was $720bn.

The crisis has hurt the Bolshoi Theatre, where budgetary constraints forced it to scrap a premiere of Othello and call off a ballet tour of Mexico. The audience at a recent classical performance in the Tchaikovsky Concert Hall was less than half full as spending on arts takes a hammering.

Over on Red Square, even the mummified corpse of Soviet leader Lenin is feeling the pinch. The founder of the Soviet Union usually has suits of the finest materials ordered every three years from Switzerland. Tough times mean he’s going without new clothes for his 139th birthday.

Demand for luxury yachts and private jets has collapsed, according to an industry source close to the situation. New car sales in Russia declined 40% overall in the first quarter, but a few luxury brands such as Hummer and Cadillac are bucking the trend.

Russia’s oligarchic class may be tempering their conspicuous consumption. Stories of outlandishly lavish birthdays and high-jinks in Alpine resorts have been thin on the ground at a time when many magnates are going cap-in-hand to the Kremlin.

But there are signs the Government has run out of patience with indebted oligarchs. The Kremlin has already frozen a $50bn facility at state corporation VEB to help refinance foreign debts after just $11bn was distributed.

Sergey Stepashin, chairman of the audit chamber, recently warned the wealthy to sell their jets, villas and football clubs to settle their accounts rather than asking for state help.

Russian businessmen owe about $500bn in foreign debt, with $130bn due this year. Many are in tough negotiations with western creditors and will be forced to take their medicine unless the state decides otherwise.

Rudloff Steps Down From Russian Media Company

2009-04-20T16:20:00.000-07:00

Dow Jones International News

By Jason Corcoran in Moscow

April 20, 2009

Hans-Joerg Rudloff, chairman of Barclays Capital, is stepping down from the board of Russian media holding company RBC because of a conflict of interest over $18 million in debt owed to him and his friends.

Rudloff, who has sat on the board of the indebted financial news provider since its initial public offering in 2002, told Financial News he could no longer sit on the board and be a significant creditor.

He said: "I can't simultaneously represent the interest of the company and its creditors while the company is being restructured. Together with my family and friends, we are owed $18 million, which is about 8% of the company's overall debt of $210 million."

RBC has been struggling to refinance its debt and defaulted on a 1.5 billion rouble ($45 million) bond last month.

Rudloff said his decision was nothing to do with any outstanding loans to Barclays Capital.

The company, which is being advised by Swiss bank UBS AG (UBS), has been looking for a strategic investor since last summer.

Billionaire oligarch Mikhail Prokhorov has offered to bail out the company in return for a 65% stake. Under a plan drawn up by bankers at Renaissance Capital Group Inc. (RNCG), Prokhorov is offering to buy the majority holding in RBC for $35 million, which will help the company repay creditors and finance its activities.

German financier Rudloff, who is also a director of oil group Rosneft (ROSN.RS), is expanding Barclays Capital's Moscow operation. The investment bank currently has about a dozen bankers in Moscow working in debt capital markets.

Rudloff said: "Eventually we want to have full teams for the full range of equity markets and M&A but it's too early to say how many we are going to recruit."

Barclays' retail banking business acquired Russian lender Expobank in March last year for $745 million. It has rebranded and revamped Expobank's 36 branches in western Russia.

Russia's markets retain grasp on equities

2009-04-20T16:17:00.000-07:00

Wall Street Journal Europe

Jason Corcoran in Moscow

April 15, 2009

Exchanges in Moscow have clawed back their lead in Russian equity trading over the London Stock Exchange, according to the chief executive of RTS Group.

The dollar-denominated RTS and the ruble-denominated Micex were both suspended more than 30 times since September. As a result, investors turned to trading Russian global depositary receipts in London.

Prior to the financial meltdown, Russian exchanges had 70% of the value of equities traded against London's 30%.

Following Russia's war with Georgia, a banking crisis, investor scandals and the accompanying erratic trading patterns that led to the temporary closures of the exchanges, the value of equities traded was divided almost evenly between Russian and London bourses. Overall daily volumes traded in Moscow also slumped to $2 billion from the $7 billion reached early in 2008.

RTS Chief Executive Roman Goryunov said March trading volumes indicated Moscow had won back territory ceded to London.

"Last month we saw the tendency had changed in Moscow's favor with 70% to 30%," he said.

A spokesman for Micex Group said its figures matched Mr. Goryunov's.

Mr. Goryunov said neither of the local exchanges had been suspended since the regulator introduced rules on March 1 that formalized when trading can be halted and allowed greater shifts in prices before a market is suspended. Along with higher oil prices and a stronger ruble, the new rules helped trading volumes to bounce back to pre-crisis highs.

"All of the problems last year caused the international investors to cease trading in Moscow in favor of London," Mr. Goryunov said. "The local investors who went quiet have become more active again and there are a large number of new investors to compensate for those who left."

Previously, trading in a stock was suspended until the next day if its price fell more than 10% and trading in the market as a whole was suspended if the benchmark index fell by the same amount.

Under the new rules, it takes a 15% deviation to stop trading for an hour and a change of 25% to halt trading for the day.

The increased participation in the market of Russia's Bank of Development and Foreign Economic Activity and state-controlled investment bank VTB Capital is also believed to have buoyed local trading.

VTB, which manages Russia's sovereign-wealth fund, became the biggest trader of dollars on the Micex exchange in Moscow last month after the state development bank increased swap operations. The combined value of trading on the RTS exchange and over-the-counter activity rose to $9.2 billion, up 41% from $6.5 billion in February.

The brokers that handled the greatest volume in March were Russia's Troika Dialog, followed by Germany's Deutsche Bank AG and local bank Renaissance Capital.

The RTS index was one of the world's best performers in March after falling more than 70% from September last year through to February. It climbed 27% to 690 points as of March 31 from 545 points at the end of the previous month. It closed at 807.61 on Tuesday.

Separately, RTS outlined plans to compete with its established rivals in Europe by launching an anonymous dark-pool system.

This would be the first attempt by a Russian market to launch a dark pool, following several similar moves by European firms. Dark pools allow traders to buy and sell equities anonymously, which can cut trading costs. The group will launch RTS Standard, a new equity market that enables members to trade the most liquid RTS stocks through an anonymous order book, "in the upcoming future," according to a statement Tuesday.

RTS Standard will be open until 11.50 p.m. Moscow time to allow customers to trade alongside the main U.S. and European markets.

Brokers ITG, Liquidnet and Nyfix offer dark pools for European stocks, while NYSE Euronext launched SmartPool, the first exchange-backed European dark pool, on February 2. U.S. dark pool Pipeline is set to launch its European system this month and the London Stock Exchange Group PLC plans to go live with its Baikal dark pool before the end of June.

Russian exchanges claw back trading after turbulent six months

2009-04-13T11:40:00.000-07:00

Financial News

Jason Corcoran in Moscow

13 April 2009

Exchanges in Moscow have clawed back their lead in Russian equity trading over the London Stock Exchange after scores of suspensions and closures since last September sparked an investor exodus.

Investors turned to trading Russian global depositary receipts in London after the Micex and RTS exchanges were both suspended more than 30 times since September last year. Erratic trading patterns triggered shutdowns brought on by Russia’s war with Georgia, a banking crisis and investor scandals at miners Mechel and Uralkali.

Prior to the financial meltdown, Russian exchanges had 70% of equity trading volumes against London’s 30%. Following the blowout, the ratio stood at about 50% to 50%. Overall daily volumes traded in Moscow also slumped to $2bn (€1.5bn) from $7bn reached early in 2008.

Roman Goryunov, chief executive of the dollar-denominated RTS exchange, said March trading volumes indicated Moscow had won back territory ceded to London.

Goryunov said neither of the local exchanges had been suspended since the regulator introduced new rules on March 1 formalising trading halts and widening the corridors for market suspensions. Along with higher oil prices and a stronger rouble, the new rules had helped trading volumes to bounce back to pre-crisis highs.

In an interview with Financial News, Goryunov said: “Last month we saw the tendency had changed in Moscow’s favour with 70% to 30%.

“All of the problems last year caused the international investors to cease trading in Moscow in favour of London. The local investors who went quiet have become more active again and there are a large number of new investors to compensate for those who left.”

Previously, trading was suspended until the next day if a share price fell more than 10%. Under the new rules, it takes a 15% deviation to stop trading for an hour and a change of 25% to halt trading for the day.

The increased participation in the market of state development bank Vneshekonombank and state-controlled investment bank VTB Capital is believed to have buoyed local trading.

VTB, which manages Russia’s sovereign wealth fund, became the biggest trader of dollars on the Micex exchange in Moscow last month after the state development bank increased swap operations. The combined value of trading on the RTS exchange and over-the-counter activity rose to $9.2bn, up 41% from $6.5bn in February.

The top seller of the month was state lender Sberbank with a monthly turnover of $31.3m. Energy company Gazprom had a turnover of $17.2m, followed by miner Norilsk Nickel with $15.7m. These three blue-chips accounted for 43% of total turnover.

The broker-dealers that handled the greatest trading volume in March were Russia’s Troika Dialog followed by Germany’s Deutsche Bank and local bank Renaissance Capital.

The RTS index was one of the world’s best performers in March after falling by over 70% from September last year through to February. It went up by 26.6% to 690 points as of March 31, against 545 points at the end of the previous month.

Russian economy entices new investors

2009-04-13T11:36:00.000-07:00

Financial News

Jason Corcoran in Moscow

06 April 2009

After the sell-off, hopes of good returns are rising

Like heroes inspired by the firebird of Russian folklore to undertake the most dangerous of quests, investors are returning to a resurgent Russian stock market in the hope of riches.

Norway’s $330bn (€249bn) state pension fund, one of the world’s largest sovereign wealth funds, last month awarded Prosperity Capital, the largest foreign fund manager operating in Russia, its largest mandate.

G2 Group, a Swiss family office, has taken large equity stakes in two Moscow investment firms, Da Vinci Capital and Diamond Age Advisors.

Swedish fund manager East Capital has increased its Russia weighting in its largest fund, the $500m east European fund, from 40% to 57%, the highest level in its seven-year life.

Karine Hirn, co-founder of East Capital, said: “Russia is extremely cheap now. It was by far the most oversold of the stock markets last year. In fact, the region of eastern Europe had 10 out of 20 of the most oversold markets in the world.”

Investor enthusiasm has pushed the RTS Index of leading Russian shares up 46% since its low point in late January. Higher oil prices, a stronger rouble and hopes that the international credit markets could soon be prised open for domestic issuers have helped improve investor sentiment.

But investors should bear in mind that, according to Russian folklore, while good fortune lies in store for whoever catches the firebird, trouble is normally close behind.

The Russian equities market has ruined investors twice in little more than a decade, with the RTS dropping 85% in 1998 and 75% last year, spurring investors to pull $290bn from the country between August and January this year, according to French bank BNP Paribas.

It was the combination of collapsing share prices and client withdrawals that forced Da Vinci Capital and Diamond Age Advisors to restructure themselves in the first place.

Alfa Bank co-founder Petr Aven last week warned that bad debts could reach 20% of total loans by the end of year, while finance minister Alexei Kudrin expects 10% in defaults.

Chris Weafer, chief strategist at banking group Uralsib, said: “The economy is still in decline and will need both a sustained rally in the demand for, and price of, commodities – plus a resumption of bank lending – to create new growth. These are more likely in the fourth quarter than in the second quarter, if they happen at all in 2009.”

East Capital’s asset managers said they are focusing on companies with low levels of debt, a strong market position and opportunities to benefit from sector consolidation.

Hirn said: “We are looking more at the balance sheets these days because there are financing issues that need to be resolved for many companies. We are happy to avoid real estate because the debt burden is heavy.”

Hirn said the firm’s east European funds had suffered a sharp fall in valuations since September but only suffered 10% in client redemptions. “We lost a huge amount in valuation in recent months but it was less brutal than 1998,” she said.

East Capital said Russia was still the strongest economy in eastern Europe with exposure to a large domestic market. It said countries dependent on exports such as Hungary and the Czech Republic are more vulnerable. Turkey and Romania also benefit from a strong domestic economy.

The manager last month launched a special opportunities fund to target assets in Russia and the Commonwealth of Independent States where valuations have declined sharply. The board of East Capital has agreed to put $50m in the fund when it launches during the second quarter of this year.

Moscow investment firm Da Vinci Capital also hopes to exploit cut-price opportunities in Russia through its new partnership with G2 Group, which manages $1bn in alternative assets.

Oleg Jelezko, managing partner and chief executive of Da Vinci Capital, said “Our strategy will be different now we are in recovery mode so we won’t need to pursue derivatives. It’s about using different asset classes such as bonds and special situations.”

Mattias Westman, chief executive of Prosperity Capital Management, said his firm’s Russian funds had received more interest from institutions in recent weeks.

He said: “Nothing very big, but it’s more constructive. We have endowments, pension funds and family offices considering further investment. Hopefully the Norwegians will help make Russia something that other major institutions feel more comfortable with.”

Flows into Russian equity funds hit a 19-month high in March, according to EPFR Global, a data provider that tracks funds. It said capital flows into Russian-dedicated funds rose from $7m in the week ending March 18 to $50m the following week.

However, inflows remain modest, as many investors are sitting on the sidelines waiting to see whether the rebound is just a bear market rally.

Angelika Millendorfer, head of emerging market equities at Austria’s Raiffeisen Capital Management, said: “So far our institutional and private investors are not returning to emerging markets. The relative performance of emerging markets has improved but investors are not yet making any substantial moves.”

Millendorfer said the big emerging markets funds and institutions continued to have low allocations to equities and to markets like Russia. She said: “I would be surprised if investors moved into emerging markets if the case for the developed markets does not return first. We need to have confidence that western banks will not collapse Lehman-style.”

Greater rouble stability and recent higher oil prices have been a major reason for domestic equity recovery but questions remain over the banking system, external corporate debt and the high level of inflation.

The biggest risk, partly because it cannot be quantified, relates to the level of non-performing loans in the banking sector and the future ability of big Russian corporates to pay or refinance the amounts they owe.

VTB chief quells Gazprom bond hopes

2009-04-13T11:32:00.000-07:00

Financial News

Jason Corcoran in Moscow
03 April 2009

The head of Russia’s state-controlled VTB Bank, Andrei Kostin, has told Financial News that energy giant Gazprom’s placing yesterday of a Sfr400m ($351m) Eurobond will not open the market for the wider economy.

Russia’s foreign banking debt amounts to about $500bn (€370m), with $130bn due to mature this year. Gazprom’s bond sale represents he first international corporate debt issue from the country in nine months.

Russian issuers are hoping the placement could help unlock the Eurobond market for other borrowers, who are currently engaged in restructuring negotiations with western creditors.

But Kostin, the chief executive of Russia’s second lender VTB, said he didn’t see the international bond market opening up beyond large oil companies.

In a Moscow media briefing, Kostin told Financial News: "Gazprom is on a roadshow at the moment. If it’s successful, it could lead to the opening of the international credit markets for Russian issuers. But I think it will only open for oil companies and it's too soon to see unsecured borrowing to take place for the rest of the economy. I don't see anything opening this year in terms of lending from the west."

Gazprom, Russia's most indebted company with consolidated outstanding debt of $60bn, last tapped the market in July 2008 with a $500m five-year bond priced at 7.51%.

Earlier this month, the Russian government warned it will not take on the debt burden of companies that are under stress, but will support their restructuring negotiations with lenders to ease funding pressure on the corporate sector and minimise debt defaults.

Bankers from VTB and Otkritie are involved in restructuring distressed companies in the financial and real estate sectors. VTB is set to take a 51% stake in London-listed Sistema Hals for $2 in exchange for cancelling the property developer's debt.

VTB and rival state lender Sberbank could become Russia's largest property portfolio owners as loan defaults increase and the banks are left with the collateral. However, banking insiders suggest they might have to wait five years to recoup their loans.

VTB, which last week took a 20% stake in Moscow brokerage Otkritie, is understood to be looking at banking targets in Wall Street and in Asia.

Kostin said VTB’s international expansions is continuing unheeded by the crisis. He added: "Now, we are opening in May in Kazakhstan where we had a meeting last week about getting a licence for our operations. We have a branch in Dubai opening in June which will report to VTB Capital in London."

Swiss manager G2 snaps up weakened Russian rivals

2009-03-24T09:16:00.000-07:00

Financial News

Jason Corcoran in Moscow
24 March 2009

Swiss family office G2 Group has taken large equity stakes in two rival Russian investment firms which were forced to restructure following the equity market’s collapse and client withdrawals.

G2, which manages $1bn (€735m) in alternative assets, has become a shareholder and partner in Da Vinci Capital and Diamond Age Capital Advisors, two firms whose offices face one another across Moscow’s Moskva river.

Russian hedge funds are attempting to restructure and restart with new investors as the economy stabilises. Russia’s Micex index hit a 18-week high on Friday, rising above 800 points as energy and metal stocks were boosted by strong global commodity prices.

Oleg Jelezko, managing partner and chief executive of Da Vinci Capital, said: “G2 offers investment as well as partnership. We have put our hedge fund on their platform and they have hired some great people for us. They have also extended their investment from the holding company to our private equity operation.”

Da Vinci, which had $250m of assets under management in mid-2008, was set up in 2007 by former Renaissance Capital executives as a joint venture with international fund group BSG.

G2, which replaces BSG as a partner, is investing $10m (€7.4m) into Da Vinci’s hedge fund and $10m into its private equity fund, which has a fundraising target of $300m.

The Swiss group, which is headed by financier Gualtiero Giori, also recently became a partner and equity investor in hedge fund business Diamond Age Capital Advisors.

Slava Rabinovich, managing partner of Diamond Age, told investors that current valuations represent a “once in a lifetime” opportunity. Rabinovich, former deputy portfolio manager to Bill Browder at Hermitage Capital, set up the firm in 2005.

Norway sovereign fund picks manager for Russian play

2009-03-24T09:13:00.000-07:00

Financial News

Jason Corcoran in Moscow

17 March 2009

Norway's $330bn (€257bn) state pension fund, one of the world's largest sovereign wealth funds, has increased its exposure to Russia by two and a half times and hired Prosperity Capital to run a mandate.

Swedish firm Prosperity, which manages about $1.5bn in Russian and CIS equities, said the Norwegian reserve fund’s mandate was its biggest yet, although declined to give details due to client confidentiality.

Mattias Westman, chief executive of Prosperity, said he hoped the faith shown in Russia by a sovereign fund will make other major institutions feel more comfortable about investing in the country. He said: “We have seen an increase in interest in the last weeks. Nothing very big but it’s much more constructive. We have endowments, pension funds and family offices considering further investment.”

A spokeswoman for Norway’s reserve fund said exposure to Russia had increased but declined to comment on individual managers.

The fund does not disclose the size of its mandates, but typically awards between €30m and €160m to new managers, according to its website, as part of a rolling programme.

Russia’s RTS-index of leading stocks has rallied by 15% over the past month after sliding by 75% since last August. Investors are being lured back gradually by the recent bounce in oil prices and signs that the government has managed to stablise the rouble.

The Norwegian reserve fund has outsourced 13% of the fund’s assets, or about €34bn, to external fund managers in mainly emerging markets worldwide and specialised sectors

The fund’s exposure to Russia stood at 0.83% at the end of 2008, according to the fund’s annual report issued on March 11.

The value of Russian companies in its internally managed portfolio increaed by 2.5 times to $840m by the end of 2008. Exposure to Brazil was 0.84% while the other Bric countries of India and China represented 0.77% and 0.79% of investments.

At the end of 2007, the fund has just 14 investments in Russian equities. A year later, its fund managers had stakes in 46 Russian companies, including a 1.04% stake in Ursa Bank, 1% in carmaker Gaz Group and a 1.6% share of retailer M Video.

The fund has also built up exposure to Russia’s recently deregulated electricity sector through a 0.86% stake RAO Energy System East, a 3% stake in OJSC Interregional Distribution Grid Company Co Center and Privolzhya and 1.25% in OJSC Interregional Distribution Grid Company North West.

JP Morgan launches in Kazakhstan

2009-03-24T09:09:00.000-07:00

Financial News

Jason Corcoran in Moscow
12 March 2009

JP Morgan opened a representative office in Kazakhstan last week just as the government began to appoint financial advisers to restructure its troubled banking sector.

Bill Winters, co-chief executive of investment banking at JP Morgan, travelled to Kazakshstan for the opening last week and had talks with Kazakhstan’s prime minister Karim Masimov and government officials.

The representative office is staffed by “a handful of people”, according to a spokeswoman for JP Morgan, and is headed by Timur Kunanbayev, who had been the London-based head of investment banking coverage for Kazakhstan since 2007. Prior to JP Morgan, he had been managing director of Kazakh bank Alliance.

Kazakhstan’s banking sector has been badly hit by the collapse of the property sector in Almaty and Astana, failing oil prices and the closure of the international credit markets.

The Kazakh government took control over Alliance and BTA Bank, two of the countries largest lenders in February, after they breached liquidity and capital adequacy ratios. The government has said the takeovers are only a temporary measure directed at stabilizing the banking system.

BTA, the largest lender, said on Tuesday it was not in talks to restructure its debt despite market speculation and the appointment of Goldman Sachs as an adviser.

Russian bank Renaissance Capital won a mandate in November to co-manage the Kazakhstan government's distressed asset fund. Other Western banks are believed to be talking to the government about potential mandates.

The spokeswoman for JP Morgan said Winters had met with government officials but declined to comment on any role the bank might play in advising restructuring of the banking sector.

She said: “In terms of clients, we will focus largely on servicing quasi-sovereign institutions, selected banks and high-quality corporates.”

The rep office located in Kazakhstan’s financial capital of Almaty will support the bank’s industry and product teams in London and worldwide. Domestic clients will be offered access to investment banking products, including debt and equity capital markets, mergers and acquisitions, and global markets solutions. The office will also promote JP Morgan’s range of treasury and securities services.

Credit Suisse, Renaissance Capital and Troika Dialog all have operations in Almaty.

Russia's double-headed eagle

2009-03-05T07:33:00.000-08:00

Guardian Unlimited

Jason Corcoran: Rather than reversing Putin's policies, Medvedev has only hinted at reform. Time will tell if he can step out of the shadows

Dmitry Medvedev was destined to be a lame duck leader when he was elected Russia's third president a year ago. His inauguration ushered in a ruling tandem with his mentor and predecessor Vladimir Putin seemingly shifting a gear to become prime minister. Putin, however, has so far done all of the steering while Medvedev has been along for the ride.

Russians have not been duped, judging by the latest opinion poll by the respected Levada Centre, which indicate only 12% believe Medvedev wields real power. Another 34% believe it lies with Putin, while 50% believe it is shared between them.

Buoyed by rising commodity prices, Putin's eight-year reign restored Russia's shattered economy, raised living standards for many and re-established Russia's standing internationally as a power-broker.

A tough act to follow. Unfortunately, events have not been kind to Medvedev; the equity market and economy have collapsed; a war with Georgia and a major gas dispute with Ukraine have soured relations with Europe; a currency crisis has rattled the public; and an oil price that rose steadily through his predecessors' two terms has tanked.

Medvedev's presidency has brought a change of tone but not a change in substance. His response to the January murders of a human rights lawyer, Stanislav Markelov, and the journalist Anastasia Baburova on a Moscow street were markedly more sympathetic than Putin's gruff response to the 2006 murder of journalist Anna Politkovskaya.

Rather than reverse any of Putin's policies, Medvedev has hinted at reform of the judiciary and the political system. He has subtly criticised Putin's cabinet for its handling of the crisis but hasn't sacked anyone in the federal executive for their mishandling of the economy.

Russia's five-day war with neighbouring Georgia in August was arguably Medvedev's toughest assignment, but many doubt the extent of his involvement in the key decisions. It was Putin, not Medvedev, who appeared in a flak jacket among Russian troops after the outbreak of war, in which Russia quickly routed its southern neighbour.Medvedev had never won elected office before becoming president. He owes his dizzy rise in government and his old job as chairman of energy giant Gazprom to Putin. A former lawyer, Medvedev made a commitment to the rule of law and to stamp out "legal nihilism" a central tenet of his inauguration speech last year. A new trial commencing on Wednesday of jailed tycoon Mikhail Khodorkovsky is a chance to show his leadership credentials and whether he is committed to those promises.

Khodorkovsky, the former owner of oil giant Yukos was jailed for eight years in 2005 for fraud and tax evasion in a trial regarded widely as a vendetta by Putin, for his funding of rival political forces. If Khodorkovsky is convicted on new charges, Medvedev will be seen as suffering a setback in his campaign for the rule of law. If the former oligarch is acquitted, the ex-KGB hardliners surrounding Putin will be seen to have lost.

Russia's double-headed eagle is working as a tandem, albeit with one driver and a passenger, who is a spoke in Putin's wheel. Only time will tell whether Medvedev has the capacity to exercise his legs and turn direction.

http://www.guardian.co.uk/commentisfree/2009/mar/04/dmitri-medvedev-vladimir-putin

guardian.co.uk © Guardian News and Media 2009

Swedes lose patience with Prokhorov

2009-02-23T07:16:00.000-08:00

Financial News

23 February 2009

By Jason Corcoran

Letter from Moscow
Moscow’s mild-mannered Swedish investors are mad as hell and are not going to take it any more. Prosperity Capital and East Capital are two of the largest and longest-serving fund managers operating in Russia. The two firms have historically adopted a softly-softly approach to engaging with errant Russian corporates, but those tactics have recently proved as useful as lighting a match in a Siberian snowstorm.

Prosperity, whose founders have been investing in Russia since 1992, is warning of another Yukos blow-up occurring because of a major dispute it has with Russia’s wealthiest oligarch Mikhail Prokhorov over the regional power-generating company TGK-4.

Prosperity, along with other minority shareholders, took a hit when Prokhorov’s investment holding company Onexim reneged in September on a deal worth close to $1bn to buy back minorities. Prosperity has since been appointed as de facto spokesman by East Capital and a bevy of western portfolio investors, to defend their interests.

The comparison with Yukos, whereby the company was stripped of its assets and its founder Mikhail Khodorkovsky was jailed, is overstated although the number of western financial institutions being dragged into litigation is going up.

Prokhorov’s Onexim, which has a 50% stake in TGK-4, has issued a flurry of lawsuits against Deutsche Bank, Citigroup, Morgan Stanley, Clearstream and other minority shareholders. Onexim has disputed its obligation for the mandatory buyout of the minorities and has won recent cases in court against Halcyon Advisors and Deutsche. The larger minorities continue to defend their position while Morgan Stanley and others have settled.

Prosperity has received backing from the main market regulator, the Federal Service on Financial Markets (FSFM) and various ministries and even made its case to Russia’s Prime Minister Vladimir Putin, but to no avail. And just like the news anchor in the seminal US film Network, the Swedes have reached the end of their tether and are beginning to shout their discontent from the rooftops.

A release last week by Prosperity described actions taken by Prokhorov’s Onexim group as “a stark example of legal nihilism”. It said: “Prokhorov’s Onexim Group is now inflicting serious damage on Russia’s reputation as a place to do business. The company’s latest statements on the TGK-4 situation are dishonest, self-serving and plain wrong – and everyone involved in Russia’s financial markets knows it.”

Onexim, a Cyprus-registered investment group, has responded by calling Prosperity’s management “speculators” and “foreigners” because they raise their money from overseas.

Disputes between minorities and controlling shareholders are on the rise in the recently deregulated utility sector and other sectors where controlling shareholders face the squeeze.

Prokhorov, however, is king of the cash pile after selling his stake in metals giant Norilsk Nickel last April at the top of the market for an estimated $10bn.

Moscow financiers say the spat reflects badly on local brokerage Renaissance Capital, which Prokhorov took a 50% stake in last October at a knockdown price of $500m.

Renaissance may want to rein in Prokhorov but its hands could be tied trying to put out fires elsewhere. One banker said: “Renaissance’s great reputation in the market with investors is being tarnished by association, but it could be the case that Prokhorov has them over a barrel.”

Architect Of UBS' Onshore Russian Business Leaves

2009-02-22T13:44:00.000-08:00

Wealth Briefing

Jason Corcoran in Moscow

Michael Kuenzi, the architect of UBS's Russian onshore wealth management business, has left the group to pursue other challenges, WealthBriefing understands.

Mr Kuenzi, a German national who spoke excellent Russian, left UBS two weeks ago having built up the business from scratch since 2006.

A source close to the Swiss bank said Mr Kuenzi had been replaced on an interim measure by Russian Dmitry Fedossov, who has a background in products and services.

"UBS remains committed to this important and developing market and we are continued to build our presence," said the source.

Steven Meehan, recently appointed as chief executive of UBS in Russia, said growing wealth management would be one of his main priorities.

UBS opened a representative office in Moscow in 1996, and entered into a joint venture with local brokerage Brunswick in 1997. In 2004, UBS purchased the remaining stake in the joint venture, and re-branded the business as UBS in 2005.

In 2006, UBS received a banking license from the Central Bank of Russia, allowing it to offer wealth management, asset management, rouble fixed income and foreign exchange services onshore.

UBS declined to comment.

Despite projections of massive growth, the onshore private banking market remains small by international standards with many Russians preferring to keep their money in the Caymans or Cyprus.

Credit Suisse, one of the pioneers in Moscow, estimates the nascent Russian private banking market has about $15 billion in assets, with the potential to grow to $400 billion.

It is this potential which lured many international players such as HSBC and Union Bancaire Privée to set up private banking shops in Moscow last year.

The current credit crisis has put on the squeeze on Russia's billionaires who are facing depressed equity valuations, difficult refinancing activities and an increasing number of margin calls from Western financial institutions.

This environment, however, may ultimately benefit international private banks, according to Alexander Kotchoubey, head of international development for Russia and Eastern Europe at Lombard Odier.

"Family offices in Russia who have built up a staffing of 25 analysts and investment hurdles of 30-40 per cent are no longer sustainable," Mr Kotchubuey told WealthBriefing.

"I think we are going see many of these operations collapse into the arms of the banks," he added.

Russian M&A expected to rise amid crisis

2009-02-22T13:41:00.000-08:00

Financial News

Jason Corcoran in Moscow

19 February 2009

The economic crisis is starting to trigger mergers and acquisitions in Russia and could lead to the formation of new national champions, according to a report by Italian bank UniCredit.

Recent deal activity has seen the takeover of London-listed, Russia-focused Imperial Energy by India's state-run energy giant ONGC.

Other deals in the offing include the bid by Polyus Gold, Russia's largest gold producer, for KazakhGold, and Russian gold producer Peter Hambro's proposed all share acquisition of iron ore producer Aircom.

The report from UniCredit said: "We expect the trend to continue, likely expanding to larger companies, as the correction of commodity prices and lack of financing should stimulate companies to search for synergies in alliances with rivals and repair balance sheets."

Steven Dashevsky, head of equities at UniCredit in Moscow, said: "Clearly we can see a lot of appetite for M&A for mid-cap deals. They are becoming more affordable and more digestible. The next step is the super-mergers. "

The report dismissed the much touted creation of the Russian equivalent of BHP Billiton from six diverse companies – Norilsk Nickel, Metalloinvest, Evraz, Mechel, Uralkali and VSMPO-Avisma – as highly unlikely, given its complexity and the lack of potential synergies.

Instead, UniCredit said it saw super-mergers among two or three Russian companies as more feasible.

The report said the combination of energy giants Surgutneftegaz-Rosneft and miners Rusal-Norilsk Nickel are the most likely candidates to form new national champions. It said it believed Surgutneftegaz's $20bn cash stockpile may prove too attractive for debt-laden Rosneft to pass up this year, while the crisis may prompt the state to tighten its control of the oil sector, which remains the key to securing budget financing and political influence in Russia.

Several Russian metals billionaires, hit hard by the credit crunch, have proposed merging their firms in various schemes that would allow the state to part-own a diversified miner in exchange for absorbing most of the owners' debts.

As for Rusal and Norilsk Nickel, UniCredit believes the threat of nationalisation due to high debt levels and increasing interest from other industrial groups such as Metalloinvest might compel the owners to merge the assets later this year.

The bank said the potential mergers of Sistema's fixed line and mobile subsidiaries MTS and Comstar, along with steel-maker Mechel and coalminer Belon, are the most reaslistic due to their simpler structure and operational synergies.

The financial strain on Sibir Energy's key shareholders raises the chances of an alliance with an oil major. UniCredit regards Gazprom Neft as the primary candidate.

Russia’s market freeze takes country closer to Bric exit

2009-02-22T13:37:00.000-08:00

Financial News

Jason Corcoran in Moscow

16 February 2009

Falling trading volumes and low liquidity are forcing managers to desert

Temperatures as low as minus five degrees Celsius last week gave fund managers a ready-made excuse for turning their backs on Moscow and finding somewhere warmer. But Russia’s rapidly freezing stock markets had rather more to do with the decision of James Fenkner, founder and managing partner of Red Star Asset Management, to move his fund’s operation to Los Angeles this month. Illiquidity has become the order of the day in Moscow-quoted equities.

Jim O’Neill, head of global economic research at Goldman Sachs, raised the possibility last month that Russia could be dropped from the Bric grouping, only to dismiss it.

Fenkner cited family reasons as his main motivation to relocate, and the fact that his seed investor, Austria’s Erste Bank, pulled its mandate, but he also depicted a market suffering from declining corporate disclosure and crumbling market infrastructure.

He said: “On the business side, Russia has become a pure macro play. Over the past year we have moved most of our portfolio into American and global depositary receipts due to a combination of value and liquidity and we really get active around 5:30pm when London and US open. Micex and most of the local share stories are a joke.”

The worsening economy and the slide in the price of oil has spurred investors to pull $290bn (€226bn) from the country since the end of July, according to French bank BNP Paribas.

Hedge funds and long-only vehicles focused on Russia began switching their focus to trading ADRs and GDRs in London and New York after Russia’s five-day war with Georgia in August. Damaging corporate disputes at miner Mechel and the Anglo-Russian joint petroleum venture TNK-BP shook the domestic markets and exacerbated the investor exodus.

Further market instability, fuelled by falling commodity prices and a weakening rouble, has led to 30 trading suspensions on the Micex stock exchange. Micex has shed 50% of its value, while its dollar-denominated rival RTS has fallen by 75% from its highs last year. The Russian RTS index was the worst performer last year after Ukraine and Iceland and came close to equalling the 85% drop experienced during Russia’s sovereign default in 1998.

Daily trading volumes in Moscow dropped off sharply from $7bn early last year to $2bn by the end of the year, which is on a par with trading volumes of 2003.

O’Neill, who popularised the term Bric as a moniker for Brazil, Russia, India and China, raised concerns about Russia’s over-reliance on oil and its poor corporate governance. Its share index has fallen far behind that of Brazil, the other net exporter of natural resources of the four.

Russian public companies are trading at the price/earnings ratio of three, whereas the ratio in January last year was 11. The average p/e ratio of emerging markets was nine and developed markets was 12 at the end of last year.

One of the results of the fall has been to drive trading back to London. Before the meltdown, analysts at Renaissance Capital estimated Moscow had 70% of equity trading volumes against London’s 30%. Renaissance said the ratio last month was 50%-50%.

Alexander Kotchoubey, head of international development for Russia and eastern Europe at Swiss private bank Lombard Odier Darier Hentsch, said the preference for GDRs and ADRs reflected the realisation that the Russian market possesses little depth or companies that offer diversification. He said: “You have to wonder why one needs to take the risks associated with local markets’ liquidity and closures when similar returns can be had through GDRs and ADRs but with a lot less hassle.”

Hedge funds operating throughout Russia and the Commonwealth of Independent States are cutting their staff and slashing costs in response to market falls and increases in client redemptions.

The closure last year of the Florin FSU Credit Opportunities fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London.

Da Vinci Capital Management’s special opportunities fund, which invested in Russian equities, has bee restructured because of too little assets.

Other funds, including Denholm Hall Russian Arbitrage fund have announced they are considering a restructuring following difficulties.

East Capital Asset Management, which maintains a large investment team in Moscow, has been forced to begin trading more in London because of trading problems. The Swedish firm, which has about $1.5bn invested in Russia and eastern Europe, has cut 40 jobs from its base in Stockholm and from other centres such as Moscow. Peter Elam Hakansson, founder of East Capital, listed falling oil prices, a weakening rouble, corporate governance and financial market regulations as four reasons for Russia’s cheapness.

In a letter to investors, Hakansson wrote: “It is difficult for Russia to influence the first two factors, but the remaining two are even more important for the country to focus on. Corporate governance is once again in the spotlight, after the autumn saw some dubious interpretations of what is right or wrong according to Russian legislation.

“And lastly, financial market regulations have been making the news after the markets on occasions were shut down in such a way as to baffle observers and appear over-dramatic.”

Russia falls away from Brazil

Troika returns to Russia after Cohen exit

2009-02-22T13:35:00.000-08:00

Financial News

Jason Corcoran in Moscow

16 February 2009

Russian investment bank Troika Dialog has moved the management of its hedge fund business from London to Moscow following the departure of its chief executive Stephen Cohen last year.

A Troika spokeswoman said the fund was now being run by an investment committee and its two portfolio managers are Oleg Larichev and Vladimir Potapov.

Larichev is chief investment officer at the bank’s fund management subsidiary Troika Dialog Asset Management and Potapov, who joined the group in 2003 as an intern, has been a fund manager for several years.

Cohen joined Troika as head of its hedge fund business in 2006 after being made redundant as head of European business at Putnam Investments. He quit Troika in August last year, re-emerging at UK fund manager Montanaro in October as a director with responsibility for business development.

Of his departure from Troika, Cohen said: “They had wanted me to relocate to Moscow, but I could not for various personal reasons. I was trying to build an international product so Russians could invest outside of Russia but there was little demand. The product was no longer valid so it was logical to move the business to Moscow.”

Cohen said the Cayman Islands-registered Troika Russian fund had once totalled $200m but had been “whacked for performance” over the past six months.

Troika said Cohen’s departure had pre-dated the financial crisis in Russia but declined to comment on the circumstances. A number of Russian hedge funds have closed recently or “gated” investors’ ability to withdraw funds during a 75% decline in the stock market and a deteriorating investment climate for minority shareholders.

Vladimir Putin: be Björn Again

2009-02-16T06:32:00.000-08:00

The Guardian - Comment is free

The Russian PM should embrace his Abba-loving side – in a global downturn, his country needs all the kitsch it can handle
Comments (67)

By Jason Corcoran

Claims that Vladimir Putin is a secret Dancing Queen are causing a sensation in Moscow.

The prime minister's press office has denied that the judo-loving, tiger-hunting all-action hero is a closet Abba fan, following a private concert given by the tribute band Björn Again. Putin's personal spokesman Dmitry Peskov also took the unusual step of writing to the Times to reiterate the point.

But the Kremlin has been far too hasty in trying to suppress this story. Russians would warmly embrace their leader's softer musical side in a crucial year, as the capital prepares to host the ultimate celebration of kitsch for the very first time.

Russia and the Slavic nations take Eurovision very seriously and are tremendously proud of Dima Bilan's achievement in winning last year in Belgrade.

Bilan, a heartthrob throughout Russia and the Commonwealth of Independent States (CIS), won following an audacious performance that was accompanied by Olympic figure-skating champion Eugeni Pluschenko who skated during the performance, and violinist Edvin Marton playing a rare 1697 Stradivarius, once used by Paganini.

Sporting and cultural achievements, much more than peak oil prices and military incursions, have restored Russians' pride in their country.

The unprecedented outpouring in June last year of an estimated 700,000 football fans onto the streets of Moscow, following Russia's trouncing of the Netherlands indicates how much they care about national triumph through sport.

Russians deeply appreciate classical and popular music in its different forms. Glamour and showbiz are exalted and Moscovites will embrace Eurovision for all its tackiness and absurdity.

With global prices of oil, Russia's chief export, now dropping, there's less money swishing about to lavish on recreation and sport.

Uefa Cup champions Zenit St Petersburg, sponsored by energy giant Gazprom, recently sold Russia's star Andrei Arshavin to London's Arsenal.

Other domestic clubs are feeling the pinch with Moscow's Khimki having to merge with FC Saturn to save costs. The national football team's manager, Guus Hiddink, was this week been hired as the Chelsea's latest manager, following reports he hasn't been paid by Russia for two months.

Staples of Moscow's cultural life such as attending the ballet, the theatre or musical performances are becoming more inaccessible, with inflation remaining defiantly high and job losses spreading across the economy.

By May, social morale in the country might need a shot-in-the-arm.

The UK has the theatrical impresario and composer Andrew Lloyd Webber as its main cheerleader and Russia needs its own Super Trouper so it can retain its crown in May.

Putin's protege, President Dmitry Medvedev, has made no secret of his affinity for British heavy rockers Black Sabbath and Deep Purple. Medvedev publicly attended the latter's concert last year and posed for thumbs-up photos with the band afterwards.

Putin, a former KGB officer, might be best advised to shed his macho image and show a fluffier, feathered-boad element to his steely facade. If the Russian rouble carries on sliding and commodity prices continue to languish, Putin could be forgiven for sending out a SOS.

The Eurovision in May could prove to be the Russian premier's Waterloo if discontent about the economy dents his undeniable popularity. Mamma Mia, I think Putin should unleash his inner Abba.

http://www.guardian.co.uk/commentisfree/2009/feb/13/russia-vladimir-putin

A tough market for vice --- In current recession, gambling, booze, sex aren't doing so well

2009-02-11T11:19:00.000-08:00

Wall Street Journal

By Jason Corcoran of Financial News

Vice has historically been a virtue in turbulent investment times, but the current recession might stretch the patience even of the Devil.

In previous downturns, tobacco, gambling and alcohol could almost always be relied on to beat the index. Analysis released in November by Merrill Lynch shows that, during the six recessions since 1970, alcohol, tobacco and casino stocks have, on average, returned 11%, compared with a 1.5% loss for the S&P 500.

However, this recession appears to be different with booze, cigarettes and gaming wobbling as never before.

Socially responsible funds and ethical investments, on the other side of the spectrum, seem to be holding their own.

Penny Shepherd, chief executive of Uksif, a 200-member responsible investment forum, said: “In the last recession in the early 1990s the green and ethical issues disappeared off the agenda pretty quickly.

“Today, climate change and the need to recycle are underlying issues that aren’t going away.”

Shepherd points to the performance of the Ecclesiastical Amity International fund, which tops Citywire’s universe of 160 global growth funds over three years. The fund has produced a return of 24% against a sector average of minus 11%.

However, a study in December by French business school Edhec of 62 SRI funds found no evidence that socially responsible funds produce outperformance.

The results showed that none of the funds produced positive and significant outperformance of the market over a six-year period. Most of the funds generated negative or insignificant outperformance.

Hugh Wheelan, editor of online magazine Responsible Investor, said measuring the performance of SRI funds is problematic because of the variety of funds and the fact many do not screen stocks such as alcohol and gambling.

He said: “Responsible investment or sustainable investment is such a broad church now, including the integration of environmental, social and governance research into investment, best-in-class strategies and new areas such as human capital, governance, activism or clean tech/renewables, that its singular association with sin stocks and the old vice/performance debate is old hat and somewhat meaningless.”

Clearly, investors have different requirements which can affect performance.

Steve Waygood, head of research and engagement at Aviva Investors, said SRI funds within the same group could have different criteria on vice. He said: “The Norwich Union SRI fund would ban alcohol, but the sustainable fund has a different view.”

Jane Goodland, investment consultant at Watson Wyatt, believes a high level of negative screening can hamper performance.

She said: “Funds with extensive negative screening are not well positioned to respond to changing markets. More opportunistic sustainable investment funds that we favor tend to be more adaptable.”

While a little vice can go a long way to improving performance, the overall appetite for sinful stocks appears to be flagging.

A much-anticipated $460m (€358m) initial public offering on the New York Stock Exchange by the publisher of top-shelf Penthouse magazine is rumored to have been delayed by big investors demurring.

Parent company FriendFinder Networks registered with the US Securities and Exchange Commission for a listing of up to $460m on December 23. A spokesman for its sole underwriter Renaissance Capital declined to comment, but a US banker said the sleazy nature of some of the company’s operations made it a tough sell. He said: “These offerings are off limits for most mainstream investors, but the nature of some of these sites is putting off even the hardcore vice investor.”

Hard times have also hit the listed Australian brothel and lap-dancing group Planet Platinum, which last week appealed to its government for fiscal support.

Planet Platinum’s chief executive, John Trimble, said: “We’re an essential service, you know.” He argued in the Australian press that taxpayers should help fund the adult services sector just as it helps ambulance and fire-fighting services. The group’s share price remained flat at 11 cents over the past five months, a fraction of its listing price of $2.05 in May 2003.

In the US, the chief executive of adult entertainment group Girls Gone Wild, Joe Francis, and Hustler magazine founder Larry Flynt appealed to Congress to provide a $5bn aid package to the sector. Francis said: “Just to see us through hard times.”

Charles Norton, portfolio manager of USA Mutuals’ Vice Fund, believes the credit crisis is swamping previously recession-resistant sectors.

He said: “These sectors have historically acted as a sort of investment levee that could withstand most storms, but starting in the summer of 2007, an economic hurricane developed that drowned all corners of the equity market.”

The Vice Fund, set up in 2002 to invest in companies with a compelling gambling, alcohol, arms or sex business, has been having a tough time lately. Previously a top-decile performer, its value has dipped by 42% over the past 12 months, only narrowly beating the S&P 500’s decline of 45%.

Norton said recent share price movements have been driven by macro factors and bear little relation to companies’ fundamentals. Over a longer term, he believes vice stocks remain strong and will rebound more quickly.

He said: “International tobacco is a classic example. Consumers around the world have continued to enjoy cigarettes – even in this global economic crisis – and have even been trading up to higher priced international brands.” The fund’s top two picks are cigarette manufactures Lorillard and Philip Morris. The two stocks have fallen by about 20% and 25% respectively over the past 12 months.

While investment banks have been quietly cutting their ethical investment research teams, the buyside are retaining staff and investors appear to be rewarding them. At the peak of the banking crisis in November, outflows from European managed funds reached €154bn, or 0.11% of total funds.

By contrast, outflows from green funds totalled €835m or 0.05% of total funds, and SRI funds lost €496m, or just 0.01% of their total.

It remains to be seen whether investors will stick to their ideals in a prolonged downturn. Will they be spooked into dumping their principles in favour of the old reliables if markets get tougher?

Penny Shepherd of Uksif said ethical purchasing of Fairtrade products was holding up despite belt-tightening. A survey last week by grocery researcher IGD showed the number of people buying Fairtrade products rose 23% last year from the year before and almost three times more than in 2006.

Shepherd said: “There is an underlying shift in values taking place. A whole range of people are concerned about being responsible and expecting companies they invest in to be so too.”

(Copyright (c) 2009, Dow Jones & Company, Inc.)
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Red Star Founder Quits Russia After 14 Year

2009-02-10T11:52:00.000-08:00

Dow Jones International News

By Jason Corcoran in Moscow

9 February 2009

One of the best-known Russian strategists is quitting the country after the backer of his Moscow-based hedge fund, Red Star Asset Management, pulled its mandate amid plummeting markets.

James Fenkner, founder and managing director of Red Star, is moving to Santa Barbara, California after working in Russia for 14 years. Fenkner took the decision after Erste Bank, an Austrian retail bank with a network across central and eastern Europe, withdrew its support for Red Star.

Erste did not respond to calls seeking comment. Fenkner said his relocation was mainly for family reasons. He said: "We believe that great fortunes will again be made in Russian shares, but one doesn't need necessarily to live 24/7 in Moscow to participate...Like most investors, I want to fly in for a few weeks a year with a better global perspective."

Fenkner set up Red Star in 2005 after seven years at Russian investment bank Troika Dialog as head of research and initially as chief strategist.

His departure from Russia follows the closure of several hedge funds operating in the region and a deteriorating investment climate for minority shareholders.

Many Russian funds, including Red Star, have switched in recent months to trading American and global depository receipts in London and New York because of domestic illiquidity and frequent market closures in Moscow.

Erste had represented 40% of the fund, which had stood at $150 million in assets under management last year. Redemptions by clients and a collapse in equity valuations have sliced the fund size to $12 million.

RBS hires ex-Renaissance buyout boss

2009-02-10T11:50:00.000-08:00

Financial News Online

Jason Corcoran in Moscow

February 3 2009

Rory Cullinan, former deputy chairman of private equity at Renaissance Partners, has rejoined Royal Bank of Scotland a month after leaving the Russian buyout group.

Cullinan spent 16 months at Renaissance after joining from buyout firm Permira in August 2008. Prior to that he led RBS' equity finance division and sat on the board for corporate banking and financial markets from 2001 to 2005.

An RBS spokesman said Cullinan had joined the wholesale global banking and markets division and would work on projects where his expertise will add value.

During his prior tenure at RBS, Cullinan was responsible for a portfolio of more than 100 companies. He also presided over a deal that saw RBS buy a controlling stake in Southern Water at a cost of £273m (€302m), becoming a director of Southern Water Capital.

Before joining RBS, Cullinan spent eight years in banking in South Africa, Europe and the US, mainly with Citibank. In 1992 he co-founded Verdoso, a private investment fund, which owned The Sellotape Company, remaining a partner until 2000.

Financial News yesterday reported Cullinan and Richard Olphert, the chairman of Renaissance Partners, had both left the firm, which is part of the Renaissance banking group.

A Moscow spokesman for Renaissance said the private equity team had been pared back to eight from a staff of 12.

Renaissance Partners, which raised a $600m (€467m) fund last year, realised substantial losses through investments in Ukraine and Africa, according to Russian business paper Vedemosti.

Renaissance Capital parts with private equity pair

2009-02-10T11:44:00.000-08:00

Financial News

February 2 2009

Jason Corcoran in Moscow

Renaissance Capital has parted company with two executives, Richard Olphert and Rory Cullinan, in a second round of job cuts at the Russian emerging markets investment bank, according to people with knowledge of the situation.

The Moscow-headquartered bank, run by New Zealander Stephen Jennings, has been cutting costs and retreating to its core Russian market following the sale of a 50% stake in the business last year to billionaire Mikhail Prokhorov.

A Renaissance spokesman declined to comment on the departure of Olphert, chairman of Renaissance’s private equity arm and a leading shareholder. The bank confirmed Cullinan, hired as deputy chairman of Renaissance Partners from private equity firm Permira Partners in August 2007, had left before the start of this year and the private equity team had been pared back to eight from a staff of 12.

Another casualty is global head of communications Simon Moyse, a former adviser to British Prime Minister Gordon Brown hired from UK-based press relations agency Finsbury in September last year.

After cutting a quarter of its 1,500 staff in November, Renaissance Capital insiders said a second round of redundancies is under way. RenCap’s London office, which once had 150 employees, has been reduced to a few dozen staff.

The departure of Olphert, a close ally of Jennings, surprised one Renaissance Capital banker, who said: “Richard was the second largest shareholder after Stephen. They lived close to one another, they went on holiday together on Stephen’s Gulfstream jet.”

Renaissance Partners, the private equity firm which raised a $600m fund last year, realised substantial losses through investments in Ukraine and Africa, according to Russian business paper Vedemosti. A Renaissance spokesman declined to comment on the reported losses.

Oligarchs beware

2009-01-29T07:40:00.000-08:00

Guardian Unlimited

By Jason Corcoran

Vladimir Putin's denial that he is a 'billionaire-slayer' looks increasingly unconvincing

The Russian prime minister Vladimir Putin will have raised someeyebrows amongst west London's oligarchical clique by rebuffing his image as "a billionaire-slayer".

Putin has been wielding his power to lance the ambition of aspirational tycoons for almost a decade and is showing no signs of stopping now. In an interview with Bloomberg, the Russian leader insisted the country's rules and laws are a level playing field for all of its citizens.

Well, tell that to jailed oil tycoon Mikhail Khodorkovsky, who haslanguished in a Siberian prison since 2005 on back-dated charges of tax evasion in what many viewed as an attempt to silence a political opponent. A court rejected Khodorkovsky's parole request last year, citing reasons such as a refusal to take part in a sewing course.

Putin had told a meeting of oligarchs early in his reign in 2000 itwas either his way or the highway. Some of Russia's wealthiest and most prominent businessmen, such as Boris Berezovsky and Vladimir Gusinsky, were forced to flee Moscow soon after. The pair had controlled TV stations which were critical of Putin's leadership.

Magnates such as Chelsea football club owner Roman Abramovich and Viktor Vekselberg opted to play ball. The former agreed to sell his oil company Sibneft to state behemoth Gazprom while Vekselberg impressed by splashing out a fortune to repatriate Faberge eggs to the Kremlin.

The credit crisis has put the current crop of oligarchs under thespotlight as they strain to repay hefty foreign loans and respond to the Kremlin's call to chip in more taxes to help foot the national budget.

The founder of Russia's leading mobile phone chain, Yevgeny Chichvarkin, was last week reported to have fled to London after appearing on the federal wanted list. He is accused of being involved in the kidnapping and blackmail of a former employee in a case with political undertones. Chichvarkin is joined in exile by the former president of the oil company Russneft Mikhail Gutseriyev, who fled 18 months ago in order to avoid tax evasion and other charges. Russneft has since been acquired by Oleg Deripaska, who is considered to be Putin's favourite industrialist.

Putin has the financial wherewithal and the whim to decide which oligarchs survive. Vnesheconombank (VEB), the state development bank charged with bailing out troubled companies, is chaired by the prime minister. More than 100 businesses are believed to have gone cap-in-hand to VEB, which has dished out $1 billion to Evraz, the steel and mining group part-owned by Abramovich. Deripaska, once Russia's richest man, benefitted when VEB stepped in to refinance a $4.5bn loan that he had taken out to buy a 25% stake in the mining company Norilsk Nickel.

The credit crunch has also shown up the first cracks in therelationship between Putin and his protege Dmitri Medvedev, who replaced him as president last year.

Unlike his mentor, Medvedev has never been a member of the spying classes. A lawyer by training, he claims to want a strong independent judiciary to decide the fate of bent businessmen. He has twice subtly criticised Putin's government for its handling of the crisis but it remains to be seen whether the ruling tandem is wobbling from its course. Putin still controls the strings and Medvedev can only become the puppetmaster if he cuts them.

guardian.co.uk © Guardian News and Media 2009

Fleming Launches Business In Russia

2009-01-29T07:19:00.000-08:00

Dow Jones International News

By Jason Corcoran in Moscow

U.K. investment house Fleming, Family & Partners is launching a fund management business in Russia following its acquisition of DWS Investments in Moscow from Deutsche Bank.

FF&P, which has had operations in Russia since 1992, confirmed it had bought the DWS management company, its legal structure and four unit funds from Deutsche.

Denis Sukhanov, chairman of FF&P in Russia, said the new business targeting private clients and institutions would launch next month or in March. He said: "We think it's a great time to launch considering how equity valuations have bombed in recent months. Asset management is a core business for Flemings in London and Zurich but we have never had it in Russia till now."

The sale of DWS to FF&P by Deutsche marks a turnabout for the German company, which had intended to merge its funds with UFG Invest, an investment boutique in which it acquired a 40% stake in September for $65 million.

A Frankfurt spokeswoman for DWS said it was carrying on its business under the new Deutsche UFG Capital Management brand. She said: "Flemings will not use the DWS brand."

FF&P recently hired Andrei Uspensky to run the fund management business from Pioglobal Asset Management, where he had been chief executive.

Sukhanov said the valuations of the four DWS funds had fallen from $400 million to between $25 million and $35 million following the collapse in equity prices since September.

The UK firm manages the wealth of Roddy Fleming and his family, one of the City's oldest dynasties. It also provides asset management for other wealthy families. As well as providing advice to Russian corporate and personal clients in Moscow, FF&P has real estate funds that invest in the region.

The family previously held a stake in the Russian mining company Highland Gold.

Merrill Lynch leads Russian M&A in 2008

2009-01-25T12:56:00.000-08:00

Business New Europe

Jason Corcoran in Moscow

January 23, 2009

Merrill Lynch has ousted JP Morgan Chase to take the crown as leading adviser to Russian merger and acquisitions in 2008.

US bank JP Morgan narrowly beat its Wall Street rival in 2007 due to its involvement in announced deals worth $40.8bn, compared with Merrill's $39.2bn. However, last year Merrill nudged ahead through advising on 14 deals worth $24bn compared with JP Morgan's 12 transactions worth $19.6bn, according to statistics prepared for bne by data provider Thomson Reuters.

During the year, Merrill's most notable deals included advising steelmaker Severstal on its $775m acquisition of US steel products manufacturer Esmark, as well as Rusal, the world's largest aluminium producer, on its taking a 25% holding in domestic rival Norilsk Nickel.

Overall, fees generated from M&A were well down last year, with Merrill Lynch earning $40.7m, compared with $58m in 2007. JP Morgan's fee income from Russian deals more than halved to $37.6m, from $78m a year ago.

Merrill Lynch is one of the few investment banks operating in Russia that is yet to cut its staffing levels. The bank has 83 staff based in Moscow and has several vacancies it is seeking to fill when the market stabilises. "We have made a lot of money in M&A and fixed income in the past year, and the business is not yet a high cost one," says one senior source. "In fact, we got lucky that we were gradually building up the brokerage business when the banking crisis struck."

Responsibility for the business lies with Riccardo Orcel, head of investment banking for Central and Eastern Europe and the Middle East and Africa, but the business is fronted in Moscow by American Bernie Sucher, head of global markets in Russia. Sergei Aleksashenko, the chairman of Russian business, quit in April last year following a dispute over the running of the operation, but sources indicated his position would not be refilled.

Harsh times

Overall, investment banks operating in Russia have been hit by a 40% slump in M&A activity with little sign of recovery until the middle of 2009.

The volumes of M&A deals tumbled by almost 40% in the three months to November 2008, according to Russian data provider Merger.ru. Some 258 transactions were completed worth $13.7bn, down by 40% from $22.6bn for the same period a year earlier. Volumes were hurt when big deals were pulled, including planned acquisitions by electricity utility OGK-1, supermarket chain Lenta and steelmaker Novolipetsk.

Russian deal activity had been growing steadily for several years until the banking crisis hit Russia in September. In the second quarter of 2008, M&A volumes were up 80% to $57bn from $31.5bn in the same period a year earlier. But from January through November, the M&A market declined by 7% to $102bn, compared with $110bn in the corresponding period of last year.

The communications sector was the most popular for deals, generating 20% of all M&A deals between September and November worth $2.7bn. The financial sector was next with 18.5% of volumes worth $2.5bn.

Russian broker Renaissance Capital was again the leading bookrunner in equity issuance for 2008 with a market share of 18% from four IPOs worth $452m. Morgan Stanley came second with three mandates worth $320 in a market where dealflow had dried up by end of the second quarter. The largest deal was a $1bn rights offering by London-listed Russian retailer X5 on April 22. Citigroup and Goldman Sachs were joint bookrunners and the underwriter was Russian broker Alfa Capital.

In debt capital markets, US bank Citigroup triumphed over Deutsche Bank with a market share of 12.4% generated from six issues worth $2.75bn. The German bank registered a market share of 10.6% from five issues worth $2.36bn, while the Royal Bank of Scotland was not too far behind with a 10.4% share from 10 issues worth $2.3bn.

http://businessneweurope.eu/storyf1423/Merrill_Lynch_leads_Russian_MA_in_2008

VEB plays Father Frost to Russian blue chips

2009-01-06T08:38:00.000-08:00

Financial News

Jason Corcoran

Letter from Moscow - January 4, 2009

Letters to Father Frost, the Russian equivalent of Santa Claus, have been stacking up well ahead of the Orthodox Christmas Day on January 7.

This year, the postal service in Moscow’s Kuzminki district reported an unusually high level of correspondence from adults who wish for a new job or help with meeting credit payments.

However, grown-ups looking for personal bailouts may be better served popping a letter in the mail to Vnesheconombank, the state development bank, which has come to prominence during the financial crisis as the Kremlin’s main piggy bank.

VEB, which traces its genesis back to the October 1917 revolution, was originally responsible for managing Soviet-era debt. It was transformed two years ago into a development agency to spearhead efforts to diversify Russia’s economy but has only recently come to international attention as the state’s lender of last resort.

More than 100 businesses are believed to have gone cap-in-hand to VEB which has been authorised to disburse $78bn in state aid. At the height of the banking crisis in September, VEB stepped in to acquire mid-tier lenders Globex and Svyaz Bank after both defaulted on some of their obligations. Its remit is not restricted to the domestic market judging by its recent acquisition of Prominvestbank, Ukraine’s sixth-largest bank, for a reported $1.2bn.

Russian blue chips and some of the country’s best-known oligarchs have been beating a path to VEB’s door. Steel and mining group Evraz, part-owned by billionaire Roman Abramovich, secured a $1bn loan in December with an option for a further $800m.

Oleg Deripaska, once Russia’s richest man, received aid in November when VEB stepped in to refinance a $4.5bn loan that he had taken out to buy a 25% stake in miner Norilsk Nickel.

VEB is offering corporates one-year loans, but they come with caveats and collateral agreements. Unless debts are repaid in full, the Government can seize assets.

The bank is also demanding that one of its representatives sits on the recipient’s board and VEB will have a right to veto any debt, asset sale or big investment decision. Former presidential administration head Alexander Voloshin was nominated by VEB last month as chairman of Norilsk Nickel in a sign of the Kremlin’s expanding corporate influence.

In some cases, VEB could end up with significant equity stakes in Russia’s leading companies and outright control of a few of them is not out of the question.

The chairman of VEB’s supervisory board is Prime Minister Vladimir Putin, and powerful government officials, including the finance and transportation ministers, prop up the rest of the board.

VEB’s goodie-bag has been increased. It was appointed on December 29 as state management company for managing pensions until 2014 and a further $1bn is being made available this year to help small to medium enterprises.

The agency is in charge of financing Russia’s vast infrastructure programme and projects launched by VEB last year were worth $26bn. The bank also last year disclosed it was the anchor investor in a Macquarie Renaissance joint infrastructure investment vehicle.

VEB chief executive Vladimir Dmitriev said the bank had no plans to become a commercial bank and would focus only on solving the tasks relating to financial stability.

Dmitriev neither looks nor sounds like Father Frost but the soundness of his bank’s gift-giving will be crucial in restoring confidence in a needy economy.

http://www.efinancialnews.com/homepage/comment/content/3352907060

Investors wary after year of false dawns

2008-12-17T07:39:00.000-08:00

Wall Street Journal and Financial News

By Jason Corcoran

15 December 2008

Fund managers have called the bottom too often

The investment horizon has experienced so many false dawns over the past 18 months that investors could be forgiven for regarding any rose-tinted outlook as a mirage.

Every time the stock market suffers another steep drop, fund managers and investment sages pronounce that the market bottom is in sight and now is the time to buy.

Fundamentals, technical signs and precedents may have backed up some of their theories but subsequent slumps in valuations have not borne out their views.

Ken Kinsey-Quick, head of multi-manager strategies at UK asset manager Thames River Capital, said: “The problem with predictions is that no one has a perfect crystal ball. Anyone making a prediction is taking a risk which gives them about a 30% chance of being right and looking like a superstar.”

Many potential superstars, however, have looked like chumps because their “unprecedented buying opportunities” have been so wide of the mark. Over the past year, asset managers have made the case for investing in financials, consumer cyclicals such as retailers, builders, media, industrials and Asian equities.

In the spring, several hedge funds and long-only investors jumped into banking debt believing it was cheap.

Funds such as Thames River Capital, Centaurus Capital and Union Bancaire Privée began buying leveraged loans and asset-backed securities that had been languishing on banks’ balance sheets since the credit crisis began in the summer of 2007. Kinsey-Quick said: “We bought into bank debt and got caught by the falling knife.

It looked cheap and the fundamentals were good but it’s even cheaper now because liquidity has dried up over the past three months since Lehman Brothers went bust. We lost about 4% on the investment this year. One advantage of experience is not to double down.”

London-based hedge fund Centaurus Capital started buying banking loans in April. A source close to the firm said it had not lost money on its investment until September when Lehman’s bankruptcy triggered a market meltdown.

The source said: “Everyone was thinking [in spring] that the worst was over when Bear Stearns nearly went under and that the banks would not be allowed to go under. I remember people saying you need to be long in debt financials but a succession of things happened after that you couldn’t legislate for.”

Centaurus, which had a restructuring plan for its flagship $1.2bn Alpha fund rejected last week, said credit was never more than 50% of its multi-strategy fund and usually between 20% and 30%.

Eric Debonnet, deputy chief investment officer at French fund of hedge funds HDF Finance, said he never believed the story about buying cheap debt. He said: “Our view then and now is that it’s too early because we still need many more bankruptcies before we reach distressed. The right time is when we are getting close to the highest default rate. S&P is forecasting 7% to 10% and today we are only at 1% to 2% depending on the country.”

Some asset managers have stressed that they have been investing in banks because of their long-term value. This was the reasoning expressed in June by Bill Gross, chief investment officer at Pimco, when he said he remained invested in the corporate debt of big investment banks, including Citigroup, Morgan Stanley and Goldman Sachs, holdings that have since fallen in value.

UK fund managers have been similarly burnt in the short term by the collapse of the banking industry. Listed manager Schroders held UK bank Lloyds TSB at the start of the year and bought into HBOS in the summer and more recently, Royal Bank of Scotland.

Nick Purves, Schroders UK value fund manager, said: “We accepted the outlook was bleak but the share prices were very low at the time. Banks are by their nature very risky but we feel they now have enough capital to survive and are worth investing in over the long term.”

Schroders believes the current valuations of UK banks and equities represent good long-term buys and it points to the dividend yield of stocks rising above the yield on 10-year bonds.

In the US, the dividend yield on the Standard & Poor’s 500-stock index is about the same as the yield on 10-year Treasury notes, about 3.5%, the first time such convergence has happened in about 50 years. In the UK, the FTSE 100 is trading on a price-earnings ratio of about 7.5 times, a figure that puts it in the lowest 20% of valuations for the FTSE since 1965.

Ian Lance, Schroders UK equity specialist manager, said capitalising on such valuations had historically generated returns of about 20%.

He said: “Over the past six months, the dividend yield on the highest yielding UK stocks has risen to its highest point in over 20 years – even if you exclude financials. The dividend yield on non-financial stocks now exceeds the yield on 10-year gilts.”

However, this correlation between equity and bond yields could be a false dawn as companies may be forced to slash dividends to conserve cash, making the sustainability of such payments impossible in a deep downturn.

Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, claimed stocks had reached a “selling climax” on July 15, which he believed would be seen as the bottom for the market.

In September, Goldman Sachs’ chief US portfolio strategist David Kostin called the bottom for equity markets and forecast a 12% upside on the S&P 500 by year-end.

Anthony Bolton, who managed the £2.4bn Fidelity Special Situations fund for 28 years, said in October he was buying shares for the first time in two years because some valuations were the cheapest he had seen in a lifetime.

Jeremy Grantham, founder of investment management firm GMO and a long-term bear, said in October that stocks were then more attractively priced than at any time since 1987. He said: “If we look at values like this and fail to buy them, we will subsequently not only look like fools, we will be fools.”

Investor Warren Buffett also said in October he had begun to buy stocks although with the caveat that he was not predicting that the worst of the sell-off was over.

A sustained upturn has yet to materialise. Robin Griffiths, technical strategist at Cazenove Capital Management, has pinpointed times and dates when investors should enter and leave the market.

In August, Griffiths said October 14 at 3.30pm was the right time to invest because indices would rise by between 25% and 30%.

Griffiths, who predicts market movements after studying historical graphs, trends and data, told Financial News last week that his basic story remained intact. He said: “Our timing schedules are generally quite good but we have had monstrous volatility which has ruined the trend.”

Griffiths said historic data for dividend yields and price earnings ratios showed that current bargains had been equalled only in October 1987, October 1974 and in 1930. He said: “We have to accept the conditions that produce these bargains are really scary, and we need to steel ourselves to copy Buffett, and be greedy when others are in fear.”

Griffiths predicts the market will rally following Barack Obama’s inauguration as US President on January 25, but will run out of steam by May.

Deutsche Bank cuts 30% of Russia global markets staff

2008-12-14T10:23:00.000-08:00

Dow Jones Newswires and Financial News

Jason Corcoran in Moscow
08 December 2008

Deutsche Bank is cutting 30% of staff from its global markets division in Moscow where it has been the biggest and most successful bulge bracket bank during Russia's capital markets boom.

Up to 30% of its Moscow-based global markets staff are expected to lose their jobs, double the proportion of employees being cut across Deutsche Bank's global markets business as part of a worldwide redundancy programme.

Bankers working in sales, trading and research in Moscow were made redundant last week with more layoffs expected this week, according to two sources inside the bank.

One said: "We have been told 30% has been earmarked across the board." The second said: "Ten of the research guys have gone."

A Deutsche Bank spokesman in Moscow said the job losses represented 2% of its 950 workforce but declined to comment on potential job losses in other areas of the business.

A statement from Deutsche Bank said: "As part of a global restructuring programme in global markets, Deutsche Bank is making investments in several areas for 2009, including commodities, FX and cash equities. Also as part of the programme and based upon projected client activity, it is making redundancies in exotic structured products, credit origination and proprietary trading."

Last week, Deutsche Bank began cutting 900 jobs across its global markets division, representing 15% of the business's staff.

Moscow-based sources at the bank said the job losses last week were confined to the global markets division, which does not encompass capital markets or mergers and acquisitions.

Deutsche Bank has led the way in Moscow's capital markets since it bought a stake in the investment banking boutique United Financial Group in 2004 for $700m. It employs about 950 staff in Moscow.

The bank has consistently been in the top three for Russian debt and equity underwriting and merger and acquisition advisory work and has earned more investment banking fees from the country than any other bank since it defaulted on its domestic debt a decade ago.

More than 1,000 bankers have been cut in recent months by domestically-owned banks Troika Dialog, Renaissance Capital, Alfa-Bank and Uralsib.

Overseas banks have so far been slower to slash after many quit the Russian market following the 1998 financial crisis. UBS said it planned to increase staff. However, Goldman Sachs is cutting its Moscow-based employees by 10%.

Crisis and competition drive down Russian custody fees

2008-12-14T10:21:00.000-08:00

Financial News

Jason Corcoran in Moscow
08 December 2008

Increasing competition from new entrants and sharp falls in equity prices are driving down the margins of Russia’s sub-custody banks.

The recent arrivals of Sweden’s SEB and France’s Société Générale, plus the increasing participation of Russian banks such as VTB and Gazprombank, are forcing fees downward but bringing greater segmentation and opportunities for niche providers.

Natalia Sidorova, head of securities services at ING Wholesale Banking in Moscow, said: “Margins are decreasing, which is inevitable in a busy market like Russia driven by competition. Fees used to be about 20 basis points but have come down significantly in recent years.”

Serhiy Berezhny, head of trust and securities services at Deutsche Bank, agreed but said high fees could still be charged depending on the volume of client assets.

He said: “Different clients are charged differently depending on the level of assets under custody but overall margins have been decreased significantly over the past five years. A big client with $1bn (€800m) could be charged less than five basis points but we would still charge clients 20 basis points if they had assets of $200,000 as they couldn’t be charged at cost.”

With Russia’s main equity markets among the worst performers over the past two months – posting falls of more than 75% – custodians’ incomes generated from assets under custody have tumbled.

ING’s assets under custody fell from $155bn in August to $64bn last month but the Dutch bank’s custody operation remains Russia’s biggest player, serving more than 450 foreign and domestic clients.

Deutsche Bank, a top-three player along with ING and Citigroup, has seen its assets under custody decrease to $30bn from $100bn since the banking crisis in August. Other banks with custody operations in Russia include JSC Bank VTB; UniCredit; RZB and Sberbank.

Sidorova said: “We have seen a significant drop in our overall amount of assets under custody which has led to less safe-keeping fees as indices have gone down. But business is booming from new clients and the volume of transactions is high.”

Berezhny believes market entrants face a tough job to establish a network and contend with the financial crisis.

He said: “The arrival of new entrants this year has been the worst timing with the crisis occurring. It is very difficult to build a network and I don’t think some of them will establish a proper presence till next year.”

Société Générale hopes its capture this year of local bank Rosbank will make it a dominant player in domestic investor services, along with servicing in-bound and outbound assets.

The French bank paid $1.7bn for a 30% share of Rosbank, in addition to the 20% it already owns.
Ramy Bourgi, head of emerging markets development at Société Générale Securities Services, said the French bank would transfer assets to Rosbank once service standards had been met. Matthieu Moreau has been seconded from Société Générale Securities Services in South Africa to help with the transition.

Bourgi said: “We are marrying a strong local player, Rosbank, with a foreign and established player in SocGen.

“There is a good deal of competition and there will be some consolidation but there is also a good deal of segmentation in the market. We are very oriented towards the blue-chip clients in Russia and the international clients entering the country, whereas VTB and Gazprombank are very oriented towards the domestic client base.”

Sweden’s SEB launched custody services in August with a team of five in its St Petersburg office, offering international clients with Russian holdings custody, settlement, safe keeping and asset servicing.

Göran Fors, global head of custody services at SEB, said: “Initially, we are focusing on foreign broker-dealers and not the domestic client base. Russia is very important for our clients because historically the Nordic region has contributed 2% to 3% of overall investment in Russia. Being in Russia bolts it up with our network in the Nordics, the Baltics and Germany.”

Veronika Vasilieva is head of custody for UniCredit Group in Russia, which has a strong network of banks across Europe and is one of the leading sub-custodians in the Russian market through its ownership of International Moscow Bank – acquired by the Italian group’s Bank Austria Creditanstalt subsidiary in January 2007.

It also bought local broker Aton and has a large stake in Russian stock exchange Micex. Vasilieva said the market had fractured into large international providers offering full custodial services and those focusing on niche areas.

She said: “There is a good deal of competition and I expect some consolidation in the industry. The market has developed towards different segments.”

ING and Deutsche Bank are the two biggest custodians for Russian depositary programmes, with JP Morgan and Citigroup also serious participants.

The two market leaders acknowledged the inroads being made by Russia’s big domestic banks such as VTB and Gazprombank as they expand their offerings and diversify.

VTB Bank last month said it had received custodian status for Russian companies under a Bank of New York Mellon global depositary receipt programme while Gazprombank – which like VTB is building an investment banking team – plans to expand its American Depositary Receipt programmes.

However, Gazprombank vice-president and depositary centre head Vladimir Tatsy told news service Interfax that the launch had been delayed by the financial crisis.

Berezhny of Deutsche Bank said: “VTB and Sberbank have definitely managed to break into the realm of depositary receipts and their share of the market will grow but they can’t compete for standard custodial accounts because of their staff’s limited ability in English, a lack of a global relationship management and a lack of a global network.”

Russians lose confidence in faltering rouble

2008-11-29T03:25:00.000-08:00

Financial News

By Jason Corcoran

24 November 2008

Letter from Moscow
Gambling in casinos has been a popular pastime in Moscow since the fall of communism but a more recent fad is desperate speculation on the currency markets. A slide in the value of the rouble and a deposit run at banks that is gathering momentum has loaded the dice in favour of a punt on the dollar.

The on-off love affair with the greenback dates back to 1998 when a rouble devaluation wiped out people’s savings. Those lucky enough to have withdrawn their money in time transferred funds into dollars.

Popular as Russia’s leaders are, its citizens have learnt not to take any chances by keeping faith with the rouble. Russians are rushing to protect their wealth in global currencies, having seen the stock market plunge by 70%, inflation hovering at 15% and all manner of businesses struggling to make basic payments.

Viewers tuning into national television on November 12 may well have been baffled by a
15-second clip announcing the Government’s widening of the rouble’s trading band by 30 kopeks, in a move seen by analysts as a tacit admission of a gradual devaluation.

Russia’s state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street’s woes. President Dmitry Medvedev has gone as far as urging law enforcement agencies to prosecute anyone spreading malicious rumours that could cause the banks to collapse.

Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and real estate contaminate the real economy. Business professionals reading the financial press are better informed, while ordinary people check currency exchanges for the latest rates.

The state is determined to hold the currency stable and the central bank spent $57.5bn in the currency market to shore up the rouble in September and October. However, the rouble has lost 17% of its value over the past two and a half months despite the interventions. Last Thursday, street kiosks were selling dollars at more than 28 roubles apiece, compared with a low of 23 roubles in mid-July.

The faltering rouble is triggering a deposit run, with reports suggesting a deposit loss of 15% in large retail banks such as Alfa Bank, Austria’s Raiffeisen and Italy’s UniCredit.

Smaller banks are even more vulnerable. Authorities last week pledged to protect only national banks with over $4bn in retail deposits or regional institutions with more than $1bn in savers’ deposits.

While the Russian central bank’s move to increase the rouble’s trading band was intended to absorb some of the pressure on the currency, it had the effect of devaluing it by 1% and the stock market responded negatively. The fear is that if the central bank falters in its defence of the rouble, there could be a full-scale run on the banks and the currency.

The oil price is critical for the rouble. Economists believe the only way pressure for a full devaluation will ease is if the price of oil moves much higher than $60 per barrel.

Prime Minister Vladimir Putin and his presidential successor Medvedev remain popular while the Russian population remains apathetic to any alternatives. In an apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles – and in the bank. But further currency fluctuations, along with spiralling inflation and jobs losses may yet bring out protesting pensioners if their mattress money again proves to be good only for kindling fires on harsh winter days.

http://www.efinancialnews.com/archive/keyword/jason+corcoran/1/content/3352565176

East Capital reveals staff cuts

2008-11-29T03:22:00.000-08:00

Financial News

Jason Corcoran in Moscow
28 November 2008

Swedish fund manager East Capital has cut its personnel by a fifth following a 70% slide in its core equity market of Russia over the past two months.

The 40 jobs cuts from East Capital's overall headcount of 225 indicate how the financial crisis in Russia is spreading from investment banks to the buyside.

The Stockholm-based manager said 20 jobs in Sweden would be affected and the remainder in its international offices in Moscow and elsewhere in the CIS.

A statement from East Capital said: "Like many others in these turbulent times, we are carrying out an organisational review…We need to adapt to the new reality."

Hedge funds operating throughout Russia and the CIS are cutting their headcounts and slashing costs following sharp falls in equity prices and increases in clients redeeming their accounts.

Prosperity Capital, previously the leading Russian fund manager, has seen its assets under management shrink to $1.5bn (€1.1bn) from over $5bn over the past few months. It's $1.2bn Russia equity fund has fallen to $400m due to the drop in equity values.

Prosperity's chief executive Mattias Westmann told Financial News that Prosperity had posted some inflows from new clients and little in the way of redemptions.

He said: "We have not closed any funds but we are trying to cut costs in general. No personnel has been affected so far as we have always been a pretty low cost operation."

Prosperity, which was established in 1996, employs just 25 people in Moscow and London.

The closure last month of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.

The closure in October of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London

Another Russian hedge fund, Denholm Hall Russian Arbitage Fund, announced it was considering a restructuring following difficulties. In a letter to investors, Denholm said it was conducting a review of "of the collateral of our loans, the liquidity of our borrowers, the health of the underlying businesses and our hedging strategy".

Meanwhile Da Vinci Capital, which conducted an initial public offering on London's junior Aim market in May, has launched a crisis opportunities fund.

Da Vinci's long-short hedge fund has suffered from redemptions and has fallen to just $15m and it's managers are considering winding it up.

Rouble trouble

2008-11-21T05:47:00.000-08:00

The Guardian - Comment is Free

A slide in the value of Russian currency has led many to cash out their modest savings and punt for either dollar or euro

By Jason Corcoran

guardian.co.uk, Wednesday November 19 2008 20.00

The financial crisis is quickly transforming Russia into a nation of desperate currency speculators due to a slide in the rouble's value and a deposit run gathering pace at the banks.

For many ordinary Russians, it's a game of roulette as they cash out their modest savings and punt for either dollar or euro.

The cards are stacked in favour of a dollar bet as Russians have a love affair with the greenback dating back to last financial crisis in 1998, when a rouble devaluation wiped out their savings.

Pensioners tuning into national TV last week may well have been baffled by a 15-second clip announcing the government widening the rouble's trading corridor by 30 kopecks, in a move seen by analysts as a tacit admission of a gradual devaluation.

Russia's state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street's woes. Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and the real estate sector contaminate the real economy.

Business professionals who read the financial press will be well-informed while ordinary people are turning to currency kiosks and their chalkboards showing the latest currency rates.

The world's second-largest oil exporter has accumulated reserves of nearly $600bn during an oil and gas boom, but those reserves have fallen by a fifth to $475bn in the last three months largely due to efforts to prop up the rouble.

The Kremlin has spent tens of billions defending the rouble from falling oil and stock prices and capital flight of $150bn since early August.

The state is determined to hold the currency stable is because of the risk that a weak rouble will lead to a loss of confidence by Russian savers in the currency, in the banking system and in the government.

Over the past two-and-a-half months, the rouble has lost over 15% of its value, despite the interventions.

On Tuesday, street exchanges were selling dollars at less than 28 roubles, compared to a 23-rouble high in mid-July.

The faltering rouble is triggering a deposit run with reports suggesting a deposit loss of 25% in large retail banks and 3% in the state banks.

The Russian prime minister, Vladimir Putin, and his presidential successor Dmitry Medvedev remain popular leaders while the Russian population remains hugely apathetic to any liberal, communist or extremist alternatives.

In apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles — and in the bank. "I have kept all my accounts at the bank. I have not taken the money out, not changed roubles into dollars and not bought any shares," Medvedev told the Argumenty i Fakty newspaper.

But further currency fluctuations, along with jobs losses and rising inflation may yet bring out protesting babushkas if their mattress money again proves to be good only for fire tinder.

comments (32)

http://www.guardian.co.uk/commentisfree/2008/nov/19/russia-economics

Russian Banks Face Winter Freeze

2008-11-17T11:30:00.000-08:00

Dow Jones International News

By Financial News reporters

17 November 2008

Just a year after they were engaged in a frantic war for the best talent, investment banks in Russia have started slashing hundreds of jobs and cutting pay.

Lay-offs at two of the country's largest domestic investment banks - Troika Dialog and Renaissance Capital - are approaching 1,000, and cuts will end up being substantially deeper than had previously been declared, according to bankers in Moscow.

Troika Dialog has begun cuts expected to total 500, or 35% of its overall staff, according to two bankers at the company. The bank was unavailable for comment. Renaissance Capital will cut 25% of its employees, according to an internal memo sent to staff, which represents about 375 of their overall staff of 1,500. However, bankers there said the figure will be higher.

A Rencap spokesman said nothing had been decided.

Elsewhere, there have also been 20 redundancies at mid-tier broker Trust Bank, according to a banker inside the company. VTB Bank is also cutting staff. Meanwhile, Ed Kaufmann, head of investment banking at Alfa-Bank, said the company was "trimming overall headcount" but is still hiring selectively.

Pay cuts are also in the pipeline. At Troika, those earning more than $3,000 (EUR2,357) a month have been told their pay will be slashed by 25%, according to one banker. Banking group Uralsib's staff have been told their salaries will be cut by 20%, while employees at broker Metropol earning more than $10,000 per month have been told their salaries will also be cut by 20%, according to staff at both companies.

Overseas banks that have piled into the market in the past year appear more resilient however. Merrill Lynch said it was not cutting staff in Moscow and UBS said it plans to increase staff.

www.efinancialnews.com

Russia braced for a bleak winter

2008-11-17T11:27:00.000-08:00

Financial News

Jason Corcoran in Moscow and Harry Wilson

17 Nov 2008

Moscow-based investment bankers are at the sharp end of job cuts

Russian index slumps

It seems like a different age, but it was only recently that Moscow-based investment bankers had firms fighting to secure their services and could command pay packages commensurate with demand.

Senior Moscow-based bankers and those covering the Russian markets asked for and got lucrative pay deals as local brokers and large international investment banks fought a hiring war to build their businesses in the country.

Guaranteed packages in excess of $10m (€7.8m) were not unheard of and even junior staff with experience of the Russian markets received $1m guarantees to join rivals.

In early 2007, Russian investment bank Alfa-Bank recruited the head of UBS’ Moscow office Ed Kaufman for a reputed $20m over two years.

Speaking to Financial News at the time of his hiring by Alfa, Kaufman described his package as “very generous”, while declining to comment on the specifics.

US investment banks including Lehman Brothers spent similar sums to secure top bankers from rivals to give them the entrance they desperately wanted into Russia’s booming natural resources-fuelled economy.

However, after two and a half months in which the Russian stock market has lost 70% of its value and with the oil price at a three-year low, the days of the multi-million dollar guaranteed package are history and the hiring boom has turned on its head as the axe begins to fall on bloated and expensive banking teams.

Last week, Russia’s largest independent investment bank, Troika Dialog, began culling 20% of its workforce with the loss of about 300 jobs. However, the cut could be more severe and as many as 500 jobs are potentially at risk, equal to 35% of its staff.

Troika’s redundancies followed similar cuts at main Moscow-based rival Renaissance Capital, which after accepting a $500m investment from Russian billionaire Mikhail Prokhorov was forced to make hundreds of employees redundant as it cut a quarter of its staff.

Renaissance Capital had become known within the international banking community for its lucrative pay packets, which included large grants of stock and generous guarantees.

In 2007, Renaissance Capital’s total staff compensation bill came to $370m, equating to an average payout of more than $300,000 for each of the firm’s 1,145 employees.

Until recently, Renaissance Capital was deluged with CVs from staff at investment banks looking to escape job cuts in their own firms and join the seemingly invulnerable Russian boom.

Weeks before it was forced to accept Prokhorov’s money, Renaissance Capital hired John Porter, Morgan Stanley’s head of Middle Eastern and African equity capital markets, to lead its growth in the region.

Speaking to Financial News in the wake of Prokhorov’s investment, Renaissance Capital’s co-head of investment banking Andrew Cornthwaite said: “We have always taken the view that if you are involved in these markets you have to accept that some things will go badly wrong from time to time. We are comfortable with that.”

The hiring freeze has hit institutions thought to be relatively immune, such as state-owned bank VTB, which had spent hundreds of millions of dollars in the past 18 months building its investment banking business.

In a statement, VTB said it had frozen recruitment and would focus on risk management, setting up a unit to cope with the fallout from the financial crisis.

However, for staff made redundant by Russian investment banks the terms are still generous. Troika employees who lose their jobs will receive between five and eight months’ salary, which in many cases will not be far off the length of time employees had worked for the firm.

International banks are starting to scale back the size of their Russian operations too, just over 10 years after many of the same banks shut up shop in Moscow in the wake of the Russian Government’s default.

A Russian investment banker said: “It is different to 1998. Then, the pull back was focused on Russia; this time it is part of global retrenchment by banks to what they consider their core businesses.”

Rivals say Goldman Sachs is scaling back its staff in Moscow, though a source at the bank said it was currently “assessing market conditions, while the jobs of former ABN Amro employees are likely to be vulnerable in the wake of RBS’ announcement last week that it would make 3,000 redundant in its global banking and markets business.

This is a change from 11 months ago, when bankers such as Merrill Lynch chairman and chief executive John Thain flew into Moscow amid fanfare in the local and international media to meet then President Putin and open the bank’s Moscow office.

One banker at a Russian bank said: “Everyone has been hiring like mad for the last couple of years, but the party is well and truly over now.”

Merrill Lynch insisted it is not cutting staff in Moscow despite widespread rumours it is preparing to dismiss staff and even close the office. One source close to the bank said it was preparing to expand the operation. Despite the sombre mood in the Russian market, fee levels are not far down on 2007 and are substantially up on previous years.

Russian investment banking revenues for the year so far stand at $1.53bn, according to investment banking data provider Dealogic, down 13% on the same point last year, but up more than 50% on the same point in 2006, when fees hit a then record of $1.14bn.

Steve Meehan, head of UBS in Russia, said: “The number of competitors in this market will be reduced dramatically. For the long term, this correction will be positive for banks like us.”

The long-term prognosis for Russia is positive and, despite the fall in oil prices, most admit this is only a temporary blip. One Russian banker said: “The long-term trend has got to be for higher energy prices and Russia will obviously benefit from this. What you’re seeing now is the bursting of a bubble, not the end of Russia.”

Meehan said: “Russia is the only country that has got a top-10 position in all the mineral resources that matter."

Russian power plays highlight risks for minority investors

2008-11-17T11:20:00.000-08:00

Financial News

Jason Corcoran in Moscow
17 November 2008

Energy company has been hit by governance failings

The crash in Russian equities has exposed serious risks for minority shareholders, despite an amelioration in the country’s corporate governance over the past few years.

The growth of Russian capital markets and the recent boom in initial public offerings has led to an improvement in corporate governance and accounting practices among the blue chips, but violations continue in the small to medium tier. A number of Russian utility companies that were spun off from the electricity monopoly have been particularly affected.

A group of 15 minority shareholders in power generator TGK-4 last month wrote to President Dmitry Medvedev claiming Onexim Group, an investment firm owned by Russian billionaire Mikhail Prokhorov, had exerted pressure on Russian officials to act in Prokhorov’s interest after Onexim agreed to buy it in May.

By law, as a majority shareholder, Onexim was required to offer to buy out minority investors. Investors said Prokhorov promised to do so.

However, following the slide in the Russian stock market, the required offer price for the buyout of TGK-4 shares stood at a 50% premium to the utility’s market price.

The group of minority shareholders, headed by Swedish investment firm Prosperity Capital and including a number of Russian and international hedge funds, claims Prokhorov reneged on his promise.

In an open letter to the President, the investors accused Prokohorov of “trying to avoid obligations by manipulating facts and using legal loopholes.

The shareholders wrote: “We appeal to you with a request to take immediate measures to protect the foundations of the Russian financial market and legal system, and to help set right these flagrant violations of the principles of corporate management.”

Alexander Branis, a director at Prosperity, which has about $4bn in funds under management, said the Kremlin had not replied. The Kremlin did not return calls inviting comment for this article.

James Fenkner, founder of Moscow hedge fund Red Star Invest and a local authority on corporate governance, added: “TGK-4 has been made into a strategic asset. The situation is borderline criminal, but you can see that corporate governance always gets worse at the bottom of a cycle.”

Onexim said it was no longer obliged to buy out the minority shareholders despite initially promising to do so when they acquired the majority sake in May.

Since its purchase of the stake, it had managed, in a way Prosperity questions, to lower its stake in TGK-4 below 50%, eliminating its obligation to buy the remainder of the shares.

TGK-4 also recently landed on a list of state “natural” monopolies, which prevents those companies from being bought. Investors claimed Onexim had applied pressure on the anti-monopoly regulator to include it on the list.

Prokhorov says he has a big capital investment programme, which will benefit the company and its shareholders who lost out from the buyout.

In a statement, he said: “I am certain that, once TGK-4 carries out its investment programme, the investors will earn a lot more than they would by pulling out their money now.”

Prosperity has sold down its original 18% stake of TGK-4, but remains a substantial shareholder. Other large investors include RusHydro and Federal Grid Company, which were spun off from the electricity monopoly UES. Fund sources suggested the latter two might come to a separate arrangement with Prokhorov in relation to their stakes in TGK-4.

Igor Goncharov, analyst at UBS in Moscow, said the market weakness had highlighted problems at energy companies TGK-2, TGK-4 and OGK-3 and could led to potential risks at OGK-2, 6, TGK-6, 7 and 9.

He said: “The most apparent risk is that the core shareholders may economically dilute minority shareholders by buying newly issued shares at current valuations, which we find to be substantially below intrinsic fair value for most of the companies.”

Branis of Prosperity said Russia’s main financial regulator, Federal Financial Markets Service was beginning to talk robustly about minority shareholders rights and had stepped in at OGK 3 and TGK-4 in a practical way. The free float in these other utilities is rather small and Goncharov is concerned that abuses could occur.

He said: “The regulator has mobilised itself to get involved in upholding the rule of the law and this is very encouraging.”

BNP Paribas Targets Russian Tie-Up

2008-11-15T00:38:00.000-08:00

Financial News: Dow Jones International News

14 November 2008

By Jason Corcoran in Moscow

French bank BNP Paribas is understood to be in advanced talks about a partnership with one of Russia's top 20 banks, three months after the head of its securities business in Asia revealed it was exploring possible deals to strengthen its presence in developing economies.

Representatives from BNP Paribas have been conducting due diligence at the Moscow headquarters of Trust Bank for the past three weeks, according to three sources close to the Russian group.

A spokeswoman for Trust Bank denied talks were taking place. BNP Paribas declined to comment. Pierre Rousseau, chief executive of BNP Paribas' securities unit in Asia, announced plans in August to acquire a brokerage in the country and strengthen its foothold in the developing market.

Trust Bank three weeks ago received 7 billion rubles ($260 million) in emergency funding from the state banks.

It is also on approved list of banks that can tap the state development bank VEB, although the bank declines to say whether it has applied for additional funding.

Trust's main shareholders are Russia's Ilya Yurov, Nikolai Fetisov and Sergey Belyaev, who control about 80% of the holding group's shares. U.S. bank Merrill Lynch bought a 10% stake in the bank a year ago.

The holding company comprises of National Bank Trust, one of the leaders in retail banking with a presence in 200 cities across Russia, and Trust Investment Bank, a mid-tier broker.

BNP first arrived in Russia in 1974, but has made less impact than French rival Societe Generale (13080.FR), which boosted its stake in local bank Rosbank to more than 50% in February. It unsuccessfully bid for Russian Standard Bank, the country's leading consumer leader, in 2005. The French bank is rumored to have looked at buying Moscow brokerage Antanta Capital and Glitnir's Russian operation.

Russian hedge funds face threat of closure

2008-11-10T11:12:00.000-08:00

Financial News

Jason Corcoran in Moscow
10 November 2008

The closure of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.

It is estimated about 70 hedge funds are operating in Russia and the Commonwealth of Independent States and analysts predict over half will be wiped out by next year.

The closure of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London.

Florin’s principals Neil Smith and Aidan Freyne are hoping to buy the fund’s architecture from its shareholders at Trust Capital and relaunch the fund as a distressed assets vehicle.

Smith was previously head of alternative investments at the UK’s Morley Fund Management while Freyne spent 19 years with Salomon Brothers and subsequently Citigroup.

Smith said: “Credit has been a difficult space to be in but it’s going to be great for distressed and acquiring debt at super-distressed levels.”

Fears are growing that other Russia funds with their mainly long-only bias may be wiped out like they were following the 1998 financial crisis.

Florin was set up earlier this year with $100m (€78m) in seed money from Trust Bank and other external sources.

James Fenkner, founder of Moscow hedge fund Red Star Invest, said most Russia funds were equity focused with only minimal shorting so most had been hit by the slide in stock markets.

He said: “I haven’t seen anything like this since 1998. It’s a case of survival. It’s going to be a blow-up of the good, the bad and the ugly.”

Fenkner said Red Star’s Austrian backer Erste Bank was standing behind the fund, which had bucked the trend and returned over 100% during October.

http://www.efinancialnews.com/homepage/content/3352423321

Russian exchanges strive to modernise

2008-11-10T11:07:00.000-08:00

Financial News

Jason Corcoran in Moscow

10 November 2008

A merger of Micex and RTS is more likely following the exodus of €108bn in foreign capital since August

Rybnikov: suspensions must stop

Moves to merge Moscow’s two stock exchanges, modernise market architecture and improve long-term liquidity have been given impetus following Russia’s worst trading collapse since the sovereign default in 1998.

The frequent closures of Moscow’s two main trading platforms have led many investors to switch to trading Russian Global Depositary Receipts and Russian American Depositary Receipts in London and New York.

Some 23 suspensions of trading on the rouble-denominated Micex since early September have contributed to a two-thirds slide in the volume of trading and an exodus of investors.
Micex chief executive Alexei Rybnikov hopes the suspensions will become a rarity once the financial regulator, the Federal Service for Financial Markets, introduces rule changes.

He said: “I hope this situation will not continue. We have told the regulator and the Government that closures should be rare and can only be invoked for systemic reasons and not when the exchanges are only falling.”

Micex and Moscow’s biggest investment firms have asked the regulator to return to the old trading rules and allow bigger fluctuations so that a suspension becomes an extraordinary measure.

Rybnikov said the trade volume in London had doubled on the days when operations had ceased on the Micex and RTS exchanges. The trading closures, designed to curb the magnitude of fluctuations, ranged from one hour to more than a day.

BNP Paribas has estimated that $140bn (€109bn) in capital has left Russia since the beginning of August amid war with Georgia, a decline in oil prices and the rout in the country’s stock market.

Problems with the domestic repo market exacerbated the equity sell-off in early October when banks and brokers failed to meet their obligations on time. If a repo deal is not completed on schedule, the lender may dump the stocks in the market.

Repo deals made up about two thirds of the trading volume at Micex while margin trades and short selling were estimated at up to 25%. During the crisis, the regulator at various times stopped trading in repo, margin trades and short selling.

Rybnikov said a number of institutions had been fined for defaulting on bilateral repo obligations while the banning of Utrade.Ru, a subsidiary of Uniastrum Bank, should serve as a warning to others.

Difficulties in settling its repo payments, worth about 7bn roubles (€202m), forced investment bank KIT Finance to sell up to state diamond miner Alrosa and rail monopoly Russian Railways for 100 roubles. Problems at Moscow’s leading brokerage Renaissance Capital led to its sale of a 50% stake to oligarch Mikhail Prokhorov at a knockdown price of $500m.

The debate over the reshaping of Russian financial architecture has brought the issue of a merger of Micex and RTS to the fore.

Rybnikov said: “It makes sense to unify the exchanges. Only certain issues can be resolved through consolidations. The discussion started a year ago and barely anyone is against it, but we need to know what the state thinks and whether it wants to be a regulator, an owner or an activist investor.”

Russia’s Central Bank is the main shareholder in Micex, the central company in the group with a 29.8% share. Leading brokers, who are shareholders and members of both exchanges, have been campaigning steadily for a union for several years.

Vladimir Milovidov, chairman of the FFMS, admitted to delegates at last month’s UBS investor forum in Moscow that new approaches to regulation need to be found.

He said: “It is very important to combat insider trading. Laws have been submitted to the State Duma and we are hopeful they will come before parliament in the new year. We also hope to have a draft law for bond holders and to protect their rights.”

Milovidov said negotiations to expand Russia’s circle of investors to encompass Chinese funds were advanced. “We could have double listings in Shanghai and Moscow and that would provide a stabilising role.”

Deepening Russia’s investor base, pension reform and accelerating mutual fund growth are high on the agenda.

“The Russian market probably fell more than other developing markets,” explained Rybnikov. “The reason for that is the general shortage of long-term domestic investors in Russia. About a million and a half people buy and sell securities from time to time. This is roughly one per cent of the population… It is next to nothing.”

Rybnikov applauded moves to allow funds accumulated in the pension system to be invested in stocks other than governmental securities and Government-guaranteed securities.

He said: “One more significant step is the decision to allow the central bank to become a trading member on the stock exchange which would ultimately, I hope, allow the central bank to accept a wider range of collateral to provide liquidity to not only the banking system but also to the financial system, including investment companies and brokers that are not licensed banking institutions. We have seen that, as a result of the crisis, decisions which have been delayed for years have started to be taken.”

However, Rybnikov warned that differences in two competing governmental blueprints for Moscow as an international financial centre would have to be resolved first.

He said: “The Ministry for Finance and the Federal Service for Financial Markets have their own plans. There are key differences to be resolved in ideas for architecture, taxation and the investor base.”

http://www.efinancialnews.com/tradingandtechnology/index/content/3352424751

LSE slows Russia push --- Market turmoil, IPO drought curbs Moscow office plans

2008-10-30T08:36:00.000-07:00

Wall Street Journal Europe
By Jason Corcoran in Moscow

30 October 2008

Moscow -- THE LONDON Stock Exchange Group PLC has dropped a plan to open an office in Moscow after the financial crisis wiped out the prospects for Russian stock issuance for at least 12 months.

The decision to call off the Moscow office was taken after a group of companies in Russia and the Commonwealth of Independent States pulled stock listings amid a plunge in stock markets. Until recently, Russia had been seen as a possible source of growth for the larger exchange, which is facing competition from new rivals.

Jon Edwards, director of CIS and Central and Eastern Europe at the LSE, said the exchange had given the green light for the opening of a Moscow office before the country's economic crisis began in August. "We pulled plans to open in Moscow when we realized the severity of the crisis," he said.

Russian public-affairs and media company PBN said capital-raising activity in the CIS had slumped in the third quarter to half of the level seen last year, and is now at its lowest level since 2004.

So far this year, there have been seven initial public offerings by companies in Russia, Kazakhstan and the Ukraine, raising $1.7 billion, according to PBN. "To date we know of 43 companies that postponed or pulled their flotations this year," said Peter Necarsulmer, PBN's chief executive.

"We are very aggressively focusing in Russia's regions for companies ready to hit the ground running for capital raising, which we hope will open 12 months rather than 18 months as is expected," Mr. Edwards said at the sidelines of an investor conference. He said he had recently returned from company visits in metals-and-mining town Novosibirsk in Siberia and oil town Khanty-Mansiysk in Russia's Far East.

Like many other large exchanges, the LSE is dealing with the effects of the economic downturn and rising competition. Revenue at Europe's main incumbent stock exchanges have come under pressure in recent months from falling stock markets and the emergence of low-cost rivals, such as Turquoise and Nasdaq OMX Europe.

According to the World Federation of Exchanges, the total value of shares traded at the LSE fell more sharply than at any other large European stock market in the year to September, although the LSE's trading volumes rose faster than its peers.

Faced with low-cost rivals and dwindling volume, the LSE is likely to cut the fees it charges traders by 10% over the coming year to maintain competitiveness, said Credit Suisse analyst Rupak Ghose in a research note released Wednesday.

A spokeswoman for the LSE declined to comment on potential fee cuts and said that the WFE figures were of limited interest because different exchanges take report trading figures differently.

(Copyright (c) 2008, Dow Jones & Company, Inc.)

VTB opens overseas offices

2008-10-28T13:08:00.000-07:00

Financial News

Jason Corcoran in Moscow
28 October 2008

Russian state bank VTB is defying the global downturn and dismal domestic markets by opening new sales and representative offices for its investment banking arm in New York and Dubai.

Yulia Chupina, the VTB board member responsible for the expansion of its investment banking subsidiary, said the bank would open offices shortly in the US and Dubai.

She said: "We are being cost conscious by freezing hiring and development in some areas while continuing to develop in other areas."

VTB has already established three investment banking hubs in Moscow, London, and Singapore. It has dominated this year's hiring war in Russia by recruiting bankers from Deutsche Bank and key figures from a number of banks in Moscow.

In response to the crisis, the bank said it was considering cutting costs by between 15% and 20%, and had postponed a move into its new offices in Federation Tower, the tallest skyscraper in the emerging business district of Moscow City.

Chupina confirmed that VTB was no longer interested in buying a stake in Renaissance Capital's troubled consumer lending arm Renaissance Credit.

The bank is believed to have abandoned the deal after Renaissance Capital founder Stephen Jennings declined to cede control.

—Write to Jason Corcoran at jasonwcorcoran@googlemail.com

No crisis detox for DTEK

2008-10-28T01:48:00.000-07:00

Business New Europe

Jason Corcoran in Moscow

October 28, 2008

The richest man in Ukraine and reputedly the whole of the former Soviet Union, Rinat Akhmetov, is embarking on a bold acquisition programme to pick up cheap energy assets across Central and Eastern Europe at a time when other oligarchs in the region are sweating over making margin calls.

Akhmetov, estimated by the Russian daily Kommersant to be worth $31.5bn, has largely been insulated from the international financial crisis due to the consistent demand for coal and electricity and his minimal exposure to the equity markets.

DTEK, Akhmetov's main Ukraine-based energy holding, is now talking to banks about assembling a cash pile to target coal assets worth up to $500m in Russia and the rest of Central and Eastern Europe. "We are pretty much immune to the fluctuations of the world economy and we are cash positive so we can fund our modernisation programme and our working capital through our own cash so we don't need to use the external market. We do need external markets only to fund M&A and refinance our debt," Yuriy Ryzhenkov, DTEK's chief financial officer, told bne in an interview.

Ryzhenkov said DTEK is looking to buy assets cheaply in the resource base in Russia close to Ukraine and westward in Poland, Romania and Hungary. "We are trying to balance our whole chain of production from coal mining to the end customer. We are also looking outside of Ukraine westwards for new customers and new generations in countries like Romania, Hungary and Poland. The assets there can have a synergy with existing assets in Ukraine," he said.

A bigger whole

Kyiv-headquartered DTEK is part of Ukraine's largest conglomerate Systems Capital Management (SCM) and is the leader in Ukraine's fuel energy industry. It runs the energy assets of Donetsk-based SCM and unites 16 enterprises, including Skhidenerho energy generating company, Service Invest and Enerhovuhillia energy distribution companies. DTEK is Ukraine's largest coal producer, owning the Pavlogradugol unit and the Donbass Komsomolets mine SHKD.PFT. It also owns electricity generator Vostokenergo and the electricity network Servis-Invest and PES-Energougol. According to 2007 figures, its market share in Ukrainian coal mining industry was 20.9%; its share in thermal power generation was 27.0%; and its market share in electricity distribution was 5.4%.

Last year, DTEK earned revenues equivalent to $1.86bn compared with $1.04bn in 2006, and operating profit more than doubled to almost $496m from $243m. Net profit rose to $196m from $102m.

Metinvest, Akhmetov's metals and mining holding is vertically integrated, with its energy needs met from DTEK. When markets improve, analysts expect both DTEK and Metinvest to move forward with their IPO plans and to provide an interesting cash-out to investors with a two- to three-year horizon.

Ryzhenkov said the ambitious $2bn capex programme of DTEK, which is wholly owned by Akhmetov and his wife, was also unaffected by the financial crisis. "The majority of it is addressed towards the coal mining assets. We are planning bringing the productivity of those assets up to the best western standards and that would put us in a stronger position against competitors outside of Ukraine. This programme is to be funded through our own cash flows. At the moment, DTEK is not paying dividends and all money generated is reinvested into existing assets."

With western banks offering unattractive terms for loans, Ryzhenkov said DTEK was looking at other avenues to fund its expansion programme such as bond issuance, syndicated loans with relationship banks and leasing transactions. Russian bank Troika Dialog has already underwritten two tranches worth UAH500m ($100m) on behalf of DTEK, but the company remains on hold, as they don't have a dire need to sell at current rates of 15-25% per annum. DTEK postponed the issuance of its debut Eurobond last year and is waiting for a window in the current market before opting for that financing route.

In recognition of DTEK's rude financial health, ratings agency Fitch in September placed the company on a positive outlook, although it did cite poor liquidity and a relatively short debt maturity profile as negatives. "We were quite pleased by the upgrade," commented Akhmetov. "We improved our financing metrics since last year when we first obtained the rating. At the same time as notching down the Ukraine rating outlook to negative, they changed our outlook to positive which was a good sign that we are doing something right and the agency considers us becoming more stable and self-sufficient."

Akhmetov has been a very divisive figure in Ukrainian politics thanks to his own political ambitions and close ties to Viktor Yanukovych, the twice-elected prime minister and leader of the opposition Party of the Regions. But Ryzhenkov insists that the negative press hasn't impeded the progress of the company. "Obviously, the company gets associated with the beneficial shareholder whenever we do something." However, he insists that while DTEK did indeed grow during the time the Party of Regions was in government, the company also prospered when President Viktor Yushchenko's party and Prime Minister Yulia Tymoshenko's eponymous bloc were in power too. "I can say the company is pretty much immune towards the political landscape," he said.

Even so, the latest round of political wrangling, which forced snap elections to be called for December, has had some effect, by slowing the progress of privatisation in the electricity generation sector. However, DTEK is optimistic the New Year will bring developments.

http://businessneweurope.eu/storyf1332

Oligarchs make the most of Russian M&A activity

2008-10-16T09:00:00.000-07:00

Financial News

Jason Corcoran in Moscow 13 October 2008

Many holdings are up for sale

Oligarchs on opposing sides of the cash crisis are set to trigger a boom in merger and acquisition activity in Russia and the Commonwealth of Independent States.

Cash-tight tycoons are being forced to sell holdings to meet pending margin calls while their rouble-wealthy counterparts are sizing up distressed assets affected by the liquidity crunch.

Oligarch Oleg Deripaska had to sell a stake in Canadian auto parts maker Magna to meet a $1bn (€734m) margin call while Ukrainian billionaire Kostyantin Zhevago was forced to sell a large stake in Swiss-based ore miner Ferrexpo worth $180 in order to meet a margin call by JP Morgan.

Analysts are predicting Deripaska, who has $28bn, may have to divest further holdings in his Basic Element investment vehicle to shore up his finances.

Marat Gabitov, a Moscow analyst at UniCredit, said: “We see the news as further confirmation that the global financial crisis may be worse than we previously deemed. We also see risks for other public names in which Deripaska controls significant minority stakes – Strabag, Hochtief and GM, of which we know that Strabag was financed with a bank loan.”

Oligarchs with limited equity exposure are looking to pounce on distressed assets in Russia and the Commonwealth of Independent States. Rinat Akhmetov, the wealthiest man in Europe and Russia with an estimated fortune of $31.1bn, is putting together a war chest to fund an acquisition programme of coal assets worth between $50m and $500m in Russia, Ukraine and other parts of eastern Europe.

Yuriy Ryzhenkov, chief financial officer of Akhmetov’s main Ukraine-based energy holding company DTEK told Financial News: “We are now looking outside Ukraine, having focussed ourselves domestically until recently.

Now, we are looking at the resource base in Russia, especially regions close to Ukraine due to logistical reasons. We are also looking outside Ukraine westwards for new customers and new generations in Romania, Hungary and Poland. The assets there can have a synergy with existing assets in Ukraine.”

Ryzhenkov said DTEK would like to buy assets cheaply and then turn them round. He said: “We have some core abilities to turn distressed assets round and it is our experience in Ukraine and especially in coalmining to work on geologically difficult assets.”

Stephen Jennings, chief executive of Renaissance Capital, is forecasting an M&A boom for his brokerage as Russian and CIS businessmen are forced to sell to those with liquidity.

He said: “Consolidation in finance, for instance among banks, brokers and asset managers, will be extraordinary.”

Jennings last month sold half his business to oligarch Mikhail Prokhorov’s Onexim investment fund for $500m, even though Renaissance had been valued by bankers at $3bn to $4bn a year ago when VTB Bank made its approach.

The Wall Street Journal revealed that Dutch bank Fortis had appealed directly to billionaire Suleiman Kerimov’s Millennium Fund during the summer for a €400m ($546m) cash injection in the context of a share issue.

Swiss-based Millennium Fund already owns about 2% of Fortis shares along with stakes in US investment bank Morgan Stanley, Swiss bank Credit Suisse and Deutsche Bank of Germany, according to the Wall Street Journal.

Analysts are predicting Kerimov might return his attention to Russia having sold down his stakes in blue chips before the downturn. Oligarchs exposed to Russia’s property and construction sectors are already offloading assets and freezing developments as the country’s real estate bubble shows signs of bursting.

Ratings agency Fitch said reports that Sistema-Hals is likely to sell almost a quarter of its projects to raise up to $500m of cash and that developer Mirax is likely to undertake something similar highlight a deterioration in the funding environment for developers.

Sistema-Hals is the listed property arm of conglomerate Sistema, headed by oligarch Vladimir Evtushenkov, while Mirax is owned by billionaire Sergei Polonsky.

Mirax, Sistema-Hals and Inteko headed by Russia’s wealthiest woman Yelena Baturina have already announced project freezes over the next year, according to reports in the Russian press.

Liquidity problems have extended to Russia’s consumer sector.

Yevgeny Chichvarkin, chairman of Russia’ largest mobile phone retailer Euroset, said he had sold his company for “a few kopeks” to billionaire Alexander Mamut after being unable to find a bank to refinance its debt.

Mamut’s investment company ANN may have used some of those proceeds from his sale of a 38% stake in insurer Ingosstrakh to Czech investment firm PPF for €600m to acquire 100% of Euroset for $400m.

State banks such as VTB are also planning to capitalise on assets trading at distressed levels then resell them later for a profit. VTB chief executive Andrei Kostin told a Reuters summit in September that the bank is accumulating a “cash fist” to potentially buy stakes in businesses.

Russian banking, consumer and real estate sectors were mentioned, as well as banking assets abroad. Some oligarchs and billionaires had the prescience or good fortune to offload large stakes in Russian blue chips before the market slide, which has wiped 60% of the value of the domestic equity markets since late July. Tycoons were encourage to buy into “People’s IPOs” by the Kremlin in the past couple of years, including Rosneft, Sberbank and VTB.

One Moscow trader said: “Some oligarchs sold out after a year of these major listings. They locked in some profit and got out but others have been hurt.”

Baturina almost halved her stake in state savings bank Sberbank from 0.68% to 0.38% after the shares lost half their value during the second quarter this year.

Baturina, who has an estimated fortune of $4bn, initially bought into Sberbank last year following the bank’s IPO.

Her equity fund Kontinental’s proceeds from securities sold in the second quarter came to 5.4bn roubles (€151m), according to the fund’s financial statement.

Kerimov, who owns Nafta Moskva oil refinery, is reported in the Russian press to have sold down his 6% stake in Sberbank and 4.5% stake in energy group Gazprom.

Kerimov has also sold stakes in silver producer Polymetal for around $2bn, in a construction project for $3.5bn and in NTK cable TV operator for another $1.5bn.

Filaret Galchev, owner of Russia’s largest cement producer Eurocement, has cut his stake in Sberbank to 1.85% from 3%. Galchev has since acquired a 6% stake in Swiss cement group Holcim.

Recruiters are reporting a growing trend by oligarchs to hire seasoned fund managers and bankers from investment firms and banks as they increased their private equity-style investment funds.

Millhouse, the investment vehicle of Russian oligarch Roman Abramovich, hired the general director of MDM Bank’s MDM Asset Management in July to run its portfolio of investments while Prokorov’s main strategist and head of Onexim is Dmitry Razumov, a former banker at Renaissance Capital.

EU monitors in Georgia confirm Russian withdrawal

2008-10-12T10:49:00.000-07:00

The Irish Times

JASON CORCORAN in Moscow

Saturday, October 11, 2008

EU MONITORS in Georgia have confirmed that Russian forces have dismantled 17 checkpoints, one signals post and one military base in zones adjacent to breakaway regions Abkhazia and South Ossetia.

But, while EU foreign policy chief Javier Solana said yesterday Russian troops have completed their withdrawal from the areas in line with yesterday's deadline,French foreign minister Bernard Kouchner complained that Russia still occupies three disputed pockets of land - Akhalgori and Perevi in South Ossetia, and the Kodori Gorge in Abkhazia - areas that were under Georgian control before hostilities broke out.

Col Dorcha Lee, a former army officer and veteran of UN peacekeeping missions in Lebanon, the Middle East and Serbia who heads the Irish group in the 200-strong European Union Monitoring Mission (EUMM) admits that their work is difficult and breaking new ground. "This is a new experience for the EU and we are hyper-sensitive to its needs and to succeed here. We hope to use this as a future model for conflicts if it works. It's a question of confidence-building so refugees can feel safe returning home and our presence is vital in that respect."

The other members of the Irish group are Peter McMahon, a former Air Corp lieutenant colonel, Peter Emerson, a Russian speaker and lecturer in consensus politics, and Eithne MacDermott, a East European studies specialist.

The Irish peacekeepers have travelled on patrol in armoured vehicles up the eastern side of the South Ossetian buffer zone from their field office at Bazaleti.

The EUMM is scheduled to last a year and the Irish representatives are on a four-month stint.

EU monitors began witnessing Russian troops bulldozing checkpoints and withdrawing since earlier this week.

The Irish group were visited by the Irish Ambassador to Georgia, Geoffrey Keating, who also saw the main refugee camp in Gori where 3,000 displaced citizens are waiting to return home. He witnessed the delivery of food donations organised by Irish expat Dr Mike McCarthy and local Irish businessmen.

Mr Keating, also Ambassador to Bulgaria, is based in Sofia. Overall, the Irish people and Government have contributed €250,000 in humanitarian assistance following the recent conflict. "People are now very anxious to get back to their homes and villages and start rebuilding their lives, but they are fearful of militias in both regions," said Dr McCarthy who runs an international medical service from the Georgian capital Tbilisi.

Moscow needs more reforms

2008-10-06T08:49:00.000-07:00

The Guardian

Jason Corcoran - Friday October 3, 2008

Comment is Free
Russia may have plentiful foreign currency reserves, but it is one of the biggest losers from the credit crunch

All comments (33)

Invstor panic following Russia's default on its sovereign debt in 1998 led to a stampede by foreign investors to Moscow's Sheremetyevo airport and ultimately delayed the country's integration into the global economy.

Wind the clocks forward a decade and Russia is again in the grips of a deepening financial crisis precipitated by the US banking collapse.

Ten years ago, millions of Russians had their savings wiped out and many of the leading banks disappeared. The government fell on its sword, accepted culpability and went cap in hand to the International Monetary Fund and World Bank.

Today, there are no queues around the block to empty deposit accounts and life is carrying on per usual, apart from grumbles about rising inflation hitting the cost of bread and other staples.

The government is in a different position too as it squats upon $574bn (£325bn) of foreign currency reserves and $175bn in two oil stabilization funds.

Yet Russia has been one of the biggest losers in global markets this summer with stock indices tumbling by over 50% and capital flight leading to an exodus of $57bn since August 8. A rapidly deteriorating financing environment is now showing signs of pricking Moscow's hot property bubble.

This frustration led prime minister Putin on Wednesday to blame US "irresponsibility" for failing to deal with the financial crisis affecting the global economy.

Putin is partly right pinning the blame on the US but can't attribute all of his country's economic woes to the captains of Wall Street. Russian markets have been pistol-whipped by the international credit crisis but also domestically by its five-day war in Georgia, Russo-centric
corpoate flare-ups and Putin's own allegations of price-fixing at miner Mechel.

Putin's outburst at a cabinet meeting reflects the frustration of Russian businessmen who see a disconnect between the financial markets and the fundamentals.

Russia has a growth rate of 7.6%, a huge current account surplus, a budget surplus from high commodity prices and a booming consumer sector.

Yet domestic stock markets have spiralled downwards and lurched wildly out of synch with global trends. The regulator has had to step in three times during the past fortnight to suspend trading on both Moscow's exchanges.

Putin has responded to the crisis by pledging $150bn of funds to shore up confidence in the banks while the central bank said it would provide loans without collateral.

The credit squeeze has already led Russia's largest broker Renaissance Capital to sell 50% of its shares to billionaire oligarch Mikhail Prokhorov while KIT Finance has ended up in the clutches of Leader, energy giant Gazprom's pension fund manager.

More emergency sales and collapses are likely but a systemic failure of 1998 proportions is out of the question.

While the credibility of transforming Moscow into a financial hub to rival London, New York or Frankfurt has been dented by recent trials and tribulations, it could provide the wake-up call for wholesale reform of institutions and pensions needed to match that ambition.

http://www.guardian.co.uk/commentisfree/2008/oct/03/russia.creditcrunch?showallcomments=true

Selected comments

MartynInEurope
Oct 03 08, 3:12pm
Things are naturally in a state of flux, but significant changes were always gong to be necessary, and I think the likes of Medvedev and Putin probably acknowledge that fact.

Clip | Link andrewwiseman
Oct 03 08, 3:41pm
"One of the biggest losers from the credit crunch"

"Russia has a growth rate of 7.6%, a huge current account surplus, a budget surplus from high commodity prices and a booming consumer sector."

We should have their problems.

Still, their tanks are probably made of cardboard, right?

Infusoria
Oct 03 08, 5:04pm
Some Russia's problems probably come from trying to copy verbatim rotten western financial institutions and procedures, like stock exchanges and banking. The less Russians participate in stupid Western gambling games and schemes the better it is for Russia, I think. But Russian state development programs look pretty solid at the moment. If things going according to their plans, by 2020 Russia is going to catch up with or overtake EU/US in most areas and improve its infrastructures dramatically. At the same time the West might be getting sucked into a black hole of its own creation (with or without the collider) ;-)

BeatonTheDonis
Oct 03 08, 5:21pm
"While the credibility of transforming Moscow into a financial hub to rival London, New York or Frankfurt has been dented by recent trials and tribulations, it could provide the wake-up call for wholesale reform of institutions and pensions needed to match that ambition."

Yeah, maybe they should go for wholesale deregulation and the mass securitisation of dodgy loans like we did.

It's worked a real treat and has only cost the American tax payer $1trillion, with another $1trillion on the way, and the UK taxpayer £350bn, so far.

Recommend? (10)
Report abuse
Clip | Link UralMan
Oct 03 08, 5:41pm
I would not pay attention to the stock market in the short term. On a larger scale, the Russian market does not look terribly bad, compared, say, to the US. As of now, the Dow Jones trades at 10700. The first time it crossed this level was in April 1999, nearly 10 years ago. The Russian main stock index (RTS$) finished today at 1070, the fist time it reached this level on its way up was in December 2005. Sure, it fell more from its top recently and is more volatile than Dow Jones, but that what you would expect from an emerging market, wouldn't you? Especially for such an overheat economy as Russian one. By the way, about the stock market fall: the RTS$ fell by 57% from its top. Incidentally, the Chinese main stock market fell by nearly 70% from its top. Inconveniently for the author, China has not been involved in any war that can be blamed on :-)

There is very good technical reason for the market collapse in Russia. Practically all the entities in Russia have been borrowing money from banks on a short term notice by pledging shares as collateral. They did not bother thinking of saving money for repaying these loans as, having used to the idea that shares can only go up, meant to sell their collateral at higher prices to repay the loans. Once the market went downturn and banks started to call the borrowers (since the value of collateral in their coffers dropped), the latter started scratching around for cash at any cost, selling any shares they had, further accelerating the fall. The market caught itself in a vicious circle. Everybody knows that the share "A" is intrinsically worth at least $100, but the holder is dumping it at $10 not because he thinks that the company is bad, but because he must repay money to the credit right now. In short, the free market is at work. The initial trigger for this is the loss of confidence in the banking sector and is, indeed, originated from the US. I bet, people in Britain witnessing nationalisation of their banks have similar view. So, do not blame Putin for that.

When it will stop? Who knows. If I knew such things, I would long be the owner of Guardian (I like this paper) rather then its reader. But, what I do know, is that once the technicality sorts itself out and the panic is over, the Russian market will quickly rebound, as many companies remain fundamentally very strong and have net assets well in excess of the value suggested by the shares. And when it happens, I would be extremely interested to read what Jason Corcoran's explanation for that would be :-)

Russian billionaires hit by property slump

2008-10-06T08:44:00.000-07:00

Wealth Bulletin

3 October 2008 - Jason Corcoran in Moscow

Russian billionaire owners of real estate developers are likely to be among the worst-hit as a deteriorating financing environment pricks a bubble in Moscow's hot property market.

Ratings agency Fitch said Russian developers were dangerously exposed to the crisis because of a large share of short-term debt in their liquidity profiles, significant operational cash outflows as well as limited cash-on-balance sheet

Fitch said reports that Sistema-Hals is likely to sell almost a quarter of its projects to raise up to $500m of cash and that Mirax is likely to undertake something similar highlight a real deterioration in the funding environment for Russian developers.

Sistema Hals is the listed property arm of the conglomerate Sistema, headed by oligarch Vladimir Evtushenkov, while Mirax is owned by billionaire Sergei Polonsky.

Mirax, Sistema Hals and Inteko headed by Russia's richest woman Yelena Baturina has already announced freezes on new and ongoing projects over the next year, according to reports in the Russian press.

Sistema-Hals is planning to sell nearly one-quarter of its development assets to shore up accounts and repay debts, which currently total $1.2bn, or 34% of the value, according to Kommersant.

Julian Crush, senior director at Fitch said: "At a time when the Russian government has had to intervene to support domestic financial institutions and with increasing question marks over the ability and appetite of all but the largest Russian domestic banks to maintain current funding levels to the real estate sector, liquidity risks associated with Russian property developers have never been higher."

Open Investment, Russia's second largest listed developer, has fallen by 52% this year while LSR Group, the Russian developer and building-materials maker controlled by billionaire Andrei Molchanov, has dropped by 64%.

Much focus has been on PIK where Kirill Pisarev and Yuri Zhukov, the main executives at listed property developer PIK have registered paper losses of over $2.2bn each, according to US publication Forbes. PIK's share price has fallen by 78% since its IPO in June 2007.

In its latest results announcement on Tuesday, PIK said it is due to repay $900m over the next six months and it will use $400m of its own cash and $200m from banks but still needs to find $300m.

However, analyst Barry Schumaker at UralSib, sounded a note of optimism for PIK's outlook.

In a note, Schumaker said: "PIK's four-month 90% share price collapse is undeserved and is related to the company's short-term liquidity issue and expectations of a weakening residential market. We reiterate our Buy recommendation and target price of $33/share."

Russia's richest man Oleg Deripaska, with Forbes estimated fortune of $16bn, has much of his money tied up in property and construction interests, such as the emerging business district of Moscow City, along with stakes in Austrian builder Strabag and Canadian auto-parts maker Magna, which he is selling to creditors.

A report in the Daily Telegraph on Wednesday said the oligarch had sacked all his domestic staff in his vast Moscow estate last week and replaced them with cheap labour from a provincial town.

The same report cited Alexander Lebedev – one of Russia’s richest men – who admitted to having lost two thirds of his £1.7bn fortune since the market crisis commenced.

Renaissance man says deal crucial for new investment banking era

2008-09-25T11:16:00.000-07:00

Business New Europe

Jason Corcoran in Moscow

September 25, 2008

The experience of enduring Russia's last financial crisis in 1998 was burned into the psyche of Stephen Jennings when he opted on September 22 to sell half of his investment bank Renaissance Capital to billionaire oligarch Mikhail Prokhorov.

Forsaking the bank's treasured independence was a tough call for its chief executive, but better than facing the prospect of teetering towards extinction as it did in 1998 when the Russian government's default reduced Renaissance to a shell and forced Jennings to slash the headcount to 190 staff, from 650.

"We have a large shareholder base, a great team in place and 1,500 employees in the bank. We could have run the gauntlet and I think we would have made it, but we didn't know what was going to happen when we were looking at an environment where Goldman Sachs and Morgan Stanley couldn't make it as investment banks. I wasn't prepared to take the chance," Jennings told bne in an interview.

Renaissance's deal to sell a 50% stake for $500m to Prokhorov's investment vehicle Onexim comes as the capital markets landscape is being redrawn globally. Jennings watched the collapse of Lehman Brothers, the sale of Merrill Lynch and Dresdner Kleinwort, and the conversion of Goldman Sachs and Morgan Stanley into commercial banking entities, and knew he had to act fast. "If we had of gone into a reorganisation, you would have lost a huge amount of intrinsic value and you would have lost a huge amount of your team," he explained. "There would have been huge reputational issues and credibility damage too."

Lehman, Merrill, Dresdner, Goldman Sachs and Morgan Stanley all have substantial operations in Moscow and are competitors of Renaissance in equity capital markets and M&A advisory mandates. Jennings and his team have been raiding the bulge bracket banks for talent for two years and are expected to cherry pick their best staff now financing and credit lines have been secured from Prokhorov. "People here at Rencap are very excited," said Jennings. "The banking model we have designed is for a new world. We now have the biggest balance sheet of any investment bank in the world backed by an incredibly strong and powerful shareholder."

Few doubt that the domestic markets' spiral downward also played its part in the sale. The domestic brokerage sector has been reeling from the steepest declines in the markets seen since the 1998 crisis and led to the closure of Russia's main markets for two days last week. However, Jennings insists Renaissance didn't incur any losses due to other banks and brokerages failing to make their payments. He said the bank's exposure to Lehman was less than $2m, while its exposure to KIT Finance was zero. Mid-tier KIT is being sold to Leader Asset Management, energy giant Gazprom's pension fund manager, while another local outfit Antanta Capital said it's selling its investment arm and brokerage units.

More ominously, Renaissance's main Russian competitor, Troika Dialog, has been the subject of fevered speculation and issued a statement on September 25 denying it would be taken over by the country's giant savings bank Sberbank. Troika is run by Ruben Vardanian, who is believed to be on a business trip to China and Singapore, where the bank has close ties with Temasek, the sovereign wealth fund. "Sberbank was then and we moved on now to somewhere else," a source close to Troika told bne.

According to Jennings, suitors who ran the slide rule over Renaissance numbered 25. This number included oligarchs, western banks and state-controlled institutions, some of which have been eying Renaissance for sometime. The UK bank HSBC was said to have been close to taking a 10% stake a year ago for $300m, while state-controlled VTB, which has just recently launched its own investment banking division, is widely reported to have valued Renaissance at $3bn-$4bn.

However, Jennings, who worked for Credit Suisse First Boston in the 1980s advising the New Zealand and Australian governments on privatization and state enterprise restructuring, is sceptical of the state banks' ability to compete in investment banking. As well as VTB, Sberbank and Gazprombank are also reported to be plotting their own launches of investment banks. "State investment banks have never worked been successful in the past and I don't see a Russian one working," Jennings said. "Their culture and sentiment is not suited."

Jennings is full of admiration for Prokhorov's business aptitude and pointed out how he was the sole advisor on the sale of his own 25% stake in Norilsk Nickel to fellow oligarch Oleg Deripaska. "He [Prokhorov] is very bright and he's a very good partner for us. In today's market, you need a powerful Russian shareholder. We had two options to sell out to a state bank or to an oligarch. The state bank route would have been a complete mismatch for us and neither would the market have liked us," Jennings said.

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Russian oligarchs suffer $42bn losses

2008-09-25T11:14:00.000-07:00

Wealth Bulletin

25 September 2008 - Jason Corcoran in Moscow

Russian oligarchs are nursing paper losses of $42bn (€28.6bn) from the dramatic sell-off in the Russian stock markets over the past two months.

US publication Forbes calculated the net worth of Russia's richest businessmen last week and compared it to the end of July when widespread market falls were triggered by Prime Minister Putin's accusations of price fixing at miner Mechel.

The Russian stock markets have since fallen 50% as the international banking crisis, falling commodity prices and the war with Georgia has taken its toll.

The greatest losses were suffered by Vladimir Lisin, the steel magnate owner Novolipetsk Steel, who saw his portfolio holdings drop by $11.2bn since the end of July.

The next biggest loser has been chairman of mineral fertiliser company Uralkali Dmitry Rybolovlev who has stacked up market losses of $7.3bn.

Vagit Alekperov, president and one of the biggest shareholders in oil major Lukoil, has seen $5.13bn come off his total net worth of $14.3bn.

Alexei Mordashov, chairman of steel giant Severstal, has shed $4.49bn from his net worth of $24.5bn over the past two months while Arsenal football club shareholder Alisher Usmanov has lost just $1.25bn of his $9.5bn net worth.

Kirill Pisarev and Yuri Zhukov, executives at listed property developer PIK have each lost over $2.2bn, according to Forbes.

Rencap sells 50% stake to billionaire Prokhorov

2008-09-22T08:19:00.000-07:00

Financial News Online

Jason Corcoran in Moscow

22 September 2008

Russian investment bank Renaissance Capital has given up its much vaunted independence after selling a 50% stake to billionaire client Mikhail Prokhorov for $500m (€342m) amid the worst market falls in Moscow since the 1998 financial crisis.

Renaissance and the Onexim investment vehicle owned by Prokhorov, who made his money from metals and banking, will buy new equity amounting to 50% of the brokerage for $500m, with the old shareholders retaining a one-share voting majority.

The deal follows a week when market turmoil drove domestic indices down by 25% in just three days and forced another brokerage KIT Finance to agree to sell a controlling stake Leader Asset Management, the pension fund manager of energy giant Gazprom.

A Moscow spokesman for Renaissance said the deal had been in the pipeline for months but had been accelerated due to recent market conditions. "Events in the market moved the negotiations along."

A hastily arranged press conference featuring Prokhorov and Renaissance founder Stephen Jennings was organised at the Ritz hotel in Central Moscow.

Prokhorov said at the press conference: "We've been negotiating for several months. The problems of the global economy sped up the talks... Together with our partners we are ready for major expansion," including in Western markets.

Renaissance said it had not suffered any writedowns or losses due to the markets.

One Russian financier expressed surprise that Renaissance had sold so cheaply. "The market has hit everyone but I thought Rencap would fetch more. Bankers were putting the value of the investment bank at $3-4bn a year ago," the financier said.

Jennings, who set up Rencap in 1995 with a Credit Suisse colleague Boris Jordan, had previously rebuffed interest in the business from western banks and state-controlled VTB Bank.

In an interview with Financial News a year ago, he said selling out, as rival brokerages Brunswick and UFG have, would ruin Rencap's reputation for providing clients with impartial and independent services.

He said: "It would be very damaging and what you sold would be slightly damaged by the time you sold it. By virtue of the sale process, you would lose something. We have seen that has happened in the market here."

In a statement today, Jennings said: "The partnership with Onexim creates a financial powerhouse with the resources, skills and ambition to be the clear leader in all its markets. At a time when many of our competitors are weakened, our unique franchise, solid capital platform and highly motivated staff will enable the firm to aggressively pursue growth opportunities."

Renaissance Group's other asset management, private equity and consumer finance arms are not part of the sale.

Onexim is one of Russia's largest private investment funds, with a focus on mining industry, innovative projects in energy and nanotechnology, real estate and other industries. It has more than $25bn in assets.

Prokhorov was joint owner of mining giant Norilsk Nickel alongside Vladimir Potanin until a very public business divorce led him to sold most of this stake to tycoon Oleg Deripasksa earlier this year.

Renaissance advised Onexim last year on the exchange of its 25% stake in Norlisk Nickel with Deripaska.

A Rencap source said the bank's independence would not be damaged by selling to Prokhorov's group. "Onexim is not Gazprom or the Kremlin. It's an independent investment vehicle."

Onexim will contribute to the strategic direction of the investment bank and will be able to nominate three of the seven board members of Renaissance Capital.

Renaissance Capital was created in 1995 by New Zealander Jennings and American Boris Jordan, who left top positions at the Russian division of Credit Suisse First Boston to establish their own business. Jennings is believed to own an 80% stake in the business.

Following Russian default on its sovereign debt and the economic crisis in 1998, Jennings bought out three other shareholders, Leonid Rozhetskin, Richard Ditz, and Anton Kudryashov, and took sole charge when Jordan left.

In the past two years, Jennings had led the bank's rapid expansion to set up in new frontier markets in Sub-Saharan Africa and Central Asia.

www.efinancialnews.com

Gazprom steps in to save KIT Finance

2008-09-18T10:55:00.000-07:00

Financial News Online

Jason Corcoran in Moscow

18 September 2008

Energy giant Gazprom's pension fund manager Leader is close to buying up troubled Russian brokerage KIT Finance as the government drew up a "red list" of 15 banks requiring urgent capital injections.

In a statement late on Wednesday night, KIT said it was in the final stages of selling a controlling stake to Leader Asset Management with credit support from state-controlled banks Gazprombank and VTB.

The rescue of KIT comes as Moscow's stock markets were suspended for the second day in a row and as the state pledged $60bn (€41.9bn) to save banks as a spreading liquidity crisis threatened to push the sector into insolvency.

Minister for Finance Alexei Kudrin told Russian media several banks were have difficulties with meeting their obligations and were now holding talks with strategic investors.

KIT, a second tier investment bank, was forced to look for a buyer or investors after defaulting on its debt as analysts suggested a number of small to medium-sized bank are facing similar difficulties refinancing on the repo market.

A statement from KIT said: "These timely measures to support the Russian financial system were taken by the Government and the Central Bank of the Russian Federation in order to provide stability to KIT Finance s operations as an important participant in the market."

Following an emergency Government meeting yesterday, the Finance Ministry promised 1.5 trillion roubles ($60bn) would be made available to bail out local banks.

According to a report in today's Kommersant, the Russian Central Bank has drawn up "red list" of the 15 banks that are experiencing the most serious problems with obligations to counter parties and are in need of urgent financial assistance.

The Central Bank responded to the crisis by cutting its reserve requirements by 400 basis points, which is expected to inject 300bn roubles ($12bn) into the banking system as of today. Deputy chairman Konstantin Korishenko put the total amount that the bank could make available through repo auctions and the auctions of unspent government funds at $118bn.

Analysts said KIT's problems were contagious and the state would have to intervene quickly to restore liquidity and confidence in the market.

David Nangle, director of financial research at Renaissance Capital, said: "There are other banks and boutiques with exposure to repos whereby their clients are not repaying back their debt in time. There is a risk that there are more KITs in the system unless this can be contained."

Under repo agreements, KIT advances credit to clients with stock being offered collateral. A number of clients failed to meet their liabilities which resulted in KIT not meeting their own liabilities with some of their counteragents.

Discussions over KIT's future came as Russia RTS and MICEX stock exchanges both halted trading at about 12:10 yesterday as the Ministry of Finance rushed to provide loans to the country's banking system.

Trading was stopped on the dollar-denominated RTS on the orders of a government agency after sliding 6.39% in the first two hours. The index has shorn 57% since May, while the Micex was also halted after falling 3%.

Financial stocks were worst hit with VTB spiralling down by 28% while most blue chips, such as Rosneft, Novatek, Gazprom, AFI, Surgutneftegaz, fell by about 20%.

Traders said rumours of banking bankruptcies were rife and they were trying to reassure international investors.

One Moscow trader: "Investors are ringing us and we are trying to keep them calm. All we can do now is focus on the GDR prices of Russian stocks in New York and London until the local markets get running again."

Ivan Ivanchenko, head of investment strategic at VTB, dismissed reports in the Russian press that the state-controlled back was stepping in to acquire KIT.

He said: "We are holding a lot of cash on our balance sheet and we feel comfortable in this position. That's not to say we are buying KIT but we don't exclude an acquisition at a later stage.

Ivanchenko said confidence in the market had evaporated yesterday and small brokers had unwound all their positions.

Analysts agreed that the leading state banks and top-tier investment banks such as Troika Dialog and Renaissance were well capitalised and would not be affected.

With KIT Finance in trouble, and liquidity drying up, Finance Minister Kudrin is depending on VTB and its fellow state banks Sberbank Gazprombank to shore up the system.

Kudrin says Russia's three biggest banks, of which Sberbank and VTB are state-controlled, should be able to support the country's medium and smaller banks by virtue of their broader access to budget funds.

In a statement to state press agency Intefax, Kudrin said: "Essentially we're counting on them as core banks to be able to lend to small and medium banks."

To strengthen the three largest banks, the Finance Ministry said it was allowing them to hold federal budget funds on deposit for terms of three months and more.

A government press release described the banks as "linchpins able to provide liquidity in the banking system," said budget funds available to the banks has been increased to 754.2bn rubles (€20bn) for Sberbank, 268.5bn rubles for VTB and 103.9bn rubles for Gazprombank, totalling 1.1266 trillion rubles.

KIT has grown rapidly in the past 18 months due to success of its mergers and acquisitions team in the utility sector.

The bank, which has its origins in St Petersburg, was previously a top fiver mortgage lender and also has a joint asset management venture with Beneleux bank Fortis. It was planning an IPO at the end of this year, or the start of next year.

www.efinancialnews.com

Analysts fear contagion as first Russian broker fails

2008-09-17T06:34:00.001-07:00

Financial News Online

Jason Corcorcan in Moscow

17 September 2008

Russian brokerage KIT is holding talks with strategic investors after defaulting on its debt as analysts suggested a number of small to medium-sized bank are facing similar difficulties refinancing on the repo market.

KIT, a second tier investment bank, was forced to look for a buyer after it defaulted on a repo deal. Investment banking sources said a buyer had been found and announcement would be made by close of play today.

A KIT spokeswoman declined to comment and said a statement would be made at 5pm Moscow time.

Analysts said KIT's problems were contagious and the state would have to intervene quickly to restore liquidity and confidence in the market.

David Nangle, director of financial research at Renaissance Capita, said: "There are other banks and boutiques with exposure to repos whereby their clients are not repaying back their debt in time. There is a risk that there are more KITs in the system unless this can be contained."

Under repo agreements, KIT advances credit to clients with stock being offered collateral. A number of clients failed to meet their liabilities which resulted in KIT not meeting its own liabilities with some of its counteragents.

Discussions over KIT's future came as Russia RTS and MICEX stock exchanges both halted trading at about 12.10 in Russia as the Ministry of Finance rushed to provide loans to the country's banking system. It was the second time in two days the exchanges had halted trading.

Trading was stopped on the dollar-denominated RTS on the orders of a government agency after sliding 6.39% in the first two hours. The index has shorn 57% since May, while the Micex was also halted after falling 3%.

The financial sector was the worst hit, led by state-run savings bank Sberbank which plummeted 17%.

Moscow traders said rumours of banking bankruptacies were rife and they were trying to reassure international investors by telephone.

One trader: "Investors are ringing us and we are trying to keep them calm. All we can do now is focus on where GDR prices in New York and London are going."

Ivan Ivanchenko, head of investment strategic at VTB, dismissed reports in the Russian press that the state-controlled back was stepping in to acquire KIT.

He said: "We are holding a lot of cash on our balance sheet and we feel comfortable in this position. That's not to say we are buying KIT but we don't exclude an acquisition at a later stage.

Ivanchenko said confidence in the market had evaporated yesterday and small brokers had unwound all their positions.

Analysts agreed that the leading state banks and top-tier investment banks like Troika Dialog and Renaissance were well capitalised and would not be affected.

With KIT Finance in trouble, and liquidity drying up, Finance Minister Kudrin is depending on VTB and its fellow state banks Sberbank Gazprombank to shore up the system.

Kudrin says Russia's three biggest banks, of which Sberbank and VTB are state-controlled, should be able to support the country's medium and smaller banks by virtue of their broader access to budget funds.

In a statement to state press agency Intefax, Kudrin said: "Essentially we're counting on them as core banks to be able to lend to small and medium banks."

To strengthen the three largest banks, the Finance Ministry said today it was allowing them to hold federal budget funds on deposit for terms of three months and more.

A government press release today described the banks "linchpins able to provide liquidity in the banking system." Budget funds available to the banks has been increased to 754.2bn rubles (€20bn) for Sberbank, 268.5bn rubles for VTB and 103.9bn rubles for Gazprombank, totaling 1.1266 trillion rubles.

KIT has grown rapidly in the past 18 months due to success of its mergers and acquisitions team in the utility sector.

The bank, which has its origins in St Petersburg, was previously a top five mortgage lender and also has a joint asset management venture with Beneleux bank Fortis. It was planning an initial public offering at the end of this year, or start of next year.

www.efinancialnews.com

Russia’s hopes of creating a global financial hub come back earth

2008-09-17T06:34:00.000-07:00

Financial News at Sibos

September 16, 2008

A series of setbacks has raised questions over whether Moscow could rival other centres and whether the rouble could become a reserve currency, writes Jason Corcoran

The credibility of Moscow's ambition of becoming a global financial centre within five years has been called into question following a summer of systemic shocks to investor confidence and the arrested development of its market institutions.

Highly liquid domestic markets, strong economic growth and a position at the heart of a booming region have contributed to the rapid growth of Russia's capital markets over the past decade.

The dual government of President Dmitry Medvedev and Prime Minister Vladimir Putin have a blueprint in place for building Moscow's position as a financial hub. Some institutions, especially the Federal Anti-Monopoly (FAS) commission, have grown in stature due to its recent high profile investigations into price fixing. The
administration is now adding to the institutional pillars brick by brick but some of the foundations appear shaky.

Russia's five-day war with Georgia over Southern Ossetia, along with a selling spree sparked by allegations of price fixing at miner Mechel, left domestic stock markets nursing 35% losses and two year lows at the end of August.

Analysts at French bank BNP Paribas estimated the conflict with Georgia could have triggered capital flight worth $25bn of outflows, while Russia's gold and foreign currency reserves fell by $16.4bn since the beginning of military operations on August 7.

Alexander Kotchoubey, head of international development for Russia and Eastern Europe at Swiss private bank Lombard Odier Darier Hentsch, believes Moscow's goal of becoming a financial centre had been pushed back to 2015-2020.

"The credibility of making Moscow a financial hub and transforming the rouble into a reserve currency has been hit," explained Kotchoubey, who was until recently a managing director at Moscow-based Renaissance Investment Management, an emerging markets fund manager with $7bn under management. "Investor confidence and the perception of stability in Russia depends on what people are thinking in London and
Frankfurt and neither one is present at the moment."

Foreign investors have highlighted the lack of corporate governance, the respect for the rule of law, uneven property rights and an abused taxation regime, as obstacles towards the development of domestic markets. Recent cases cited by investors include the price fixing probe of miner Mechel, allegations of tax evasion by fund manager
Hermitage Capital and the separate shareholder wrangles at the
Anglo-Russian TNK-BP and mobile group Telenor.

Yet Alexei Fedotov, head of securities and fund services at Citigroup's global transaction arm in Russia, believes the market reform process kick-started in 2005 is irreversible.

He said: "Russia is a unique BRIC market created as a result of mass privatisation of huge number of companies within extremely short period of time. Since 2005 the speculative growth of the market has been gradually replaced by growth caused by serious changes implemented by the government."

"Changes included liberalisation of banking stocks, Gazprom shares, liberalisation of Russian currency and huge unprecedented IPO growth. As a result the growth has attracted to the market investors and market players of a higher calibre."

Market makers have mixed views about the prospects of the rouble becoming a reserve currency, which is one of the central planks of President's Medvedev's plans to develop Moscow into a global financial centre.

One senior Western banker in Moscow said: "People have been slow to adapt to the Euro currency as a reserve. It's a good goal to have the rouble as a reserve currency but there needs to be much more done to achieve it."

Maxim Baklunov, head of equity sales at Russian investment bank KIT, fees the rouble could be a credible alternative to the dollar.

He said: "The plans of the Russian government to turn Moscow into an international financial centre and the rouble into a major regional reserve currency will make the Russian financial system more competitive. Taking into account the government policy seeking to increase the significance of the Russian currency and to reduce the
risks associated with fluctuations of the US dollar's exchange rate, we think that rouble has a good chance of becoming a major regional reserve currency."

A deepening liquidity, with volumes on domestic bourses recorded of up to $7bn a day, has lured leading US and UK investment banks to set up local brokerage subsidiaries over the past three years.

Citigroup has been a pioneer in Russian wholesale and retail banking and Fedotov argues the Russian growth story remain intact in spite of the recent volatility.

He added: "The volatility is not able to change improvements in the market and did not create reasons for a serious capital outflow or did it make the market fundamentally unattractive or risky. In view of that, there is a certain optimism that the market will continue to develop in coming years and foreign investment will grow.

"This, however, does not stop us from focusing on market improvements and working closely with local market participants and regulators to introduce such important changes as a central depository, foreign nominee concept, RUB RTGS settlement, which in our view will be able to further support market growth and make it irrevocable."

Citigroup is one of the few foreign brokers to be involved in the reform process with other bulge bracket rivals complaining of being left out in the cold.

The Russian government's plans to create an international financial centre in Moscow are based on a competitive taxation system, simplified registration and more permissive procedures for issuers and investors.

The Federal Financial Markets Service (FFMS), the main Russian market regulator, submitted a draft strategy to the government in March for the development of domestic capital over the next four years.

The report, entitled "Measures to Improve the Regulation and Development of the Securities Market in 2008-2012 and a Long-Term Horizon," is a blueprint for the development of the domestic capital market and outlines measures to revamp laws tax law, improve corporate governance, lower administrative barriers and simplify procedures, prevent manipulative practises and the use of insider information.

The domestic capital market plays a vital role in the government's plans for Russia's continuing economic revival. The new administration intends to tap domestic capital for the investment needed to revive Soviet-era industrial assets rather than rely on foreign capital.

Among some of the provisions proposed in the report are radical changes to the tax rules. Under discussion is the possibility of cutting the capital gains tax and a reduction in the tax on income from securities to zero.

One aim of these proposed changes is to make Russia a more attractive place to list shares than the offshore havens companies currently use. The FFMS is worried about losing capital market functions to foreign exchanges and has already introduced administrative controls to encourage companies to list onshore.

Its success has been only partial, as Russian companies that float IPOs now almost always list simultaneously in Russia and abroad.

Additional measures introduced by the FFMS in July restrict companies engaged in oil exploration or mining from selling no more than 5% of their shares abroad, a cut from the previous blanket level of 35% for all companies listing abroad.

The regulations limit foreign stakeholding in industries related to national security and defence to no more than 25%, while those making public offerings in other sectors may sell a maximum of 30% of their stock abroad.

After a slow start to the year for Russian equity issuance, some analysts argued that these rules could hamper Russian equity issuance and liquidity. "In the short term it will have no effect, but in the medium term it could slow down the pace of the IPO pipeline, says Chris Weafer, chief analyst at the Moscow-headquartered UralSib bank.

There were just 13 IPOs in the first half of this year - about half the volume over the same period last year - according to Russian data provider Offerings.ru.

The report, which is being debated in government circles, also suggests developing a futures market and a pooled investments market.

The regulator has drawn up a proposal for increasing the free float. The free float in Russia is currently about 20-30% percent of total outstanding shares. "The free float of securities in Russia should be increased to not less than 40- 50% in the nearest two three years," the document says.

There are currently no foreign securities listed on Russian bourses due to a lack of legislation and appropriate regulation. This could change later this year, however, because a draft law is already in the Duma, the lower house of the Russian parliament. Once new laws are passed, Russian investors will be able to invest via a domestic exchange in foreign companies' shares and depositary receipts.

Key figures within the government and the regulator are actively pushing for the creation of a central depository and a merger of two the main stock exchanges, the rouble denominated MICEX and the dollar-denominated RTS. Some market participants, who are shareholder and members of both exchanges, have privately complained of the pace of the integration of the two platforms.

After all these amendments are made, the regulator estimates the capitalisation of the Russian financial market will increase by $40-50bnm and Moscow will have a chance of evolving into a pan-CIS and Central European hub for capital markets.

However, Lombard Odier's Alexander Kotchoubey feels legislative reforms and institutional change will not mean much without the "intangible concept of investor confidence and market stability."

He said: "Russia was on the cusp. It had entered the top ten in market capitalisation and it had become essential to have Russian equity allocation in global portfolios. It is now facing a tremendous headwind from the war with Georgia and the blow-up at TNK-BP with investors now being very cautious about making any sort of allocation to Russia."