The Irish Independent
By Jason Corcoran in Moscow
Thursday August 09 2007
THE overseas arm of Aer Rianta has confirmed it will compete with Russian state airline Aeroflot for control of a duty-free business in Moscow's main airport, Sheremetyevo.
Aer Rianta International, a subsidiary of Dublin Airport Authority, is a partner in a three-way business with Aeroflot and Sheremetyevo Airport Authority, which is selling up to concentrate on its core activities.
Eamon Foley, director general of Aer Rianta International, said the Irish operator is interested in bidding for Sheremeteyvo's stake outright or splitting it equally with Aeroflot.
Speaking in Moscow, Mr Ryan said: "We have a very comfortable relationship with our partners and we have built a very strong partnership with Aeroflot. Our joint venture is built on strong foundations and it benefits both parties.
"We bring an international dimension, and globally we have a huge buying power which our local partners do not have. There is no official sales process yet, so we are not clear how it will go."
A spokeswoman for Aeroflot said the airline was also interested in bidding, but much depended on the terms and the price. "It's too early to speculate on price and the negotiations which are just beginning," she said.
A former manager at Sheremetyevo suggested the 33.3pc stake could fetch $15m, while Aer Rianta is understood to think $12m is a fairer price.
The Aerofirst business consists of duty-free shops at Sheremetyevo-2 international terminal, as well as the Irish bar and the AeroShop onboard stores.
Sales at the location are close to $100m a year, although Sheremetyevo is facing intense competition for passengers from rival Moscow airports Domodedovo and Vnukovo.
Mr Foley declined to discuss the operation's profits, but said its principal asset is its concessions rights, which are due for renewal in a couple of years.
He hinted the Irish airport operator could also be interested in taking stakes in Russian airports, which are to be revamped under Russia's first major programme of public private partnerships (PPPs).
"We have experience as an equity investor in airports as well as airport management," explained Mr Foley.
"President Putin made investment in infrastructure such as airports a centrepiece of his recent State of the Union speech and we could yet be involved in that way."
www.independent.ie
Showing posts with label Putin. Show all posts
Showing posts with label Putin. Show all posts
Saturday, 11 August 2007
Thursday, 2 August 2007
Goldman co-chief quits to join oligarch
Financial News
Jason Corcoran in Moscow
31 July 2007
A top banker from Goldman Sachs in Moscow has been recruited by a relatively unknown Russian billionaire to run his investment fund.
Magomed Galaev, co-head of Goldman Sachs in Russia, has been hired as president of Summa Capital, the investment vehicle of Ziyavudin Magomedov whose main businesses include oil transportation logistics, telecoms and metals.
One Moscow analyst, who declined to be named, claimed Galaev was lured by a remuneration package of $12m (€8.8m) a year. "Not even the generous Russian investment banks can compete with this money," he said.
Goldman was left rocking in March this year when Gordon McCulloch, then co-head of Russia with Galaev, left to join Russian bank Renaissance Capital.
According to sources, Galaev, who was hired from Morgan Stanley last year, shocked the bank by tendering his resignation on the same day.
Galaev had told friends he was going to work for one of his Russian clients. Goldman and Galaev's office denied he was leaving, fuelling speculation he might have been persuaded to stay to allow Goldman time to find a successor to McCulloch.
A source close to Goldman Sachs said Galaev would continue to work for the bank as an adviser although there was no details as to a new role.
Christopher M. Barter and David Schwimmer were appointed co-chief executives of Goldman's Russia and CIS business in June. Barter, who is believed to be moving to Moscow in August, will concentrate on securities and financing activities while Schwimmer will focus on investment banking.
Barter, who was previously co-head of the European financial institutions group, joined Goldman in 1993. Schwimmer, who helped orchestrate the New York Stock Exchange's merger with Archipelago, joined in 1998.
Goldman reopened for business in Moscow in January this year and has faced tough competition hiring talent. It has yet to make a big impression in the domestic capital markets' league tables.
In May, Goldman lost out to Russian bank MDM in a race to hire Oleg Vyugin, a former top regulator and respected banker.
Goldman Sachs declined to comment.
The bank, which employs over 100 staff in Moscow, is taking a measured approach to building its Russian business.
It opened its previous Moscow office in 1998 with a party attended by guests including George Bush senior, the former US president. Two months later, the Russian government defaulted on its debt and Goldman scaled back its presence.
In April, Goldman's group's chief executive, Lloyd Blankfein, wrote to President Vladimir Putin seeking a meeting in Moscow, according to the Kremlin. Blankfein wanted to discuss proposals to expand ties with the Russian state and companies, and talk about the economy.
It was announced last week that Magomedov's Summa Telecom, would spend $1bn out of the pockets of its main shareholder to build broadband wireless networks across the country.
The St. Petersburg-based company was founded in 2005 by Summa Capital. In November, Summa Telecom became the only company in the country to receive a nationwide WiMax licence.
www.efinancialnews.com
Jason Corcoran in Moscow
31 July 2007
A top banker from Goldman Sachs in Moscow has been recruited by a relatively unknown Russian billionaire to run his investment fund.
Magomed Galaev, co-head of Goldman Sachs in Russia, has been hired as president of Summa Capital, the investment vehicle of Ziyavudin Magomedov whose main businesses include oil transportation logistics, telecoms and metals.
One Moscow analyst, who declined to be named, claimed Galaev was lured by a remuneration package of $12m (€8.8m) a year. "Not even the generous Russian investment banks can compete with this money," he said.
Goldman was left rocking in March this year when Gordon McCulloch, then co-head of Russia with Galaev, left to join Russian bank Renaissance Capital.
According to sources, Galaev, who was hired from Morgan Stanley last year, shocked the bank by tendering his resignation on the same day.
Galaev had told friends he was going to work for one of his Russian clients. Goldman and Galaev's office denied he was leaving, fuelling speculation he might have been persuaded to stay to allow Goldman time to find a successor to McCulloch.
A source close to Goldman Sachs said Galaev would continue to work for the bank as an adviser although there was no details as to a new role.
Christopher M. Barter and David Schwimmer were appointed co-chief executives of Goldman's Russia and CIS business in June. Barter, who is believed to be moving to Moscow in August, will concentrate on securities and financing activities while Schwimmer will focus on investment banking.
Barter, who was previously co-head of the European financial institutions group, joined Goldman in 1993. Schwimmer, who helped orchestrate the New York Stock Exchange's merger with Archipelago, joined in 1998.
Goldman reopened for business in Moscow in January this year and has faced tough competition hiring talent. It has yet to make a big impression in the domestic capital markets' league tables.
In May, Goldman lost out to Russian bank MDM in a race to hire Oleg Vyugin, a former top regulator and respected banker.
Goldman Sachs declined to comment.
The bank, which employs over 100 staff in Moscow, is taking a measured approach to building its Russian business.
It opened its previous Moscow office in 1998 with a party attended by guests including George Bush senior, the former US president. Two months later, the Russian government defaulted on its debt and Goldman scaled back its presence.
In April, Goldman's group's chief executive, Lloyd Blankfein, wrote to President Vladimir Putin seeking a meeting in Moscow, according to the Kremlin. Blankfein wanted to discuss proposals to expand ties with the Russian state and companies, and talk about the economy.
It was announced last week that Magomedov's Summa Telecom, would spend $1bn out of the pockets of its main shareholder to build broadband wireless networks across the country.
The St. Petersburg-based company was founded in 2005 by Summa Capital. In November, Summa Telecom became the only company in the country to receive a nationwide WiMax licence.
www.efinancialnews.com
Tuesday, 31 July 2007
Oligarch expects adopted homeland to blossom
Financial News: Focus on Russia
Jason Corcoran in Moscow
30 July 2007
Stephen Jennings, founder of Russian investment bank Renaissance Capital keeps the faith in his new country
It’s clear Moscow is going to be a major capital market
Stephen Jennings, founder of Russia’s Renaissance Capital, may spend as much time in Nairobi expanding the bank’s sub-Saharan operations as in Moscow but he is not betting against the domestic market just yet.
The billionaire, one of two foreign oligarchs in Russia, made his fortune by keeping faith in the country and his investment banking business, which both came close to collapse after the financial crisis of 1998.
Having seen that out, the New Zealander is unlikely to pack his bags for home soon. Nor is he sitting on his laurels, having seen Renaissance break into the top 10 global underwriters of initial public offerings for the first time last month.
Jennings envisages Moscow becoming Europe’s second financial capital behind London, overhauling Frankfurt, Paris and Milan within 15 years.
He said: “It’s clear Moscow is going to be a major capital market. It already is in new issuance and overall market capitalisation. Imagine what’s going to happen with another 10 years of capital accumulation, and how big the domestic capital markets will be.
“Mortgage markets, securitisations markets and derivative markets will be very big. It sounds strange but when you think about it, it’s totally logical.”
Russia has the biggest and most liquid stock market in the region by far, with a market capitalisation of more than a $1 trillion (€723bn). It turns over billions of dollars every day. Its companies were third in the world in terms of fundraising through IPOs in the first half of the year, outpacing the UK and Brazil, according to auditor Ernst & Young.
Jennings admitted that beyond equity issuance, Russia lags its rivals. In terms of foreign exchange trading, commodities, debt and derivatives, Moscow is not on the global radar, he said. But this is changing. Derivatives are now the fastest growing area of Russia’s financial sector as the scale and diversity of Russia’s asset base and securities markets drives its development.
Jennings said Moscow could become the focus of an emerging regional capital market, although it would have to compete with Warsaw, which has attracted several Ukrainian IPOs.
He added: “We will start to see elements of a pan-CIS capital market and it’s more likely than not to be centred on Moscow. When markets get to a certain size, political pressure for that harmonisation will get to be a lot greater. We will see pan-CIS investment banks, we will see pan-CIS commercial banks and that’s starting to happen now.”
Moscow forms a natural bridge between Asian and European markets. For it to develop as a financial hub, Jennings said more widespread equity ownership and growth in domestic pension funds, mutual funds and insurance funds would be needed. Renaissance’s own fund arm, Renaissance Investment Management, is Russia’s market leader and has grown rapidly to $4.5bn in assets under management.
Some signs are encouraging, such as May’s IPO by state-controlled bank VTB. It was the first meaningful allocation of shares to retail investors. More than 131,000 of them applied for stock valued at approximately $1.6bn.
Institutional reform is vital to developing Russian capital markets and Jennings noted its pace has slackened recently, compared to the rate of change in Kazakhstan and Ukraine.
He said: “Russia has been quite good at cutting tax rates or streamlining and simplifying but it hasn’t been very good, so far, at building strong institutions. There will be another phase of reform and then Russia will go through a phase of modernising its institutions. Some aspects of capital market development will have to wait for that phase.”
Jennings said lack of banking reform has hampered financial intermediation and efficiency in financial systems, but has not affected the participation of foreign banks in Russia.
Foreign banks, including France’s Société Générale and Belgium’s KBC Group, were snapping up Russian lenders to gain a foothold in the booming consumer credit market, he said. Deutsche Bank, Barclays and HSBC have all recently outlined plans to enter the retail market.
“The market is substantively quite liberal in terms of foreign banks’ participation,” said Jennings.
“The global banks have not had the strategic commitment until now. They underestimated the opportunity and now they are paying for it.”
Investment banking was the most developed industry in Moscow, he said, with 37 companies, at the last count, scrabbling for clients.
A war for talent has been under way for a year and Renaissance has played its part. Recent hires include Petri Kivinen, global head of debt capital markets at Dresdner Kleinwort in London, Gordon McCulloch, co-head of Goldman Sachs’ Moscow office, and Richard Bruens, head of investor relations at ABN Amro.
“There are a lot of open cheque books out there and I don’t think paying a lot is enough to retain people in any environment – and certainly not in a really hot environment,” said Jennings.
Renaissance’s investment bank has more than 1,000 employees in Moscow and Jennings claims to have lost only one director to a rival over the past two years.
Renaissance is a private partnership and more than 100 employees own a stake in it. Employees who leave receive the book value of their stock which, while significant (it is valued at $1bn), does not represent its likely market value. Jennings owns 80% of the business, a stake that has been valued by bankers at between $3bn and $4bn.
Jennings is not concerned that forthcoming elections will affect his business adversely and, like many of Moscow’s leading bankers, he diplomatically refuses to be drawn into backing a successor to President Putin.
He said: “Putin brought a much-needed degree of stability when we had a large measure of anarchy. The name of the game now is going to be continuity: continuity politically and a high degree of continuity in terms of how the economy is developing.”
• Rencap’s strategy presents a strong case for joint venture
Rencap’s growth strategy is based on exporting its Russian business model to other emerging markets and developing alliances with leaders in other fields.
Jennings said Renaissance plans to increase the investment banking services it offers in frontier markets, having set up in sub-Saharan Africa and CIS countries including Kazakhstan and Ukraine. The bank is also expected to announce details of an infrastructure joint venture with Australian banking group Macquarie.
Jennings said going it alone was not an option for Renaissance. He said: “Unlike equity capital markets where we can create scale to have the best sales and best capital market professionals, it is very questionable that a go-it-alone model is efficient if you want to be strong in infrastructure. There is a strong case for us to team up with somebody – I think infrastructure is going to be one of the next big developments in Russia.”
The bank has an investment banking joint venture with the Royal Bank of Scotland and an informal M&A tie-up with Lehman Brothers. The latter is strengthening its Moscow operation and has recruited leading rainmaker Nick Jordan from Deutsche Bank to spearhead its push,
Denying this would jeopardise the alliance, Jennings said: “When Nick was running Deutsche, Renaissance used to do a lot of business with them. We would see Nick joining Lehman as a positive and certainly not a negative. There is some overlap but in terms of resources on the ground and critical mass, there is not much overlap.”
Rencap will limit the number of alliances it entered into, according to Jennings. He said: “You can’t do a lot of alliances. How many best friends can you have? You can only have a small number. The RBS joint venture in derivatives gives us a leading position in a market that we would otherwise be a two-bit player in.”
Jennings said the bank has a billion dollars invested in its sub-Saharan projects focused on Nigeria and Kenya. “We have a big challenge in Africa over the next 12 months but we don’t rule out looking at other markets.” Renaissance has no plans to sell to a rival or to float the company, despite its successes floating other Russian businesses.
Jennings, who set up Rencap in 1995 with a Credit Suisse colleague Boris Jordan, has rebuffed interest in the business from western banks and state-owned VTB. He said selling, 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.”
Jason Corcoran in Moscow
30 July 2007
Stephen Jennings, founder of Russian investment bank Renaissance Capital keeps the faith in his new country
It’s clear Moscow is going to be a major capital market
Stephen Jennings, founder of Russia’s Renaissance Capital, may spend as much time in Nairobi expanding the bank’s sub-Saharan operations as in Moscow but he is not betting against the domestic market just yet.
The billionaire, one of two foreign oligarchs in Russia, made his fortune by keeping faith in the country and his investment banking business, which both came close to collapse after the financial crisis of 1998.
Having seen that out, the New Zealander is unlikely to pack his bags for home soon. Nor is he sitting on his laurels, having seen Renaissance break into the top 10 global underwriters of initial public offerings for the first time last month.
Jennings envisages Moscow becoming Europe’s second financial capital behind London, overhauling Frankfurt, Paris and Milan within 15 years.
He said: “It’s clear Moscow is going to be a major capital market. It already is in new issuance and overall market capitalisation. Imagine what’s going to happen with another 10 years of capital accumulation, and how big the domestic capital markets will be.
“Mortgage markets, securitisations markets and derivative markets will be very big. It sounds strange but when you think about it, it’s totally logical.”
Russia has the biggest and most liquid stock market in the region by far, with a market capitalisation of more than a $1 trillion (€723bn). It turns over billions of dollars every day. Its companies were third in the world in terms of fundraising through IPOs in the first half of the year, outpacing the UK and Brazil, according to auditor Ernst & Young.
Jennings admitted that beyond equity issuance, Russia lags its rivals. In terms of foreign exchange trading, commodities, debt and derivatives, Moscow is not on the global radar, he said. But this is changing. Derivatives are now the fastest growing area of Russia’s financial sector as the scale and diversity of Russia’s asset base and securities markets drives its development.
Jennings said Moscow could become the focus of an emerging regional capital market, although it would have to compete with Warsaw, which has attracted several Ukrainian IPOs.
He added: “We will start to see elements of a pan-CIS capital market and it’s more likely than not to be centred on Moscow. When markets get to a certain size, political pressure for that harmonisation will get to be a lot greater. We will see pan-CIS investment banks, we will see pan-CIS commercial banks and that’s starting to happen now.”
Moscow forms a natural bridge between Asian and European markets. For it to develop as a financial hub, Jennings said more widespread equity ownership and growth in domestic pension funds, mutual funds and insurance funds would be needed. Renaissance’s own fund arm, Renaissance Investment Management, is Russia’s market leader and has grown rapidly to $4.5bn in assets under management.
Some signs are encouraging, such as May’s IPO by state-controlled bank VTB. It was the first meaningful allocation of shares to retail investors. More than 131,000 of them applied for stock valued at approximately $1.6bn.
Institutional reform is vital to developing Russian capital markets and Jennings noted its pace has slackened recently, compared to the rate of change in Kazakhstan and Ukraine.
He said: “Russia has been quite good at cutting tax rates or streamlining and simplifying but it hasn’t been very good, so far, at building strong institutions. There will be another phase of reform and then Russia will go through a phase of modernising its institutions. Some aspects of capital market development will have to wait for that phase.”
Jennings said lack of banking reform has hampered financial intermediation and efficiency in financial systems, but has not affected the participation of foreign banks in Russia.
Foreign banks, including France’s Société Générale and Belgium’s KBC Group, were snapping up Russian lenders to gain a foothold in the booming consumer credit market, he said. Deutsche Bank, Barclays and HSBC have all recently outlined plans to enter the retail market.
“The market is substantively quite liberal in terms of foreign banks’ participation,” said Jennings.
“The global banks have not had the strategic commitment until now. They underestimated the opportunity and now they are paying for it.”
Investment banking was the most developed industry in Moscow, he said, with 37 companies, at the last count, scrabbling for clients.
A war for talent has been under way for a year and Renaissance has played its part. Recent hires include Petri Kivinen, global head of debt capital markets at Dresdner Kleinwort in London, Gordon McCulloch, co-head of Goldman Sachs’ Moscow office, and Richard Bruens, head of investor relations at ABN Amro.
“There are a lot of open cheque books out there and I don’t think paying a lot is enough to retain people in any environment – and certainly not in a really hot environment,” said Jennings.
Renaissance’s investment bank has more than 1,000 employees in Moscow and Jennings claims to have lost only one director to a rival over the past two years.
Renaissance is a private partnership and more than 100 employees own a stake in it. Employees who leave receive the book value of their stock which, while significant (it is valued at $1bn), does not represent its likely market value. Jennings owns 80% of the business, a stake that has been valued by bankers at between $3bn and $4bn.
Jennings is not concerned that forthcoming elections will affect his business adversely and, like many of Moscow’s leading bankers, he diplomatically refuses to be drawn into backing a successor to President Putin.
He said: “Putin brought a much-needed degree of stability when we had a large measure of anarchy. The name of the game now is going to be continuity: continuity politically and a high degree of continuity in terms of how the economy is developing.”
• Rencap’s strategy presents a strong case for joint venture
Rencap’s growth strategy is based on exporting its Russian business model to other emerging markets and developing alliances with leaders in other fields.
Jennings said Renaissance plans to increase the investment banking services it offers in frontier markets, having set up in sub-Saharan Africa and CIS countries including Kazakhstan and Ukraine. The bank is also expected to announce details of an infrastructure joint venture with Australian banking group Macquarie.
Jennings said going it alone was not an option for Renaissance. He said: “Unlike equity capital markets where we can create scale to have the best sales and best capital market professionals, it is very questionable that a go-it-alone model is efficient if you want to be strong in infrastructure. There is a strong case for us to team up with somebody – I think infrastructure is going to be one of the next big developments in Russia.”
The bank has an investment banking joint venture with the Royal Bank of Scotland and an informal M&A tie-up with Lehman Brothers. The latter is strengthening its Moscow operation and has recruited leading rainmaker Nick Jordan from Deutsche Bank to spearhead its push,
Denying this would jeopardise the alliance, Jennings said: “When Nick was running Deutsche, Renaissance used to do a lot of business with them. We would see Nick joining Lehman as a positive and certainly not a negative. There is some overlap but in terms of resources on the ground and critical mass, there is not much overlap.”
Rencap will limit the number of alliances it entered into, according to Jennings. He said: “You can’t do a lot of alliances. How many best friends can you have? You can only have a small number. The RBS joint venture in derivatives gives us a leading position in a market that we would otherwise be a two-bit player in.”
Jennings said the bank has a billion dollars invested in its sub-Saharan projects focused on Nigeria and Kenya. “We have a big challenge in Africa over the next 12 months but we don’t rule out looking at other markets.” Renaissance has no plans to sell to a rival or to float the company, despite its successes floating other Russian businesses.
Jennings, who set up Rencap in 1995 with a Credit Suisse colleague Boris Jordan, has rebuffed interest in the business from western banks and state-owned VTB. He said selling, 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.”
Putin unlikely to allow political risk to spoil the Russian party
Financial News: Focus on Russia
Market participants give their views on three critical questions about the country’s political climate
We do not expect Indonesian-style instability in Russia and the process will be carefully stage-managed by outgoing President Putin and the Kremlin - Chris Weafer, Alfa Bank
1 Could the political situation between Russia and the UK damage capital market activity between the two countries?
2 What are the main risks to capital market activity and the Russian equity markets posed by the upcoming elections?
3 If Putin goes, who will best secure investor confidence in Russia’s economy?
Roland Nash
Head of research,
Renaissance Capital
1 Political relations between Russia and the UK may have fallen to the lowest level since the Soviet era but financial and business ties have never been stronger.
On the same day as the UK expelled the four Russian diplomats, the Russian equity market posted its highest close. The UK, for the first time, became the biggest source of foreign direct investment into Russia in the first half of this year – roughly $5bn (€3.6bn).
London is the city of choice both for companies to list and for Russians to live. There is an enormous vested interest on the Russian side and the UK side to make sure business channels remain open.
If business relations are better than ever, despite the difficult diplomatic relations, then it seems to me it will take much more than the current diplomatic confrontation to undermine capital market activity.
2 There are three outstanding questions concerning the Russian elections. Who will be Russia’s next President? What will Putin do next? How will the interests of the elite be protected under the next President?
While the answers to these questions remain unanswered, there is an added risk premium to investing into any Russian asset. Perhaps the biggest risk is the elite attempting to grab private sector assets for personal reasons and because it plays well to the domestic electorate. If property rights receive another public bashing, it will scare away potential investors.
3 The current, rather simplistic, consensus is that Dmitri Medvedev is the good guy in the election race, and Sergei Ivanov is the bad guy. The situation is far more nuanced.
Medvedev is probably more business-friendly than Ivanov, although the difference between them is quite small. They both believe Russia needs a strong economy to be a powerful country, and that a strong economy in the modern world requires a private market. Equally, they both believe the state has a large role to play in the economy. Against the more business-friendly image, Medvedev is probably weaker than Ivanov.
In Russia, stability has historically been perhaps the fundamental requirement for economic success. Therefore, while the market may initially take an Ivanov presidency badly, I think in the longer run, he could prove a better President, from the perspective of protecting investment, than Medvedev.
Mattias Westman
Chief executive,
Prosperity Capital
1 No. There have been problems for some time and initially some people were hesitant but those people were generally not investors. The private sector is driving the capital markets and they are not very concerned.
Also the Russian companies do not have a realistic alternative since the New York Stock Exchange has become unattractive to foreign companies post-Sarbanes-Oxley.
2 The elections are unlikely to create much uncertainty. Putin will most likely indicate his support for a candidate and his popularity will be enough to carry that candidate to power.
The parliamentary elections in December might be more interesting since it is less of a winner takes all. There the main uncertainty is if the communists or nationalists have a strong showing. It is unlikely but a potential risk.
3 Russian entrepreneurs are the main investors in the Russian economy and they appear to be confident. Investment is booming, even ahead of the elections. This is a good indicator of private sector confidence and of its estimate of political risk.
Chris Weafer
Chief strategist,
Alfa Bank
1 If the situation were to escalate, then it is possible that as well as damaging trade and investment relations between the UK and Russia, it would then also cause a problem between Russia and the EU. But I do not think that this will be allowed happen. It is not in the interests of either country to allow this row to escalate beyond the diplomatic arena.
Clearly the UK had to make some response to events and it was timely for the new Prime Minister to make a strong statement. Russia’s response has been well balanced and it has said it will not escalate.
With the summer holidays coming up, I expect both sides will be happy to see this situation calm down. It will be a backdrop issue for a long time to come and prevent a friendly relationship between both governments.
But business leaders and investors just want a pragmatic relationship. That is what is most likely now that the tit-for-tat moves have been made. Russians have adopted Chelsea as a proxy national team and west London as a home from home. Come the start of the English Premier League next month, the mini-crisis will give way to the real passion that is football. And don’t forget that England and Russia face each other in crucial Uefa Cup games in the autumn.
2 Political change in any emerging market causes concern to investors and investment activity. Far too often when investors think election and emerging market, they think Indonesia. But we do not expect any of the Indonesian-style instability in Russia and the process will be carefully stage-managed by outgoing President Putin and the Kremlin.
There will be no instability but because it is a big election transition, it will cause some slowing of investment as investors play it safe.
I describe it more like the board of directors of a large corporation changing the chairman.
Most of the people in the Kremlin (the directors) will stay on the board, the policy objectives and working strategies of the country (the corporation) will remain unchanged and even the out-going President (chairman) will retain an important role.
3 The main effect may not be felt for two or more years, in other words, mid-way through the next presidency. That is the time when the country is most likely to face problems and hard choices.
That is when the choice of the next President will matter and also what role Putin has managed to retain.
Kim Iskyan
Co-head of research,
Uralsib Capital
1 I don’t think either the UK or Russia will let rhetoric get in the way of what has been a positive dynamic on the capital markets over the past few years. As in any relationship, there are ups and downs; this is a down, but I doubt politicians will let their tit-for-tat have an impact on their economic or financial relationship.
2 As uncertainty increases, perception of risk increases, boosting required returns and thus dampening activity and sentiment. There’s otherwise no real risk, in my mind.
Market participants give their views on three critical questions about the country’s political climate
We do not expect Indonesian-style instability in Russia and the process will be carefully stage-managed by outgoing President Putin and the Kremlin - Chris Weafer, Alfa Bank
1 Could the political situation between Russia and the UK damage capital market activity between the two countries?
2 What are the main risks to capital market activity and the Russian equity markets posed by the upcoming elections?
3 If Putin goes, who will best secure investor confidence in Russia’s economy?
Roland Nash
Head of research,
Renaissance Capital
1 Political relations between Russia and the UK may have fallen to the lowest level since the Soviet era but financial and business ties have never been stronger.
On the same day as the UK expelled the four Russian diplomats, the Russian equity market posted its highest close. The UK, for the first time, became the biggest source of foreign direct investment into Russia in the first half of this year – roughly $5bn (€3.6bn).
London is the city of choice both for companies to list and for Russians to live. There is an enormous vested interest on the Russian side and the UK side to make sure business channels remain open.
If business relations are better than ever, despite the difficult diplomatic relations, then it seems to me it will take much more than the current diplomatic confrontation to undermine capital market activity.
2 There are three outstanding questions concerning the Russian elections. Who will be Russia’s next President? What will Putin do next? How will the interests of the elite be protected under the next President?
While the answers to these questions remain unanswered, there is an added risk premium to investing into any Russian asset. Perhaps the biggest risk is the elite attempting to grab private sector assets for personal reasons and because it plays well to the domestic electorate. If property rights receive another public bashing, it will scare away potential investors.
3 The current, rather simplistic, consensus is that Dmitri Medvedev is the good guy in the election race, and Sergei Ivanov is the bad guy. The situation is far more nuanced.
Medvedev is probably more business-friendly than Ivanov, although the difference between them is quite small. They both believe Russia needs a strong economy to be a powerful country, and that a strong economy in the modern world requires a private market. Equally, they both believe the state has a large role to play in the economy. Against the more business-friendly image, Medvedev is probably weaker than Ivanov.
In Russia, stability has historically been perhaps the fundamental requirement for economic success. Therefore, while the market may initially take an Ivanov presidency badly, I think in the longer run, he could prove a better President, from the perspective of protecting investment, than Medvedev.
Mattias Westman
Chief executive,
Prosperity Capital
1 No. There have been problems for some time and initially some people were hesitant but those people were generally not investors. The private sector is driving the capital markets and they are not very concerned.
Also the Russian companies do not have a realistic alternative since the New York Stock Exchange has become unattractive to foreign companies post-Sarbanes-Oxley.
2 The elections are unlikely to create much uncertainty. Putin will most likely indicate his support for a candidate and his popularity will be enough to carry that candidate to power.
The parliamentary elections in December might be more interesting since it is less of a winner takes all. There the main uncertainty is if the communists or nationalists have a strong showing. It is unlikely but a potential risk.
3 Russian entrepreneurs are the main investors in the Russian economy and they appear to be confident. Investment is booming, even ahead of the elections. This is a good indicator of private sector confidence and of its estimate of political risk.
Chris Weafer
Chief strategist,
Alfa Bank
1 If the situation were to escalate, then it is possible that as well as damaging trade and investment relations between the UK and Russia, it would then also cause a problem between Russia and the EU. But I do not think that this will be allowed happen. It is not in the interests of either country to allow this row to escalate beyond the diplomatic arena.
Clearly the UK had to make some response to events and it was timely for the new Prime Minister to make a strong statement. Russia’s response has been well balanced and it has said it will not escalate.
With the summer holidays coming up, I expect both sides will be happy to see this situation calm down. It will be a backdrop issue for a long time to come and prevent a friendly relationship between both governments.
But business leaders and investors just want a pragmatic relationship. That is what is most likely now that the tit-for-tat moves have been made. Russians have adopted Chelsea as a proxy national team and west London as a home from home. Come the start of the English Premier League next month, the mini-crisis will give way to the real passion that is football. And don’t forget that England and Russia face each other in crucial Uefa Cup games in the autumn.
2 Political change in any emerging market causes concern to investors and investment activity. Far too often when investors think election and emerging market, they think Indonesia. But we do not expect any of the Indonesian-style instability in Russia and the process will be carefully stage-managed by outgoing President Putin and the Kremlin.
There will be no instability but because it is a big election transition, it will cause some slowing of investment as investors play it safe.
I describe it more like the board of directors of a large corporation changing the chairman.
Most of the people in the Kremlin (the directors) will stay on the board, the policy objectives and working strategies of the country (the corporation) will remain unchanged and even the out-going President (chairman) will retain an important role.
3 The main effect may not be felt for two or more years, in other words, mid-way through the next presidency. That is the time when the country is most likely to face problems and hard choices.
That is when the choice of the next President will matter and also what role Putin has managed to retain.
Kim Iskyan
Co-head of research,
Uralsib Capital
1 I don’t think either the UK or Russia will let rhetoric get in the way of what has been a positive dynamic on the capital markets over the past few years. As in any relationship, there are ups and downs; this is a down, but I doubt politicians will let their tit-for-tat have an impact on their economic or financial relationship.
2 As uncertainty increases, perception of risk increases, boosting required returns and thus dampening activity and sentiment. There’s otherwise no real risk, in my mind.
Thursday, 7 June 2007
A capital plan for St Petersburg
Business New Europe
Jason Corcoran in Moscow
2007-06-07
The ambitious scale of investment planned for St Petersburg suggests a move to switch the capital back to President Vladimir Putin's hometown could be back on the cards.
The former imperial capital, which served as the seat of power of the Russian empire for over 200 years, is regaining some of its old glory with a number of high-profile infrastructure projects costing an estimated $15bn.
Project financing from the government is already in place for the Orlovsky tunnel under the Neva River and the Western High-Speed Diameter motorway around the city. Other projects in the pipeline include a high speed toll road to Moscow, a new sea passenger terminal, a football stadium, bridges, a new airport and reconstruction of the New Holland Island.
Gazprom City
"These showcase-type projects for St Petersburg suggests the government may be looking to move the capital from Moscow," Chris Weafer, chief strategist at Alfa Bank says. "They could be looking at moulding it into Russia's Washington as a way of setting up an alternative power base to Moscow."
A move away from Moscow would be driven as much by politics as economics. The St Petersburg clan – a group of reform-minded Kremlin officials who knew Putin during his time in the city in the 1990s – will want to put a cap on Moscow's presidential-based power base when the president steps down next year.
Mayor Valentina Matviyenko, a Putin ally, has lobbied to transfer elements of the federal Government to St Petersburg and was rewarded in February with the decision to move Russia's Constitutional Court to the city from Moscow next year.
Banks and oil companies have also quietly been moving assets to St Petersburg in recent years. Gazprom City, a controversial new development in Russia's second city, has been prompted by the energy giant's decision to move part of its operations from Moscow. State-owned bank VTB has also confirmed it's interested in new office space.
Putin made infrastructure a central theme of his final State of the Nation address, promising funds to improve Russia's crumbling roads, bridges and airports.
Infrastructure will again be a key theme at this weekend's St Petersburg Investment Forum, which is expected to trump London's Russia Economic Forum as the premier annual economic showcase for the country after the Kremlin ordered its officials to pull out on the eve of the event in April.
At the St Petersburg Investment Forum, more details on the financing and design of the $3bn High-Speed Diameter motorway linking the city with highways to Scandinavia, Kyiv and Moscow are expected to be revealed. Half of the cost is to be met by the government's Investment Fund, and the remainder by private investors and the city budget. The European Bank for Reconstruction and Development last week announced its plans to invest $250m in the construction of the road, which is to be Russia's test case for public-private partnership.
Renaissance Capital is also working with Australian infrastructure specialist Macquarie Bank to provide financing for the road. The Russian investment bank is set to announce a formal joint venture with Macquarie to make additional investments in Russia, according to a source close to the bank.
"The deal has been agreed, but there is some tension still on the logistics. Macquarie is being very tenacious about some of the arrangements," says the source.
Renaissance and Macquarie are believed to be talking to investors about setting up a multi-billion-dollar infrastructure fund to invest in transport, ports and utilities across Russia.
Stephen Jennings, chief executive of Renaissance Capital, toldbne that, "There will be hundreds of billions of dollars of projects. The infrastructure financing requirement is massive. Russia will be very pragmatic at adapting private sector solutions. There will be a lot of projects and a huge range."
Jennings declined to comment on the tie-up with Macquarie, but said that Renaissance would not go it alone in the infrastructure space. "Unlike equity capital markets where we can create scale to have best sales and best capital market professionals, it's very questionable that a go-it-alone model is efficient if you want to be strong. There is a strong case for us to team up with somebody in that space – I think infrastructure is going to be one of the very next big developments in Russia."
Macquarie, the world's largest private manager of infrastructure, became the first bank to launch a dedicated European infrastructure fund in 2004 and its success has attracted rivals to the sector, pushing up valuations for assets that provide pension fund investors with stable long-term returns. In 2006, it paid £8bn for Thames Water in the UK and made a failed approach to buy the London Stock Exchange
Macquarie already has an existing infrastructure partnership in South Korea with the country's second largest financial services group Shinhan, which is itself interested in investing in Russia.
Shinhan's chief executive, Shin Sang-Hoon, recently said the bank wanted to acquire a Russian bank to grab a foothold in the country's corporate banking business, but admitted that earlier talks to form a partnership with Macquarie in Russia had been dropped.
Other potential Russian investors include Goldman Sachs, Morgan Stanley and Credit Suisse, who have all raised infrastructure funds in other countries.
Wednesday, 30 May 2007
Putin's oil-rich ally knows which side his blini is buttered
The Irish Times
By Jason Corcoran
Letter from Kazakhstan: A billboard-sized photograph of Russian President Vladimir Putin shaking hands with his Kazakh counterpart, President Nursultan Nazarbayev, looms large over the Caspian Sea resort of Kenderli.
Nazarbayev entertained the Russian leader at his summer retreat on May 12th, in between trilateral energy talks involving their countries and the new Turkmenistan leader, President Gurbanguly Berdymukhammedov. Their get-together coincided with a summit taking place in Poland aimed at reducing energy dependence on Russia.
The three leaders agreed
to construct a pipeline to transport Turkmen natural gas to Russia along the Caspian coastline via Kazakhstan, a deal analysts say eclipses EU plans for a trans-Caspian pipeline bypassing Russia.
Nazarbayev was originally expected to attend the summit in Krakow, but pulled out of it at short notice to host Putin, which makes the caption under the giant image at Kendeli rather apt: "Always together, always forward."
Putin's policy of cultivating Russian oil and gas co-operation in central Asia has been most successful in Kazakhstan, where Russian companies are engaged in key oilfield and pipeline projects.
Kazakhstan's trade with Russia tripled over the past five years to $9 billion last year and Nazarbyev clearly knows which side his blini is buttered.
His summer getaway in the Mangistau region of Kazakhstan is surprisingly modest by
authoritarian leaders' standards but every effort was made to accommodate Putin. A guide at the resort let slip that management had illegally hacked into a satellite network so Putin could watch Russia take on Finland in the ice hockey world championships.
Stepping barefoot, as required, inside Nazarbyev's azure blue and yellow-painted
residence, you are struck by its ordinariness.
Granted, the view of the Caspian Sea from the balcony is breathtaking and guests would be impressed by the indoor pool, gymnasium, sauna, steam room and billiards room in the basement; yet the rooms are decorated almost tastefully without any gold-plated bathroom fittings or flattering portraits venerating Nazarbyev.
Black gold has transformed the world's ninth largest country by landmass. Billions of dollars are pouring into the country's coffers from Caspian oil and gas projects and the effect can be seen 210km down the coast at the seaport
Aktau. A legacy of the Soviet era, Aktau was built in the 1960s to produce uranium and plutonium for the military and the city was a secret and closed to outsiders until the demise of the USSR.
Today, the chemical factories are closed and the nuclear power station no longer functions. The port is the centre for development of the offshore oil industry, and a transport hub for ships crisscrossing the Caspian from Azerbaijan,
Iran and Russia, exporting oil and wheat, and importing cars and machinery for the oilfields.
Downtown, cranes intersect the skyline and the old Soviet apartment blocks have been spruced up and daubed with bright blue paint.
Russians make up about 35 per cent of Kazakhstan's population and monuments to Soviet
war dead are more fondly preserved than in other parts of the former USSR. A statue of a Russian jet fighter, frozen in mid-take-off, stands in front of the five-star Renaissance hotel and there is a whitewashed war memorial which resembles a missile silo opening.
Kazakhstan's wealth is controlled by relatives, friends and associates of Nazarbayev, who doesn't have a fantastic track record of managing the
country's natural resources. His son-in-law, Timur Kulibayev, is a senior executive of the Kazmunaigas parent company.
US banker James Giffin was indicted in 2003 for paying bribes to two high Kazakh officials in exchange for the signing of huge contracts for the sale of Kazakh oil and natural gas to Mobil Oil, Amoco, Texaco and Phillips Petroleum.
Nazarbayev has shown no sign of relinquishing the grip he has established in a series of elections criticised as seriously flawed by democracy watchdogs. Last week, he approved constitutional amendments allowing him to stay in office for
life, a move the opposition condemned as an attempt to establish a personality cult.
Yet western oil executives argue Nazarbayev has taken a leaf out of Putin's book by trying to stamp out corruption and improve the welfare and living standards of his people.
Eddie Walshe, an Irish oil veteran who worked for 35 years in oil and gas at BP and British Gas, was last year appointed as one of three independent non-executive directors to the board of Kazmunaigas before its listing on the London
Stock Exchange. "I was here with British Gas in the 1990s when things were fairly lively. They have a far way to go but the transformation today is unbelievable," said Walshe.
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