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
Showing posts with label Vladimir Putin. Show all posts
Showing posts with label Vladimir Putin. Show all posts
Sunday, 17 May 2009
Thursday, 5 March 2009
Russia's double-headed eagle
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
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
Tuesday, 6 January 2009
VEB plays Father Frost to Russian blue chips
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
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
Saturday, 29 November 2008
Russians lose confidence in faltering rouble
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
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
Friday, 21 November 2008
Rouble trouble
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
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
Monday, 18 August 2008
Letter from Moscow
Dow Jones 'Financial News'
By Jason Corcoran in Moscow
Frazzled Russian investors have seen their domestic markets zigzag up and down like an erratic heartbeat on a cardiac monitor for the past month.
The RTS, the benchmark for foreign investors, plummeted by 6.5% to 1722 on August 7 after the outbreak of hostilities in the Georgian breakaway region of South Ossetia while the rouble-denominated Micex index slid by 5.3% to 1360.
The falling markets were resuscitated by Thursday last week after Russian President Dmitry Medvedev halted the invasion of Georgia and called an end to the fighting. The RTS rebounded to around its previous level, passing 1800 by the end of Thursday. The Micex closed at 1445, up 2.3% on the day.
The RTS had seen its value knocked by 24%, or $63bn, on July 24 after Prime Minister Vladimir Putin accused domestic mining company Mechel of price fixing and evading taxes. A few days later, Medvedev stepped in with the defibrillator to assure investors that the country’s stock market remained “one of the most attractive in the world”.
Medvedev appears to be playing good cop to Putin’s bad cop; the President steps in with honeyed words to ease investors’ concerns after the gung-ho Prime Minister has waded in and put the frighteners on everyone.
In Georgia, the roles seem to be reversed with President Mikheil Saakashvili playing the rabble-rousing antagoniser and his Prime Minister, Lado Gurgenidze, acting to soothe investors’ nerves.
The English-speaking Georgian double-act has been honed for the western media. Within hours of the outbreak in South Ossetia, the Bank of Georgia’s investment banking arm, Galt & Taggart, had organised a conference call between Gurgenidze and the country’s biggest investors and rating agencies.
In a live discussion with UBS and other banks, Gurgenidze described the political situation in Georgia and South Ossetia, and spoke about the perceived negligible impact on the domestic economy.
Gurgenidze knows more than most how capital markets respond to political crises, having worked at ABN Amro in various roles, including in its corporate finance department and as head of mergers and acquisitions for emerging European markets.
After Georgia’s Rose Revolution in 2003, Gurgenidze returned to his homeland as chief executive of the London-listed Bank of Georgia.
The bank has been a darling for frontier market investors with some Moscow-based hedge funds notching up a 1,000% return on their original investment. Gurgenidze has even built a celebrity name for himself after hosting Georgia’s version of Sir Alan Sugar’s The Apprentice television programme. Saakashvili nominated him as Prime Minister in November last year shortly after violence erupted on the streets of the capital following disputed election results.
Since the Rose Revolution brought Saakashvili to power, Georgia has become one of the most dynamic countries in the former Soviet Union.
Several reforms have begun to bear fruit, and have been hailed by international financial institutions such as the World Bank. Georgia’s growth stood at more than 10% in 2006 and last year and is expected to be around 8% this year.
Saakashvili and Gurgenidze may have won the heart and minds of the media, but the damage to Georgia’s investment credibility from its military humiliation is incalculable. The country is now counting its dead and licking its economic wounds.
Credit rating agency Fitch has downgraded Georgia’s sovereign debt as a result of the conflict. It has also downgraded the credit outlook for the Bank of Georgia, ProCredit Bank and TBC Bank from “stable” to “negative”.
Meanwhile, it remains unclear whether Medvedev and Putin’s unwieldy presentation of the war will damage Russia’s investment case in the longer term.
http://www.efinancialnews.com/archive/keyword/corcoran/1/content/2451551233
By Jason Corcoran in Moscow
Frazzled Russian investors have seen their domestic markets zigzag up and down like an erratic heartbeat on a cardiac monitor for the past month.
The RTS, the benchmark for foreign investors, plummeted by 6.5% to 1722 on August 7 after the outbreak of hostilities in the Georgian breakaway region of South Ossetia while the rouble-denominated Micex index slid by 5.3% to 1360.
The falling markets were resuscitated by Thursday last week after Russian President Dmitry Medvedev halted the invasion of Georgia and called an end to the fighting. The RTS rebounded to around its previous level, passing 1800 by the end of Thursday. The Micex closed at 1445, up 2.3% on the day.
The RTS had seen its value knocked by 24%, or $63bn, on July 24 after Prime Minister Vladimir Putin accused domestic mining company Mechel of price fixing and evading taxes. A few days later, Medvedev stepped in with the defibrillator to assure investors that the country’s stock market remained “one of the most attractive in the world”.
Medvedev appears to be playing good cop to Putin’s bad cop; the President steps in with honeyed words to ease investors’ concerns after the gung-ho Prime Minister has waded in and put the frighteners on everyone.
In Georgia, the roles seem to be reversed with President Mikheil Saakashvili playing the rabble-rousing antagoniser and his Prime Minister, Lado Gurgenidze, acting to soothe investors’ nerves.
The English-speaking Georgian double-act has been honed for the western media. Within hours of the outbreak in South Ossetia, the Bank of Georgia’s investment banking arm, Galt & Taggart, had organised a conference call between Gurgenidze and the country’s biggest investors and rating agencies.
In a live discussion with UBS and other banks, Gurgenidze described the political situation in Georgia and South Ossetia, and spoke about the perceived negligible impact on the domestic economy.
Gurgenidze knows more than most how capital markets respond to political crises, having worked at ABN Amro in various roles, including in its corporate finance department and as head of mergers and acquisitions for emerging European markets.
After Georgia’s Rose Revolution in 2003, Gurgenidze returned to his homeland as chief executive of the London-listed Bank of Georgia.
The bank has been a darling for frontier market investors with some Moscow-based hedge funds notching up a 1,000% return on their original investment. Gurgenidze has even built a celebrity name for himself after hosting Georgia’s version of Sir Alan Sugar’s The Apprentice television programme. Saakashvili nominated him as Prime Minister in November last year shortly after violence erupted on the streets of the capital following disputed election results.
Since the Rose Revolution brought Saakashvili to power, Georgia has become one of the most dynamic countries in the former Soviet Union.
Several reforms have begun to bear fruit, and have been hailed by international financial institutions such as the World Bank. Georgia’s growth stood at more than 10% in 2006 and last year and is expected to be around 8% this year.
Saakashvili and Gurgenidze may have won the heart and minds of the media, but the damage to Georgia’s investment credibility from its military humiliation is incalculable. The country is now counting its dead and licking its economic wounds.
Credit rating agency Fitch has downgraded Georgia’s sovereign debt as a result of the conflict. It has also downgraded the credit outlook for the Bank of Georgia, ProCredit Bank and TBC Bank from “stable” to “negative”.
Meanwhile, it remains unclear whether Medvedev and Putin’s unwieldy presentation of the war will damage Russia’s investment case in the longer term.
http://www.efinancialnews.com/archive/keyword/corcoran/1/content/2451551233
Tuesday, 24 June 2008
Russia’s stocks rally as Putin passes the presidency to Medvedev
Financial News
Jason Corcoran in Moscow
23 June 2008
Investment climate is steady as new leader continues reform agenda
Russia’s equity markets are enjoying the country’s honeymoon period under its new leadership, but investors remain wary of how the power-sharing arrangement will evolve.
The changing of the guard on May 7 saw Vladimir Putin hand over the presidential mantle to his protégé Dmitry Medvedev. Within hours, Medvedev had nominated his mentor Putin as Prime Minister.
The smooth choreography proved to be a fillip for Russia’s main stock markets and sparked a buying spree by foreign funds.
The MSCI Russia Index was the best performing emerging equity market last month, rising 15.7%, and outperforming the MSCI EM Emea index, which rose 7.3% in the same month. Inflows recorded in the third week of May of $542m (€350m) were the highest in Russia for more than two years, according to data provider Emerging Portfolio Fund Research.
Peter Halloran, chief executive of Russian hedge fund group Pharos Financial, said: “So far, their partnership has been smooth. There has been no discord and they are moving ahead with the reform agenda, which is the trick with emerging markets. It will take at least a year if we are going to see any friction between the two.”
Most investors agree the new order has yet to result in any tangible change to the investment climate due to the continuity in policies and the Government’s team.
Putin unveiled his new cabinet, handing key roles to heavyweight economic liberals, while keeping several hardliners with a secret services background on board.
Yulia Tseplayeva, chief economist at Merrill Lynch in Russia, said the early running indicated Putin was focusing on geopolitics while Medvedev was taking care of institution-building.
She said: “The transfer from Putin to Medvedev hasn’t taken place yet. It’s been a transfer from Putin to Putin-Medvedev. Putin is the main decision-maker and his significant presence is very obvious through the mass media, and the public doesn’t see any difference. It’s essentially the same team, the same policies without any major revisions.”
The best-performing sector over the past month has easily been energy, which was fired up by Putin’s statement that the tax regime in the oil sector would be eased by August. Russian Energy giants Rosneft, Surgutneftegaz, Lukoil, Gazpomneft, Transneft and Novatek rallied by between 23% and 26% last month, after the sector had failed to be swept up by the boom in global oil prices.
Tseplayeva added: “The Government could no longer afford to ignore the oil lobby as its main taxpayer. The plan to cut mineral extraction taxes for the oil sector was announced a year ago but Putin dressed it up in a very investor-friendly way and the markets responded in kind. The 100bn roubles (€2.7bn) a year will be good for the industry but it’s only 0.2% of overall GDP.”
Goldman Sachs reacted by raising its 12-month estimate for the RTS index by 12% to 2750, recommending energy blue-chips. Oil and gas stocks are expected to continue to thrive on the back of the decision to cut taxes, although it might mean other sectors have to take up the slack.
Chris Weafer, chief strategist at financial services group UralSib, believes the mining industries such as coal and metals could be most at risk. He said: “This year, there is less pressure to levy higher taxes to compensate the budget as the oil price is well above the average assumed in the budget. We believe the finance ministry could easily afford to give up $20bn to the oil industry.
“But the ministry will not want to have to bet on the oil price every year and will undoubtedly push hard for the oil tax reduction to be balanced with higher taxes on other parts of the country’s extractive industries.”
The steel sector has also been hit by suggestions the Government is considering higher export duties on steel to compensate for lost revenues from lower oil taxes.
Producers have enjoyed a surge in steel prices, pushing up costs in industries that use the metal in their production. Analysts said the losers would be companies such as Severstal, Magnitogorsk Iron & Steel Works and NLMK.
With the restructuring of the electricity grid UES almost complete, several Russian funds are betting that hydro-electricity company RusHydro will become the new proxy for the sector.
Last month, the RTS was up 15.9% while the Micex exchange’s index was ahead by 15.5%. While the lion’s share of the upside came from oil and gas, financial stocks also powered ahead with the financials index up 10.2%. Fund managers are bullish on banking blue-chips VTB and Sberbank, which have both flagged in value since their combined $18bn listings last year.
Listed construction and real estate developers have also shown signs of life after the Government approved a $570bn programme to overhaul and expand the country’s transportation infrastructure over the next seven years.
The latest GDP data shows household consumption up 13.6% in real terms during late 2007, which helps explain the continued boom in the consumer economy. Investors are keen on Russia’s second-largest retailer Magnit, which raised $490m in an April listing on the London Stock Exchange to fund expansion.
Tseplayeva said: “The consumption boom is shifting away from Moscow to regional cities such as Ekaterinburg, Novosibirsk, Krasnoyarsk and St Petersburg. Food retailers such as Magnit are primed to do well.”
All signs are that the drought of flotations experienced in the first quarter is over. Last month there was the $449m listing by freight operator Globaltrans and the $1.2bn flotation by retail group X5.
In the global capital markets, Russian companies are eyeing an expanding role. Medvedev has called on business leaders to embark on a foreign acquisition spending spree to boost technological expertise and to diversify into new markets.
Russian business conglomerate Sistema has opened its cheque book in foreign markets by taking a majority stake in Indian telecoms operator Shyam Telelink. Russian companies in the metal and steel sectors such as Severstal and Evraz have also begun to invest globally and extend their reach.
Stephen Cohen, chief executive of Troika Dialog’s fund management business, warned this trend could be to the detriment of capitalising on domestic growth. He said: “Return on equity remains high in Russia and as domestic growth remains very strong it may not be easy for Russian companies to find investment opportunities outside Russia that are as attractive as the domestic opportunities.
“Plus buying foreign companies per se does not necessarily reduce reliance on foreign technology. The solution to that problem is probably more to do with greater expenditure at home on research and development and on education and direct hiring of foreign personnel to work in Russia.”
Medvedev’s call has been answered by state-controlled companies such as savings giant Sberbank, which is looking to acquire banks in the Commonwealth of Independent States, eastern Europe and China.
Alexander Kotchoubey, managing director of Renaissance Investment Management, which has more than $6bn in assets under management, said: “Sberbank and VTB are immune to the international credit crisis because of their minimal exposure to sub-prime and they might be able to pick up distressed assets on the cheap in foreign markets.”
Alexei Miller, chief executive of state-controlled Gazprom, announced in late May that the energy giant is aiming to have the largest market capitalisation in the world. Gazprom, which recently overtook China Mobile to become the third-largest global company, is believed to be interested in taking control of TNK-BP, the Anglo-Russian venture.
TNK-BP’s Russian shareholders are embroiled in an ownership dispute with their British counterparts, which analysts say has been caused by Kremlin pressure on both groups to sell out to a state-controlled company. Investors believe events surrounding TNK and Shell’s surrender last year of the Sakhalin-2 project contribute to the wariness among European and US legislators about Russian investment in their countries.
Weafer said in a note: “Prime Minister Putin late last year said the Government believes approximately $50bn of potential Russian investment into Europe is being blocked because of these worries.”
At the economic forum showcase in St Petersburg at the beginning of June, investors were looking for specifics on how the Government plans to progress reforms and investment plans declared before the parliamentary and presidential elections.
Kotchoubey said: “There hasn’t been a clear delineation of how power should be shared between Putin and Medvedev. Investors are aware that the immaculately turned out double-headed eagle hasn’t had its feathers preened yet.”
Jason Corcoran in Moscow
23 June 2008
Investment climate is steady as new leader continues reform agenda
Russia’s equity markets are enjoying the country’s honeymoon period under its new leadership, but investors remain wary of how the power-sharing arrangement will evolve.
The changing of the guard on May 7 saw Vladimir Putin hand over the presidential mantle to his protégé Dmitry Medvedev. Within hours, Medvedev had nominated his mentor Putin as Prime Minister.
The smooth choreography proved to be a fillip for Russia’s main stock markets and sparked a buying spree by foreign funds.
The MSCI Russia Index was the best performing emerging equity market last month, rising 15.7%, and outperforming the MSCI EM Emea index, which rose 7.3% in the same month. Inflows recorded in the third week of May of $542m (€350m) were the highest in Russia for more than two years, according to data provider Emerging Portfolio Fund Research.
Peter Halloran, chief executive of Russian hedge fund group Pharos Financial, said: “So far, their partnership has been smooth. There has been no discord and they are moving ahead with the reform agenda, which is the trick with emerging markets. It will take at least a year if we are going to see any friction between the two.”
Most investors agree the new order has yet to result in any tangible change to the investment climate due to the continuity in policies and the Government’s team.
Putin unveiled his new cabinet, handing key roles to heavyweight economic liberals, while keeping several hardliners with a secret services background on board.
Yulia Tseplayeva, chief economist at Merrill Lynch in Russia, said the early running indicated Putin was focusing on geopolitics while Medvedev was taking care of institution-building.
She said: “The transfer from Putin to Medvedev hasn’t taken place yet. It’s been a transfer from Putin to Putin-Medvedev. Putin is the main decision-maker and his significant presence is very obvious through the mass media, and the public doesn’t see any difference. It’s essentially the same team, the same policies without any major revisions.”
The best-performing sector over the past month has easily been energy, which was fired up by Putin’s statement that the tax regime in the oil sector would be eased by August. Russian Energy giants Rosneft, Surgutneftegaz, Lukoil, Gazpomneft, Transneft and Novatek rallied by between 23% and 26% last month, after the sector had failed to be swept up by the boom in global oil prices.
Tseplayeva added: “The Government could no longer afford to ignore the oil lobby as its main taxpayer. The plan to cut mineral extraction taxes for the oil sector was announced a year ago but Putin dressed it up in a very investor-friendly way and the markets responded in kind. The 100bn roubles (€2.7bn) a year will be good for the industry but it’s only 0.2% of overall GDP.”
Goldman Sachs reacted by raising its 12-month estimate for the RTS index by 12% to 2750, recommending energy blue-chips. Oil and gas stocks are expected to continue to thrive on the back of the decision to cut taxes, although it might mean other sectors have to take up the slack.
Chris Weafer, chief strategist at financial services group UralSib, believes the mining industries such as coal and metals could be most at risk. He said: “This year, there is less pressure to levy higher taxes to compensate the budget as the oil price is well above the average assumed in the budget. We believe the finance ministry could easily afford to give up $20bn to the oil industry.
“But the ministry will not want to have to bet on the oil price every year and will undoubtedly push hard for the oil tax reduction to be balanced with higher taxes on other parts of the country’s extractive industries.”
The steel sector has also been hit by suggestions the Government is considering higher export duties on steel to compensate for lost revenues from lower oil taxes.
Producers have enjoyed a surge in steel prices, pushing up costs in industries that use the metal in their production. Analysts said the losers would be companies such as Severstal, Magnitogorsk Iron & Steel Works and NLMK.
With the restructuring of the electricity grid UES almost complete, several Russian funds are betting that hydro-electricity company RusHydro will become the new proxy for the sector.
Last month, the RTS was up 15.9% while the Micex exchange’s index was ahead by 15.5%. While the lion’s share of the upside came from oil and gas, financial stocks also powered ahead with the financials index up 10.2%. Fund managers are bullish on banking blue-chips VTB and Sberbank, which have both flagged in value since their combined $18bn listings last year.
Listed construction and real estate developers have also shown signs of life after the Government approved a $570bn programme to overhaul and expand the country’s transportation infrastructure over the next seven years.
The latest GDP data shows household consumption up 13.6% in real terms during late 2007, which helps explain the continued boom in the consumer economy. Investors are keen on Russia’s second-largest retailer Magnit, which raised $490m in an April listing on the London Stock Exchange to fund expansion.
Tseplayeva said: “The consumption boom is shifting away from Moscow to regional cities such as Ekaterinburg, Novosibirsk, Krasnoyarsk and St Petersburg. Food retailers such as Magnit are primed to do well.”
All signs are that the drought of flotations experienced in the first quarter is over. Last month there was the $449m listing by freight operator Globaltrans and the $1.2bn flotation by retail group X5.
In the global capital markets, Russian companies are eyeing an expanding role. Medvedev has called on business leaders to embark on a foreign acquisition spending spree to boost technological expertise and to diversify into new markets.
Russian business conglomerate Sistema has opened its cheque book in foreign markets by taking a majority stake in Indian telecoms operator Shyam Telelink. Russian companies in the metal and steel sectors such as Severstal and Evraz have also begun to invest globally and extend their reach.
Stephen Cohen, chief executive of Troika Dialog’s fund management business, warned this trend could be to the detriment of capitalising on domestic growth. He said: “Return on equity remains high in Russia and as domestic growth remains very strong it may not be easy for Russian companies to find investment opportunities outside Russia that are as attractive as the domestic opportunities.
“Plus buying foreign companies per se does not necessarily reduce reliance on foreign technology. The solution to that problem is probably more to do with greater expenditure at home on research and development and on education and direct hiring of foreign personnel to work in Russia.”
Medvedev’s call has been answered by state-controlled companies such as savings giant Sberbank, which is looking to acquire banks in the Commonwealth of Independent States, eastern Europe and China.
Alexander Kotchoubey, managing director of Renaissance Investment Management, which has more than $6bn in assets under management, said: “Sberbank and VTB are immune to the international credit crisis because of their minimal exposure to sub-prime and they might be able to pick up distressed assets on the cheap in foreign markets.”
Alexei Miller, chief executive of state-controlled Gazprom, announced in late May that the energy giant is aiming to have the largest market capitalisation in the world. Gazprom, which recently overtook China Mobile to become the third-largest global company, is believed to be interested in taking control of TNK-BP, the Anglo-Russian venture.
TNK-BP’s Russian shareholders are embroiled in an ownership dispute with their British counterparts, which analysts say has been caused by Kremlin pressure on both groups to sell out to a state-controlled company. Investors believe events surrounding TNK and Shell’s surrender last year of the Sakhalin-2 project contribute to the wariness among European and US legislators about Russian investment in their countries.
Weafer said in a note: “Prime Minister Putin late last year said the Government believes approximately $50bn of potential Russian investment into Europe is being blocked because of these worries.”
At the economic forum showcase in St Petersburg at the beginning of June, investors were looking for specifics on how the Government plans to progress reforms and investment plans declared before the parliamentary and presidential elections.
Kotchoubey said: “There hasn’t been a clear delineation of how power should be shared between Putin and Medvedev. Investors are aware that the immaculately turned out double-headed eagle hasn’t had its feathers preened yet.”
Tuesday, 22 April 2008
Medvedev to maintain Putin’s grip
Wall Street Journal - Financial News
Jason Corcoran in Moscow
21 April 2008
Despite a new President, the Kremlin is likely to increase state control of certain sectors
Medvedev has promised to adopt many of Putin’s (pictured) policies
Russia has a new leader, but the indications are that the country’s business community will have to wait for a new political era. President-elect Dmitry Medvedev may be the first Russian leader to have worked in the private sector, but he owes his victory in the March 2 presidential election to the endorsement of his predecessor, Vladimir Putin, and has promised to adopt his mentor’s policy of tightening control of the country’s companies.
Under Putin, the Russian state has consolidated control over large sectors of the economy and several business leaders have been jailed or have fled the country. Record oil prices first brought creeping nationalisation of energy resources but state intervention is spreading to other sectors and the Kremlin is dictating the rules for foreign investors.
A strategic industries bill, which was approved by the Russian Parliament in early April, will extend state control beyond the commodities sectors. Recent raids by security services on the offices of the Russian-British joint venture TNK-BP and attempts by a federal property agency to seize control of Moscow’s privately owned Domodevo airport suggest the goal posts for investors are moving.
Arnab Das, global head of emerging markets strategy at Dresdner Kleinwort, said: “Russia is reasserting itself as a counterweight to the US and economics is a tool in its armoury. Medvedev and Putin will continue to try to balance geopolitical goals with the need to have free and fair markets.
“The statists, rather than the free-marketeers, may seem to have the upper hand now but the integration of Russia into global financial and trading systems is helping the reform agenda despite the backsliding we have seen with the introduction of price controls.”
The strategic industries law, which was passed in the Duma at the beginning of this month, lists 42 sectors that will be categorised as strategic and in which foreign investments will be either prohibited or limited. The law will require non-state foreign investors to receive permission from the Russian authorities to acquire 50% or more of a company. In the oil and gas sectors, limitations are substantially stricter with the limits of participation set at 10% for foreign companies and 5% for sovereign wealth funds. Foreign investors that already own more than 5% of a strategic company will be required to declare their holdings to the Russian Government.
Igor Lebedinets, analyst at Russian bank Renaissance Capital, said: “We believe the adoption of this bill is mainly aimed at increasing the Government’s influence in major sectors of the economy, including mass-media although the internet sector is excluded from the list. We have a negative view of the bill because we think it might create additional bureaucracy barriers for foreign investment deals and may slow growth in these industries.”
The list has expanded since 2005, when Putin first ordered the legislative changes. In addition to defence, energy, aircraft and aerospace industries, and critical infrastructure – all of which have long been deemed strategic – the legislation accounts for nanotechnology, fisheries and the late inclusion of mobile telecommunication.
The Government says it needs to resuscitate strategic sectors that have suffered from a lack of investment since the collapse of the Soviet Union, but critics argue the policy is anti-competitive and will dissuade foreign direct investment.
Bankers say investors are aware of the state’s increasing role in designated strategic sectors and that the potential benefits of gaining exposure to a country enjoying a prolonged economic boom – where annual gross domestic product is forecast at 7% in 2008 – outweighed the political risks.
Ivailo Vesselinov, senior economist at Dresdner Kleinwort, said: “Foreign companies involved in oil and gas are well aware of the risk factors involved and of the existence of an environmental regulator who monitors the industry, but on a risk-adjusted basis they realise there is nonetheless a lot of profit to be made on the ground.”
Steven Hellman, head of client coverage in Russia for Credit Suisse, said national sponsorship of select industries, or even re-nationalisation, can be positive in the short term if it encourages investment in underdeveloped sectors of the economy. He said: “The technology and automotive industries would be examples. Of course, this must be done in a manner that is fair to all shareholders and there comes a point when market forces should be allowed to take over to ensure efficient development for the future.”
The apparent renationalisation of Russia’s resource sector was a recurring theme during the Putin presidency.
State-controlled gas company Gazprom flexed its muscles last year by taking control of Sakhalin-2, Russia’s largest combined oil and natural gas development, after a campaign against foreign operator Royal Dutch Shell over alleged environmental violations. The Russian-British joint venture TNK-BP is this month likely to finalise the sale of its stake in the Kovykta gas field to Gazprom. TNK-BP, co-owned by BP and a group of Russian billionaires, has been subject to speculation that the Kremlin wants the Russian owners to sell their stakes to a state organisation to let the Kremlin tighten its grip on the energy sector.
Analysts interpreted a recent search of TNK-BP’s offices by the Federal Security Service and the arrest of an employee on suspicion of industrial espionage as signs the Government is increasing pressure on the owners to sell. Russia’s Federal Migration Service said it was not conducting a concerted effort against UK energy group BP, which recalled its 148 foreign employees because of “a lack of clarity over their current visa status”.
Home-grown energy companies and their oligarch owners have also come under the spotlight of resource nationalism.
The Kremlin is seeking the extradition from the UK of Mikhail Gutseriyev, the owner of the oil company RussNeft, who fled Russia last year after accusing the state of forcing him to sell his company through the levying of politicised tax charges.
The RussNeft case echoes that of the oil group Yukos, which ceased to exist from last November following the carve-up of its assets during the summer and the continued incarceration in Siberia of its former owner Mikhail Khodorkovsky on tax evasion charges.
Nick Jordan, head of Lehman Brothers’ Russian operation, said that the apparent renationalisations have involved acquisitions of assets at fair market value. As head of investment banking at Deutsche Bank, Jordan was involved in advising Gazprom on its bid to acquire the Yukos production asset Yuganskneftegas. An auction was later held and Yuganskneftegas was sold for $9bn (€5.7bn) to Rosneft, a rival energy company.
In an interview with Financial News, Jordan said: “The transition from communism to what we have at present has not been perfect but there has been an overly strict focus on this Russian transition. I would say it is fairer to compare the natural resources sector with its emerging market peer group. Look at the Middle East and Latin America and how many of those companies have been sold to foreigners or are public.”
Jordan, who also advised Gazprom-Media on its successful campaign to seize control of independent television station NTV, believes the term renationalisation has been used loosely in Russia.
He said: “It is a term that has been used rather generally here for a number of years. In almost all cases where a company has been brought back under Government control, it has continued to reissue shares to the public or has retained its public share ownership, which means it is not nationalised in technical terms. In each case there has either been an acquisition at fair market value or there has been a local legal process”
In the latest tug-of-war over private assets, East Line, the owner of Moscow’s Domodevo airport, is fighting an attempt by the Federal Agency for Federal Property Management to nationalise some of its assets. The agency claims the terminal was illegally privatised a decade ago. Das said foreign investors and politicians are right to adopt divergent views of such attempts by the state to reclaim prized assets. He said: “Whether renationalisation is creeping or galloping in Russia, it is bad news for what the country wants to achieve economically. The International Monetary Fund, the World Bank and the US Treasury are right to view what is happening in prescriptive ideological terms.
“That is what they are there for, just as bankers and businessmen are right to reconcile what is happening as a function of the state and part of the economic cycle, and should be expected to position themselves to do business in that context.”
Jason Corcoran in Moscow
21 April 2008
Despite a new President, the Kremlin is likely to increase state control of certain sectors
Medvedev has promised to adopt many of Putin’s (pictured) policies Russia has a new leader, but the indications are that the country’s business community will have to wait for a new political era. President-elect Dmitry Medvedev may be the first Russian leader to have worked in the private sector, but he owes his victory in the March 2 presidential election to the endorsement of his predecessor, Vladimir Putin, and has promised to adopt his mentor’s policy of tightening control of the country’s companies.
Under Putin, the Russian state has consolidated control over large sectors of the economy and several business leaders have been jailed or have fled the country. Record oil prices first brought creeping nationalisation of energy resources but state intervention is spreading to other sectors and the Kremlin is dictating the rules for foreign investors.
A strategic industries bill, which was approved by the Russian Parliament in early April, will extend state control beyond the commodities sectors. Recent raids by security services on the offices of the Russian-British joint venture TNK-BP and attempts by a federal property agency to seize control of Moscow’s privately owned Domodevo airport suggest the goal posts for investors are moving.
Arnab Das, global head of emerging markets strategy at Dresdner Kleinwort, said: “Russia is reasserting itself as a counterweight to the US and economics is a tool in its armoury. Medvedev and Putin will continue to try to balance geopolitical goals with the need to have free and fair markets.
“The statists, rather than the free-marketeers, may seem to have the upper hand now but the integration of Russia into global financial and trading systems is helping the reform agenda despite the backsliding we have seen with the introduction of price controls.”
The strategic industries law, which was passed in the Duma at the beginning of this month, lists 42 sectors that will be categorised as strategic and in which foreign investments will be either prohibited or limited. The law will require non-state foreign investors to receive permission from the Russian authorities to acquire 50% or more of a company. In the oil and gas sectors, limitations are substantially stricter with the limits of participation set at 10% for foreign companies and 5% for sovereign wealth funds. Foreign investors that already own more than 5% of a strategic company will be required to declare their holdings to the Russian Government.
Igor Lebedinets, analyst at Russian bank Renaissance Capital, said: “We believe the adoption of this bill is mainly aimed at increasing the Government’s influence in major sectors of the economy, including mass-media although the internet sector is excluded from the list. We have a negative view of the bill because we think it might create additional bureaucracy barriers for foreign investment deals and may slow growth in these industries.”
The list has expanded since 2005, when Putin first ordered the legislative changes. In addition to defence, energy, aircraft and aerospace industries, and critical infrastructure – all of which have long been deemed strategic – the legislation accounts for nanotechnology, fisheries and the late inclusion of mobile telecommunication.
The Government says it needs to resuscitate strategic sectors that have suffered from a lack of investment since the collapse of the Soviet Union, but critics argue the policy is anti-competitive and will dissuade foreign direct investment.
Bankers say investors are aware of the state’s increasing role in designated strategic sectors and that the potential benefits of gaining exposure to a country enjoying a prolonged economic boom – where annual gross domestic product is forecast at 7% in 2008 – outweighed the political risks.
Ivailo Vesselinov, senior economist at Dresdner Kleinwort, said: “Foreign companies involved in oil and gas are well aware of the risk factors involved and of the existence of an environmental regulator who monitors the industry, but on a risk-adjusted basis they realise there is nonetheless a lot of profit to be made on the ground.”
Steven Hellman, head of client coverage in Russia for Credit Suisse, said national sponsorship of select industries, or even re-nationalisation, can be positive in the short term if it encourages investment in underdeveloped sectors of the economy. He said: “The technology and automotive industries would be examples. Of course, this must be done in a manner that is fair to all shareholders and there comes a point when market forces should be allowed to take over to ensure efficient development for the future.”
The apparent renationalisation of Russia’s resource sector was a recurring theme during the Putin presidency.
State-controlled gas company Gazprom flexed its muscles last year by taking control of Sakhalin-2, Russia’s largest combined oil and natural gas development, after a campaign against foreign operator Royal Dutch Shell over alleged environmental violations. The Russian-British joint venture TNK-BP is this month likely to finalise the sale of its stake in the Kovykta gas field to Gazprom. TNK-BP, co-owned by BP and a group of Russian billionaires, has been subject to speculation that the Kremlin wants the Russian owners to sell their stakes to a state organisation to let the Kremlin tighten its grip on the energy sector.
Analysts interpreted a recent search of TNK-BP’s offices by the Federal Security Service and the arrest of an employee on suspicion of industrial espionage as signs the Government is increasing pressure on the owners to sell. Russia’s Federal Migration Service said it was not conducting a concerted effort against UK energy group BP, which recalled its 148 foreign employees because of “a lack of clarity over their current visa status”.
Home-grown energy companies and their oligarch owners have also come under the spotlight of resource nationalism.
The Kremlin is seeking the extradition from the UK of Mikhail Gutseriyev, the owner of the oil company RussNeft, who fled Russia last year after accusing the state of forcing him to sell his company through the levying of politicised tax charges.
The RussNeft case echoes that of the oil group Yukos, which ceased to exist from last November following the carve-up of its assets during the summer and the continued incarceration in Siberia of its former owner Mikhail Khodorkovsky on tax evasion charges.
Nick Jordan, head of Lehman Brothers’ Russian operation, said that the apparent renationalisations have involved acquisitions of assets at fair market value. As head of investment banking at Deutsche Bank, Jordan was involved in advising Gazprom on its bid to acquire the Yukos production asset Yuganskneftegas. An auction was later held and Yuganskneftegas was sold for $9bn (€5.7bn) to Rosneft, a rival energy company.
In an interview with Financial News, Jordan said: “The transition from communism to what we have at present has not been perfect but there has been an overly strict focus on this Russian transition. I would say it is fairer to compare the natural resources sector with its emerging market peer group. Look at the Middle East and Latin America and how many of those companies have been sold to foreigners or are public.”
Jordan, who also advised Gazprom-Media on its successful campaign to seize control of independent television station NTV, believes the term renationalisation has been used loosely in Russia.
He said: “It is a term that has been used rather generally here for a number of years. In almost all cases where a company has been brought back under Government control, it has continued to reissue shares to the public or has retained its public share ownership, which means it is not nationalised in technical terms. In each case there has either been an acquisition at fair market value or there has been a local legal process”
In the latest tug-of-war over private assets, East Line, the owner of Moscow’s Domodevo airport, is fighting an attempt by the Federal Agency for Federal Property Management to nationalise some of its assets. The agency claims the terminal was illegally privatised a decade ago. Das said foreign investors and politicians are right to adopt divergent views of such attempts by the state to reclaim prized assets. He said: “Whether renationalisation is creeping or galloping in Russia, it is bad news for what the country wants to achieve economically. The International Monetary Fund, the World Bank and the US Treasury are right to view what is happening in prescriptive ideological terms.
“That is what they are there for, just as bankers and businessmen are right to reconcile what is happening as a function of the state and part of the economic cycle, and should be expected to position themselves to do business in that context.”
Monday, 3 March 2008
Poster power looms large in Putin’s Russia
Financial News
By Jason Corcoran
03 March 2008
Letter from Moscow
A massive billboard featuring President Vladimir Putin walking next to a grinning Dmitry Medvedev looms large on the plaza leading to Red Square.
The words underneath the image of the outgoing President and his hand-picked successor read: “Together we will win.”
Yesterday’s presidential election wasn’t a question of if President Putin’s protégé would win, but by how much.
A carefully choreographed campaign and a near monopoly by the Kremlin ruling party of television and outdoor advertising almost guarantees Medvedev will be confirmed as the next President of Russia this week.
The image of Medvedev and Putin adorning the scaffolding of the city’s forthcoming Four Seasons Hotel had replaced a Rolex ad featuring tennis player Marat Safin in action.
A Moscow advertising source claimed officials from Putin’s United Russia party had secured billboard space for the elections in locations around the city at well below market rates.
Advertising has become big business in a city where designer brands have become important status symbols for nouveau riche Russians and the wannabes.
Companies spent a record 123bn roubles on advertising in Russia in the first nine months of last year, 24% higher than in the same period last year, according Russia’s Association of Communication Agencies.
Russia’s biggest player in billboard advertising is News Outdoor Group.
Its parent said last year it might sell the company, which owns more than 50,000 ad displays on billboards and bus shelters throughout Russia and the other Commonwealth of Independent States countries. Goldman Sachs has been retained to look at “strategic options”, which could also include attracting private equity partners.
The Moscow City Government claimed the company owed about $15.5m in unpaid fees for advertising space. It said the company has unjustly claimed discounts of up to 90%.
News Outdoor denied an inspection by ministry officials was related to the payment demands and assured customers and partners the incident would have no impact on its work.
Gallery Group, Russia’s second-largest operator recently acquired small operator Gorod Media and is plotting an initial public offering to fund more acquisitions and to challenge News Outdoor’s position.
While other forms of advertising on television and online are growing, the outdoor market in Moscow seems to be reaching saturation point.
Pressure on the industry is due to increase following the Government’s announcement it will create three advertising-free zones by the end of year.
The first zone being proposed is the area around the Kremlin’s embankments and the nearby Cathedral of Christ the Saviour.
Other zones concern the space surrounding the city’s Novodevichy Convent and Kolomenskoye Estate.
This move will require the demolition of thousands of advertising hoardings, which generate their owners an estimated $15m a year.
The operators generally have five-year contracts to operate the billboards and are expected to receive some form of compensation.
It is not yet clear whether the Moscow authorities will preclude Government-sponsored advertising in these zones. Some of the most pervasive advertising over the past few months has been for “Putin’s Plan”, “Medvedev’s Course” and, last summer, for VTB’s “People’s IPO”.
By Jason Corcoran
03 March 2008
Letter from Moscow
A massive billboard featuring President Vladimir Putin walking next to a grinning Dmitry Medvedev looms large on the plaza leading to Red Square.
The words underneath the image of the outgoing President and his hand-picked successor read: “Together we will win.”
Yesterday’s presidential election wasn’t a question of if President Putin’s protégé would win, but by how much.
A carefully choreographed campaign and a near monopoly by the Kremlin ruling party of television and outdoor advertising almost guarantees Medvedev will be confirmed as the next President of Russia this week.
The image of Medvedev and Putin adorning the scaffolding of the city’s forthcoming Four Seasons Hotel had replaced a Rolex ad featuring tennis player Marat Safin in action.
A Moscow advertising source claimed officials from Putin’s United Russia party had secured billboard space for the elections in locations around the city at well below market rates.
Advertising has become big business in a city where designer brands have become important status symbols for nouveau riche Russians and the wannabes.
Companies spent a record 123bn roubles on advertising in Russia in the first nine months of last year, 24% higher than in the same period last year, according Russia’s Association of Communication Agencies.
Russia’s biggest player in billboard advertising is News Outdoor Group.
Its parent said last year it might sell the company, which owns more than 50,000 ad displays on billboards and bus shelters throughout Russia and the other Commonwealth of Independent States countries. Goldman Sachs has been retained to look at “strategic options”, which could also include attracting private equity partners.
The Moscow City Government claimed the company owed about $15.5m in unpaid fees for advertising space. It said the company has unjustly claimed discounts of up to 90%.
News Outdoor denied an inspection by ministry officials was related to the payment demands and assured customers and partners the incident would have no impact on its work.
Gallery Group, Russia’s second-largest operator recently acquired small operator Gorod Media and is plotting an initial public offering to fund more acquisitions and to challenge News Outdoor’s position.
While other forms of advertising on television and online are growing, the outdoor market in Moscow seems to be reaching saturation point.
Pressure on the industry is due to increase following the Government’s announcement it will create three advertising-free zones by the end of year.
The first zone being proposed is the area around the Kremlin’s embankments and the nearby Cathedral of Christ the Saviour.
Other zones concern the space surrounding the city’s Novodevichy Convent and Kolomenskoye Estate.
This move will require the demolition of thousands of advertising hoardings, which generate their owners an estimated $15m a year.
The operators generally have five-year contracts to operate the billboards and are expected to receive some form of compensation.
It is not yet clear whether the Moscow authorities will preclude Government-sponsored advertising in these zones. Some of the most pervasive advertising over the past few months has been for “Putin’s Plan”, “Medvedev’s Course” and, last summer, for VTB’s “People’s IPO”.
Monday, 17 December 2007
Staff the winners as banks race for talent in Russia
OFinancial News
Jason Corcoran
17 December 2007
Political unrest continued to play havoc with deals
Charles Ryan, Deutsche Bank: A lot of our competitors are becoming increasingly desperate because they can’t achieve scale
A war for investment banking talent in Moscow during the past year led a senior executive at Deutsche Bank in Russia to compare the hiring spree with “a French farce”.
Competition between bulge brackets and domestic banks to sign Russia’s leading rainmakers resulted in remuneration packages comparable with those of footballers. Ed Kaufman is reputed to have been lured from UBS, where he was head of Russia, to become chief executive of investment banking at Alfa Bank by a guarantee of $20m (€13.6m) over two years while managing directors can net an average $3m pay packet, according to research by US publisher Forbes.
A boom in consumer spending, oil tilting towards $100 a barrel, record numbers of initial public offerings and a high growth rate spurred the scramble for talent.
Deutsche’s Russian operation, under chief executive Charles Ryan, has been hit by more defections than most. Its top Russian rainmaker Nick Jordan left for Lehman Brothers and his investment banking co-head Ilya Sherbovich is quitting next year to start a boutique. Several colleagues followed in their wake.
Ryan, whose contract expires next year, is nonplussed by the comings and goings. He said the bank continued to rank high in the capital markets league tables.
He said: “I have seen this movie before. Moscow is not a get-rich scheme because you need to have all the pieces of infrastructure in place, like we do. A lot of our competitors are becoming desperate because they can’t achieve scale. They are playing tennis without a net.”
Goldman Sachs, Lehman Brothers and Nomura returned to the country this year having fled after the 1998 financial crisis. The entrants have yet to make an impression on the league tables, where Deutsche, Merrill Lynch, ABN Amro, JP Morgan and Russia’s Renaissance Capital dominate. Russia’s much-anticipated IPO boom petered out in the autumn thanks to a combination of the credit crunch and investor apprehension ahead of the political elections.
Politicians and bullish analysts had forecast tens of IPOs for every quarter of the year, but the summer listings of state-controlled banks VTB and Sberbank – and their subsequent poor performance – sapped liquidity and investor appetite.
Chris Weafer, chief strategist at Uralsib, predicts total IPO business will reach $40bn in 2007, compared with $33bn last year. He said: “It wasn’t quite the big banner year many people expected.”
The US sub-prime problems sparked a sell-off in emerging markets and led to Russian IPOs being postponed during the final quarter.
Rusal, the world’s largest aluminium producer, pulled its $9bn London flotation in late September and was followed by several others, including Zenit Bank, Prosperity Capital and X5 Retail.
Igor Lojevsky, head of global banking and capital markets for Russia at Dresdner Kleinwort, said: “There was supposed to be a flood of institutions coming to the market this year but it didn’t really happen. Institutions have been distracted by the credit crunch, with many Russian companies putting off capital-raising plans since the end of September.”
The arrest of Deputy Finance Minister Sergei Storchak last month on charges of attempting to embezzle $43m raised the question of whether there is a serious rift between Kremlin factions about economic policy.
Storchak, who is allied to the Finance Minister Alexei Kudrin, is responsible for the country’s stabilisation fund and some think his arrest might be connected to the debate about how to invest oil reserves.
Kudrin supports an approach similar to that of Norway’s future generations fund, while it appears the Kremlin’s statists think all the money should be made available for spending on infrastructure and to develop strategic industries.
Weafer said: “I hope it’s not an attack on Kudrin. He and his allies are seen as a stabilising pro-market force. Any suggestion that he is under attack is bad news for the economy.”
The blurring of lines between politics and business was made explicit when two oil companies, Royal Dutch Shell and BP, ceded control of assets in Russia following pressure from the Kremlin. Shell was forced to cede control in Sakhalin-2, the world’s biggest liquefied natural gas project, to gas monopoly Gazprom, while TNK-BP had to sell its giant Kovykta gas field to Gazprom.
The case of beleaguered oil company RussNeft had echoes of Yukos, which ceased to exist from November following the carve-up of its assets during the summer and the continued incarceration of its former owner Mikhail Khodorkovsky in Siberia on tax evasion charges.
RussNeft’s owner Mikhail Gutseriyev fled the country for London, claiming he was the victim of political persecution. His private company, once the country’s seventh-largest petroleum producer, was saddled with back-tax charges and was seized by a court.
Oligarch Oleg Deripaska looks set to be the benefactor of Gutseriyev’s misfortune, having applied to the anti-monopoly service to acquire RussNeft’s assets.
Deripaska, whose estimated $20bn fortune includes Rusal, one of the world’s largest aluminium companies, is Russia’s leading dealmaker of the year.
Rusal was formed this year through a three-way merger of Russian Aluminum, Sual and the alumina assets of Swiss trader Glencore.
Deripaska also emerged as a 5% shareholder in US carmaker General Motors while his investment vehicle took a 20% stake in Canadian car manufacturer Magna and sizeable stakes in European construction companies Strabag and Hochtief.
Rusal looks set to acquire a blocking stake in Norilsk Nickel, the world’s largest nickel and palladium producer, in a deal that could create a Russian national champion in the metals sector with a market value of $100bn.
Deripaska, a former Soviet army sergeant with close ties to President Vladimir Putin, still appears to be serving his country. He alarmed investors this year when he declared himself as little more than a caretaker of assets for the state.
Jason Corcoran
17 December 2007
Political unrest continued to play havoc with deals
Charles Ryan, Deutsche Bank: A lot of our competitors are becoming increasingly desperate because they can’t achieve scale
A war for investment banking talent in Moscow during the past year led a senior executive at Deutsche Bank in Russia to compare the hiring spree with “a French farce”.
Competition between bulge brackets and domestic banks to sign Russia’s leading rainmakers resulted in remuneration packages comparable with those of footballers. Ed Kaufman is reputed to have been lured from UBS, where he was head of Russia, to become chief executive of investment banking at Alfa Bank by a guarantee of $20m (€13.6m) over two years while managing directors can net an average $3m pay packet, according to research by US publisher Forbes.
A boom in consumer spending, oil tilting towards $100 a barrel, record numbers of initial public offerings and a high growth rate spurred the scramble for talent.
Deutsche’s Russian operation, under chief executive Charles Ryan, has been hit by more defections than most. Its top Russian rainmaker Nick Jordan left for Lehman Brothers and his investment banking co-head Ilya Sherbovich is quitting next year to start a boutique. Several colleagues followed in their wake.
Ryan, whose contract expires next year, is nonplussed by the comings and goings. He said the bank continued to rank high in the capital markets league tables.
He said: “I have seen this movie before. Moscow is not a get-rich scheme because you need to have all the pieces of infrastructure in place, like we do. A lot of our competitors are becoming desperate because they can’t achieve scale. They are playing tennis without a net.”
Goldman Sachs, Lehman Brothers and Nomura returned to the country this year having fled after the 1998 financial crisis. The entrants have yet to make an impression on the league tables, where Deutsche, Merrill Lynch, ABN Amro, JP Morgan and Russia’s Renaissance Capital dominate. Russia’s much-anticipated IPO boom petered out in the autumn thanks to a combination of the credit crunch and investor apprehension ahead of the political elections.
Politicians and bullish analysts had forecast tens of IPOs for every quarter of the year, but the summer listings of state-controlled banks VTB and Sberbank – and their subsequent poor performance – sapped liquidity and investor appetite.
Chris Weafer, chief strategist at Uralsib, predicts total IPO business will reach $40bn in 2007, compared with $33bn last year. He said: “It wasn’t quite the big banner year many people expected.”
The US sub-prime problems sparked a sell-off in emerging markets and led to Russian IPOs being postponed during the final quarter.
Rusal, the world’s largest aluminium producer, pulled its $9bn London flotation in late September and was followed by several others, including Zenit Bank, Prosperity Capital and X5 Retail.
Igor Lojevsky, head of global banking and capital markets for Russia at Dresdner Kleinwort, said: “There was supposed to be a flood of institutions coming to the market this year but it didn’t really happen. Institutions have been distracted by the credit crunch, with many Russian companies putting off capital-raising plans since the end of September.”
The arrest of Deputy Finance Minister Sergei Storchak last month on charges of attempting to embezzle $43m raised the question of whether there is a serious rift between Kremlin factions about economic policy.
Storchak, who is allied to the Finance Minister Alexei Kudrin, is responsible for the country’s stabilisation fund and some think his arrest might be connected to the debate about how to invest oil reserves.
Kudrin supports an approach similar to that of Norway’s future generations fund, while it appears the Kremlin’s statists think all the money should be made available for spending on infrastructure and to develop strategic industries.
Weafer said: “I hope it’s not an attack on Kudrin. He and his allies are seen as a stabilising pro-market force. Any suggestion that he is under attack is bad news for the economy.”
The blurring of lines between politics and business was made explicit when two oil companies, Royal Dutch Shell and BP, ceded control of assets in Russia following pressure from the Kremlin. Shell was forced to cede control in Sakhalin-2, the world’s biggest liquefied natural gas project, to gas monopoly Gazprom, while TNK-BP had to sell its giant Kovykta gas field to Gazprom.
The case of beleaguered oil company RussNeft had echoes of Yukos, which ceased to exist from November following the carve-up of its assets during the summer and the continued incarceration of its former owner Mikhail Khodorkovsky in Siberia on tax evasion charges.
RussNeft’s owner Mikhail Gutseriyev fled the country for London, claiming he was the victim of political persecution. His private company, once the country’s seventh-largest petroleum producer, was saddled with back-tax charges and was seized by a court.
Oligarch Oleg Deripaska looks set to be the benefactor of Gutseriyev’s misfortune, having applied to the anti-monopoly service to acquire RussNeft’s assets.
Deripaska, whose estimated $20bn fortune includes Rusal, one of the world’s largest aluminium companies, is Russia’s leading dealmaker of the year.
Rusal was formed this year through a three-way merger of Russian Aluminum, Sual and the alumina assets of Swiss trader Glencore.
Deripaska also emerged as a 5% shareholder in US carmaker General Motors while his investment vehicle took a 20% stake in Canadian car manufacturer Magna and sizeable stakes in European construction companies Strabag and Hochtief.
Rusal looks set to acquire a blocking stake in Norilsk Nickel, the world’s largest nickel and palladium producer, in a deal that could create a Russian national champion in the metals sector with a market value of $100bn.
Deripaska, a former Soviet army sergeant with close ties to President Vladimir Putin, still appears to be serving his country. He alarmed investors this year when he declared himself as little more than a caretaker of assets for the state.
Tuesday, 2 October 2007
Speculation mounts about Putin’s successor
Financial News
Jason Corcoran
01 Oct 2007
Letter from Moscow
Huge billboards bearing the slogan “Putin’s Plan – Russia’s Victory” against the background of the Russian flag have been sprouting up all over Moscow during the past month.
While the signs do not carry the slogan of any political group, they are believed be a subliminal message from the United Russia party, a strong backer of President Vladimir Putin.
The mystery behind the advertising campaign has tickled the curiosity of Russia’s blogosphere. One blogger thought it referred to Putin’s involvement in Sochi’s winning bid for the 2014 Winter Olympics; another said it hinted at Putin’s secret blueprint for reforming the former USSR; it reminded another user of slogans from Brezhnev’s Soviet era.
Whatever the message’s meaning, it is clear the Kremlin is in election mode and gearing up for the parliamentary contest on December 2 and the presidential elections in March.
Putin last week appointed a new cabinet charged with preparing the country for election. There was no purge of cabinet members – only three ministers made way for new blood. Economics Minister German Gref, who had indicated his wish to move into the private sector, was replaced by his former deputy Elvira Nabiullina.
The criticised Minister for Health Mikhail Zurabov was replaced by former Deputy Finance Minister Tatiana Golikova, while Regional Development Minister Vladimir Yakovlev made way for Putin ally Dmitry Kozak.
Ministers believed to be on shaky ground, including Deputy Prime Minister Dmitry Medvedev and Finance Minister Alexei Kudrin, retained their roles, with the latter promoted to rank of Deputy Prime Minister.
Kudrin, a liberal economic reformer, is the biggest winner in the reshuffle. One of his main tasks is to structure the growing stabilisation fund. Both he and Gref clashed with Putin this year about how Russia should spend its oil wealth.
The two have been pushing for the creation of a reserve fund similar to Norway’s state pension fund with a mandate to invest in foreign securities. Putin raised the prospect of using the windfall to support ailing domestic blue-chip companies, a move that analysts said could lead to the economy overheating.
Gref – an outspoken critic of the state champion energy model – might have been squeezed out for failing to secure Russia’s membership of the World Trade Organisation.
Moscow’s investors agree the changes strengthened the hand of the cabinet’s reform faction in spite of Gref’s departure.
The new cabinet is also striking for its number of family ties. Prime Minister Zubkov is the Defence Minister’s father-in-law, the new Energy Minister Golikova is the Health Minister’s husband, and the Justice Minister’s son is married to the deputy Kremlin chief of staff’s daughter.
The naming of new government comes a week after Viktor Zubkov, an obscure technocrat who had overseen money laundering investigation, became Prime Minister in a move that surprised most Kremlinologists and stoked speculation about Putin’s successor.
Putin, himself plucked from obscurity by former President Boris Yeltsin, suggested Zubkov could be a contender to take over when he steps down. Zubkov, a one-time farmer in a St Petersburg collective, has been playing up his chances of taking the top job just two weeks into his premiership.
Analysts say the reshuffle has also thrust Development Minister Kozak into the limelight as a potential contender with front-runners Deputy Prime Minister Sergei Ivanov and Medvedev.
Ultimately, the political changes did nothing to dent investor sentiment and much to increase confusion about who will follow Putin as President.
www.efinancialnews.com
Jason Corcoran
01 Oct 2007
Letter from Moscow
Huge billboards bearing the slogan “Putin’s Plan – Russia’s Victory” against the background of the Russian flag have been sprouting up all over Moscow during the past month.
While the signs do not carry the slogan of any political group, they are believed be a subliminal message from the United Russia party, a strong backer of President Vladimir Putin.
The mystery behind the advertising campaign has tickled the curiosity of Russia’s blogosphere. One blogger thought it referred to Putin’s involvement in Sochi’s winning bid for the 2014 Winter Olympics; another said it hinted at Putin’s secret blueprint for reforming the former USSR; it reminded another user of slogans from Brezhnev’s Soviet era.
Whatever the message’s meaning, it is clear the Kremlin is in election mode and gearing up for the parliamentary contest on December 2 and the presidential elections in March.
Putin last week appointed a new cabinet charged with preparing the country for election. There was no purge of cabinet members – only three ministers made way for new blood. Economics Minister German Gref, who had indicated his wish to move into the private sector, was replaced by his former deputy Elvira Nabiullina.
The criticised Minister for Health Mikhail Zurabov was replaced by former Deputy Finance Minister Tatiana Golikova, while Regional Development Minister Vladimir Yakovlev made way for Putin ally Dmitry Kozak.
Ministers believed to be on shaky ground, including Deputy Prime Minister Dmitry Medvedev and Finance Minister Alexei Kudrin, retained their roles, with the latter promoted to rank of Deputy Prime Minister.
Kudrin, a liberal economic reformer, is the biggest winner in the reshuffle. One of his main tasks is to structure the growing stabilisation fund. Both he and Gref clashed with Putin this year about how Russia should spend its oil wealth.
The two have been pushing for the creation of a reserve fund similar to Norway’s state pension fund with a mandate to invest in foreign securities. Putin raised the prospect of using the windfall to support ailing domestic blue-chip companies, a move that analysts said could lead to the economy overheating.
Gref – an outspoken critic of the state champion energy model – might have been squeezed out for failing to secure Russia’s membership of the World Trade Organisation.
Moscow’s investors agree the changes strengthened the hand of the cabinet’s reform faction in spite of Gref’s departure.
The new cabinet is also striking for its number of family ties. Prime Minister Zubkov is the Defence Minister’s father-in-law, the new Energy Minister Golikova is the Health Minister’s husband, and the Justice Minister’s son is married to the deputy Kremlin chief of staff’s daughter.
The naming of new government comes a week after Viktor Zubkov, an obscure technocrat who had overseen money laundering investigation, became Prime Minister in a move that surprised most Kremlinologists and stoked speculation about Putin’s successor.
Putin, himself plucked from obscurity by former President Boris Yeltsin, suggested Zubkov could be a contender to take over when he steps down. Zubkov, a one-time farmer in a St Petersburg collective, has been playing up his chances of taking the top job just two weeks into his premiership.
Analysts say the reshuffle has also thrust Development Minister Kozak into the limelight as a potential contender with front-runners Deputy Prime Minister Sergei Ivanov and Medvedev.
Ultimately, the political changes did nothing to dent investor sentiment and much to increase confusion about who will follow Putin as President.
www.efinancialnews.com
Monday, 10 September 2007
The Guardian: View from Russia
The Guardian
September 6, 2007
By Jason Corcoran in Moscow
Public/private partnerships have become the great hope of the Russian government in the quest to regenerate the country's dilapidated Soviet-era infrastructure.
Investment in crumbling roads, railway, ports, utilities and municipal services, was a central theme of President Vladimir Putin's recent final state of the union address. Putin said public spending would not be the main source, but would act as a catalyst for private investment. "The state should put its shoulder to the wheel, in cases where the risk for private investors is too great."
Infrastructure investment has fallen short in recent years, despite growing oil revenues. The Kremlin is banking on private investors stumping up billions to finance 10 big projects, which have been seeded with money from the government's investment fund. According to investment bank Merrill Lynch, infrastructure spending in Russia will reach £90bn over the next three years.
Innokenty Ivanov, a senior lawyer at Freshfields Bruckhaus Deringer in Moscow, said a lot of the impetus for PPPs is coming from the regional and federal level level. "Putin has issued the clarion call but it's the regional governors, the minister for transport Igor Levitin and the minister of economic development and trade German Gref who have been hands on," said Ivanov, who is advising the federal government on PPPs.
The government is also discussing whether to set up a PPP unit to supervise the growing number of projects. For the first 10 infrastructure projects selected for tendering, the Ministry of Economic Trade and Development has set a target of £15bn for private money, a 20:1 ratio on the government's initial commitment of £750,000.
The £1.5bn western high-speed toll motorway encircling St Petersburg is to be the first project, with the winning consortium and the new law on concession agreements due to be announced this autumn. The eight-lane highway stretching over 33 miles, with 13 bridges and a viaduct, will take an estimated six years to construct.
Government financing is in place for further works in St Petersburg such as the Orlovsky tunnel under the Neva River, a high-speed elevated railway and £3.5bn toll road linking up with Moscow. Other major PPPs include a road link to the Moscow-Minsk highway, an oil-refinery complex in Tatarstan, an energy-industrial complex on the Angara river and reconstruction of sewerage plants in Rostov-na-Danu.
Read the full article in this month's Public
http://www.guardian.co.uk/public/movers/0,,1555557,00.html
September 6, 2007
By Jason Corcoran in Moscow
Public/private partnerships have become the great hope of the Russian government in the quest to regenerate the country's dilapidated Soviet-era infrastructure.
Investment in crumbling roads, railway, ports, utilities and municipal services, was a central theme of President Vladimir Putin's recent final state of the union address. Putin said public spending would not be the main source, but would act as a catalyst for private investment. "The state should put its shoulder to the wheel, in cases where the risk for private investors is too great."
Infrastructure investment has fallen short in recent years, despite growing oil revenues. The Kremlin is banking on private investors stumping up billions to finance 10 big projects, which have been seeded with money from the government's investment fund. According to investment bank Merrill Lynch, infrastructure spending in Russia will reach £90bn over the next three years.
Innokenty Ivanov, a senior lawyer at Freshfields Bruckhaus Deringer in Moscow, said a lot of the impetus for PPPs is coming from the regional and federal level level. "Putin has issued the clarion call but it's the regional governors, the minister for transport Igor Levitin and the minister of economic development and trade German Gref who have been hands on," said Ivanov, who is advising the federal government on PPPs.
The government is also discussing whether to set up a PPP unit to supervise the growing number of projects. For the first 10 infrastructure projects selected for tendering, the Ministry of Economic Trade and Development has set a target of £15bn for private money, a 20:1 ratio on the government's initial commitment of £750,000.
The £1.5bn western high-speed toll motorway encircling St Petersburg is to be the first project, with the winning consortium and the new law on concession agreements due to be announced this autumn. The eight-lane highway stretching over 33 miles, with 13 bridges and a viaduct, will take an estimated six years to construct.
Government financing is in place for further works in St Petersburg such as the Orlovsky tunnel under the Neva River, a high-speed elevated railway and £3.5bn toll road linking up with Moscow. Other major PPPs include a road link to the Moscow-Minsk highway, an oil-refinery complex in Tatarstan, an energy-industrial complex on the Angara river and reconstruction of sewerage plants in Rostov-na-Danu.
Read the full article in this month's Public
http://www.guardian.co.uk/public/movers/0,,1555557,00.html
Monday, 20 August 2007
Serious business as usual in the silly season
Financial News
Letter from Moscow
Jason Corcoran
20 August 2007
The Russian silly season is in full swing. A submarine has planted a flag on the Arctic seabed, former President Mikhail Gorbachev is the face of luxury luggage label Louis Vuitton and President Vladimir Putin has been photographed fishing topless with Prince Albert of Monaco.
The August vacation may be well under way but some serious business is being conducted from Moscow as billionaire Oleg Deripaska generates enough news to power one of his aluminium plants.
With Putin on an adventure holiday in Siberia, his favourite oligarch has taken centre stage with several bold moves. Deripaska, whose estimated $20bn fortune includes Rusal, one of the world’s largest aluminium companies, looks set to take over privately owned oil company RussNeft and has emerged as a 5% shareholder in US carmaker General Motors.
Basic Element, Deripaska’s holding company, is seeking regulatory approval to buy RussNeft after its owner, Mikhail Gutseriyev, resigned, claiming he was forced out in a campaign by police and tax authorities.
Commentators have speculated that Basic Element is a vehicle for the purchase and RussNeft might end up in the hands of state-owned Rosneft or Gazprom.
Deripaska’s holding in General Motors is part of a spending spree in the automotive industry, including the UK’s LDV Vans last year and a pending $1.5bn minority stake in Magna International, a Canadian car parts maker. Basic Element also dabbles in aviation, insurance and construction and is in talks to buy half of Transstroi, Russia’s largest builder.
According to Forbes’ list of the world’s billionaires, Deripaska is the richest man in Russia along with Chelsea Football Club owner and one-time partner Roman Abramovich. Like his London-based friend, Deripaska owns a pile in London’s Belgravia and was said to be interested in buying rival Premier League team Arsenal.
However, Deripaska said he has no interest in moving from Russia, where he maintains a low profile. Indeed, the patriotic former Soviet army sergeant appears to continue serving his country after declaring recently that he regards himself as little more than a caretaker of assets for the state.
This led to concerns that these assets could wind up under control of the Kremlin, as outlined by Magna in a recent shareholder memorandum. Magna also disclosed that Deripaska’s US visa had been revoked because of questions about his business dealings. His rivals allege that he uses strong-arm tactics in hostile takeovers and is not easily dissuaded from backing down.
A one-time metals trader, Deripaska is a winner of the murky aluminium wars of the 1990s. Over the past five years, he has gained control of leading producer Russian Aluminium, which merged with Sual and Glencore last year to create Rusal.
When it conducts its initial public offering of as much as 25% of the group in November, Rusal could raise $7.5bn, making it one of Russia’s largest companies by market value. Yet Deripaska has been absent from investor presentations in London and New York. Rusal is keen instead to wheel out chief executive Alexander Bulygin to meet analysts and the press.
Rusal’s approach underlines how Russian companies looking to tap western capital markets are often keen to talk up their plans but remain reluctant to discuss their corporate histories.
Investors may have some tricky questions for Rusal but the sellside will have no such qualms, judging by the line-up of banks for the impending deal. Morgan Stanley, Deutsche Bank and JP Morgan Cazenove were last month appointed co-arrangers, and Goldman Sachs, Credit Suisse and UBS were mandated as bookrunners.
www.efinancialnews.com
Letter from Moscow
Jason Corcoran
20 August 2007
The Russian silly season is in full swing. A submarine has planted a flag on the Arctic seabed, former President Mikhail Gorbachev is the face of luxury luggage label Louis Vuitton and President Vladimir Putin has been photographed fishing topless with Prince Albert of Monaco.
The August vacation may be well under way but some serious business is being conducted from Moscow as billionaire Oleg Deripaska generates enough news to power one of his aluminium plants.
With Putin on an adventure holiday in Siberia, his favourite oligarch has taken centre stage with several bold moves. Deripaska, whose estimated $20bn fortune includes Rusal, one of the world’s largest aluminium companies, looks set to take over privately owned oil company RussNeft and has emerged as a 5% shareholder in US carmaker General Motors.
Basic Element, Deripaska’s holding company, is seeking regulatory approval to buy RussNeft after its owner, Mikhail Gutseriyev, resigned, claiming he was forced out in a campaign by police and tax authorities.
Commentators have speculated that Basic Element is a vehicle for the purchase and RussNeft might end up in the hands of state-owned Rosneft or Gazprom.
Deripaska’s holding in General Motors is part of a spending spree in the automotive industry, including the UK’s LDV Vans last year and a pending $1.5bn minority stake in Magna International, a Canadian car parts maker. Basic Element also dabbles in aviation, insurance and construction and is in talks to buy half of Transstroi, Russia’s largest builder.
According to Forbes’ list of the world’s billionaires, Deripaska is the richest man in Russia along with Chelsea Football Club owner and one-time partner Roman Abramovich. Like his London-based friend, Deripaska owns a pile in London’s Belgravia and was said to be interested in buying rival Premier League team Arsenal.
However, Deripaska said he has no interest in moving from Russia, where he maintains a low profile. Indeed, the patriotic former Soviet army sergeant appears to continue serving his country after declaring recently that he regards himself as little more than a caretaker of assets for the state.
This led to concerns that these assets could wind up under control of the Kremlin, as outlined by Magna in a recent shareholder memorandum. Magna also disclosed that Deripaska’s US visa had been revoked because of questions about his business dealings. His rivals allege that he uses strong-arm tactics in hostile takeovers and is not easily dissuaded from backing down.
A one-time metals trader, Deripaska is a winner of the murky aluminium wars of the 1990s. Over the past five years, he has gained control of leading producer Russian Aluminium, which merged with Sual and Glencore last year to create Rusal.
When it conducts its initial public offering of as much as 25% of the group in November, Rusal could raise $7.5bn, making it one of Russia’s largest companies by market value. Yet Deripaska has been absent from investor presentations in London and New York. Rusal is keen instead to wheel out chief executive Alexander Bulygin to meet analysts and the press.
Rusal’s approach underlines how Russian companies looking to tap western capital markets are often keen to talk up their plans but remain reluctant to discuss their corporate histories.
Investors may have some tricky questions for Rusal but the sellside will have no such qualms, judging by the line-up of banks for the impending deal. Morgan Stanley, Deutsche Bank and JP Morgan Cazenove were last month appointed co-arrangers, and Goldman Sachs, Credit Suisse and UBS were mandated as bookrunners.
www.efinancialnews.com
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