Tuesday, November 27, 2012 5
RUSSIA AND GREATER CHINA
Privatisation in full swing Kremlin has ambitious plans to sell stakes in state-owned enterprises, writes Tim Wall
T
COMMENT GEOFFREY NICHOLSON
Tough challenges ahead for nation Global economic uncertainty affects Russia in two ways. First, export prices for gas, oil and other exchange com-
BUSINESS
GETTY IMAGES/FOTOBANK
he US$5.3 billion Sberbank offering, reducing the state’s share to 50 per cent plus one share, has set the scene for a raft of privatisation exercises planned for the next few years. President Vladimir Putin’s ambitious plans for selling stakes in state companies, set out in his pre-election programme earlier this year, are now likely to be modified, experts say – with a smaller list of assets in banking and transport infrastructure receiving a quick green light, while sell-offs of energy stakes will likely end up on the backburner. “What has actually happened over the past two months is that the privatisation plan appears to have been split into two categories – stocks in the fasttrack programme and a second programme with a much longer and vague time-line for sale,” says Chris Weafer, chief strategist at Sberbank Investment Research. The change comes after an extended discussion within government circles, as conservatives around Igor Sechin, the influential chairman of state energy giant Rosneft, appeared to win the argument that strategic energy assets should remain under strong state control. Liberals in the cabinet of Prime Minister Dmitry Medvedev, led by Deputy Prime Minister Arkady Dvorkovich, had called for energy assets to also be put on the fast track to privatisation. The Rosneftegaz holding, under Sechin’s leadership, controls the state’s stake in Rosneft, and 11 per cent of the equity in Gazprom. It now seems increasingly likely that Rosneftegaz will extend its energy empire to include majority control over Gazprom, more than 75 per cent of Rosneft and the Federal Grid Company, a majority interest in Rus Hydro, and more control over oil pipeline monopoly Transneft, among others. In the strategic energy sector, the government looks likely to take a step back
Moscow is keen to privatise as many state enterprises as possible. towards “greater state control and some sector consolidation before then proceeding with privatisation at a later date”, Weafer says. But the liberals could yet manage to turn the tables and speed up the programme. “There remains a tension at the heart of government about the speed and nature of privatisation, so the plans are always subject to change,” says Kingsmill Bond, chief strategist for Citibank in Moscow. Next up after Sberbank is likely to be
modities are jeopardised because of falling demand amid uncertainty in the global economy. This not only affects the largest Russian companies – Gazprom, Rosneft, Evraz and others – but also the government, because royalties from oil and gas are important for the budget. Second, financial markets remain highly volatile – with investors ready to flee at the faintest sign of trouble. While multinationals, such as Siemens and General Electric, with substantial investments cannot leave the country overnight, investors in financial markets can always retreat to their domestic markets. Making things worse for Russia is its lack of large national institutional investors. Since the collapse of communism, it has not had the time to estab-
5.3 BILLION US$ Sberbank’s offering
Within five years, Moscow may become a financial centre for the CIS - Ukraine and other ex-Soviet states lish major pension funds or insurance companies. The government is trying to fight the weaknesses of these institutions, but so far this task has proved too hard. A similar story is unfolding with the declared strategy to turn Moscow into an international finance centre. Many initiatives have been launched, and
Russia’s second-biggest bank, VTB, which aims to raise US$2 billion in the spring of 2013, according to bank chairman Andrei Kostin. Also in the fast-track programme are likely to be stakes in the publicly listed companies Sovcomflot, the state shipping company, national airline Aeroflot, diamond monopoly Alrosa and Federal Grid Company, Weafer says. Initial public offerings in Apatit, RosAgroLeasing, Russian Agriculture Bank, Russian Railways, Sheremetyevo Airport, United Grain Company, and the
some, such as the setting up of the joint MICEX-RTS exchange and the Central Securities Depository, have been completed. As a result, within five years, Moscow may become a financial centre for the Commonwealth of Independent States – Ukraine, Kazakhstan and other ex-Soviet states. But talk of turning Moscow into another London or New York remains fanciful. Prospects look better for Russian banks. With loan portfolios growing on average 10 per cent to 20 per cent annually, asset growth is strong and yields are high. Their position, however, needs further strengthening, particularly in areas such as risk, finance and budget management, and capital planning.
ports of Murmansk, Arkhangelsk and Vanino are also planned. Analysts say the non-extractive industries were the best privatisation prospects, with VTB a proxy for the domestic economy, and Rusnano, representing new technology. “The most attractive companies will be those which offer exposure to consumer or infrastructure growth in new sectors,” Bond says. “Sovcomflot therefore is especially interesting.” The big question remaining is whether or not the Kremlin can find the right windows of opportunity to get good prices for its stakes. Speaking at VTB’s “Russia Calling” investment forum in Moscow last month, Putin said that sell-offs would continue, “taking into account market prices and the market situation”. Analysts reinforce this view, emphasising that the timing mainly depended on external factors. “The bottom line is that the government will only be able to sell when there is investor appetite for risk assets,” Weafer says. “It’s a case of waiting for likely short windows of opportunity in which to sell. But the handle to open or close those windows is in the hands of Europe’s politicians, the European Central Bank and the US Fed, rather than with the Kremlin.”
High yields for banks, however, mean that loans are expensive for companies because banks remain apprehensive about lending in today’s uncertain market conditions. Nonetheless, expanding corporate credit and diversifying lending to larger, small and private businesses will be crucial for long-term development. Two other challenges for banks are the dangers of currency risk for those that use dollar loans to lend in roubles and how best to lower the interest rates paid on deposits opened when inflation was high. Offsetting both these problems is the fast rate of rouble-deposit growth – 22 per cent to 23 per cent annually for the past three years. Geoffrey Nicholson is a partner at PwC