In this post, Vladimir Kuznetsov, director of equity finance at the Finam Investment Company in Moscow, notes that foreign investors now have access to more information about investing in Russia's long-neglected regions thanks to a new investment guide issued by the Marchmont Capital Partners firm in Nizhny Novgorod. Mr. Kuznetsov also rounds up the news from this week in Russian financial markets.
About six month ago I met a rare paragon of entrepreneurship - an American businessman who does not live in Moscow, but in the detached city of Nizhny Novgorod. This week Kendrick White, managing principal of the Nizhny Novgorod-based firm Marchmont Capital Partners, announced the publication of the first Â¬volume of the Marchmont Investment Guide. This book is part of a very promising effort to open the "riddle, wrapped in a mystery, inside an enigma" of Russia's regions. "Many investors in Russia know only Moscow -- one of the most expensive cities in the world. But doing business in Moscow is not the same as doing business across all of Russia, as some regional administrations are far more progressive in attracting investors than others," says White.
Congratulations to Kendrick White and his team!
Click on the extended post to read more news from Russia's financial markets.
The Merrill Lynch multinational investment bank published the results of its Survey of Fund Managers for March 2007 with their assessment of investment perspectives from various sectors of the market. A total of 199 fund managers with managing a combined total of $668 billion in assets under management participated in the global survey between March 9 and March 15, 2007. A total of 173 managers managing assets worth $412 billion participated in the regional surveys. A net 34% of portfolio managers believe it unlikely that stock markets will be lower six months from now, up from 15 percent in February. Even though about 200 of the managers said that Russian assets have become less overvalued, the assets of Russian companies still place third in developing markets, after South Korea (50%) and Brazil (67%). In a January survey by Merrill Lynch, 56% percent of fund managers said Russian assets were overvalued. In March, 33% percent of fund managers said so.
Hermitage Stays On in Russia
Hermitage Capital Management plans to continue its work in Russia, despite a drastic drop in the volume of its investments. In spite of all of the difficulties that Bill Browder, the Fund's CEO, is currently experiencing with Russia, this week he declared that, "There is no single country that offers as many opportunities on such a consistent basis as Russia."
Japanese Think High, Improve Russia's Credit Rating
On March 16 the Japanese Credit Rating Agency announced that it has assigned A-/Stable and A/Stable ratings to Russia's foreign currency and local currency long-term debts. This reflects Russia's comparatively stable macroeconomic performance driven by exports of natural resources in recent years; it also shows the government's rapidly improving fiscal position amid favorable economic performance, and a fast improving external balance of payments.
Dangers for Russian IPOs? "Unbridled Exuberance"
This week Reuters continued presenting gloomy forecasts for equity markets in Russia. According to Reuters' reporter Elif Kaban, Russia's $30 billion in IPOs planned for 2007 seem to be in doubt as the value of recent Russian stock listings plummet and investors flee emerging markets. The agency cites LSE's Jon Edwards saying that 80% of trading on the LSE international order book was now in Russian shares. Reuters further notes that most Russian IPOs are cash-out deals, and quotes Eric Kraus, head of the Nikitsky Fund, saying that Russian IPOs are "suffering from a combination of the naked greed of Western investment bankers and the unbridled exuberance of company owners."
Mergers and Acquisitions on the Rise
KPMG has issued a report on the Russian M&A market. KPMG analysts note a rapid upsurge in volume (from $40.5 billion to $63.6 billion -- a 57% increase) , while the average transaction volume ($77.8 million) decreased 3% compared to 2005. This is the result of more mid-level deals. At the same time, the report states that the level of transparency in the Russian M&A market has increased -- in 2005 an estimated 56% of all M&A transactions were disclosed, as compared to 30% in 2005.
This trend is partly the result of preparation for IPOs by many companies and increasing participation in the process by financial consultants. KPMG also points that international M&A transactions doubled in 2006 over the previous year. At the same time we have witnessed changes in the direction of capital acquisitions -- about 60% of these transactions involved Russian companies being acquired by foreign companies.
Russian Stock Market to Be Regulated Soon
The head of the Russian Federal Financial Markets Service (FFMS) Oleg Vyugin thinks that by the end of this year the Russian stock market will be a market regulated according to international standards. Vyugin mentioned that Russia is currently in the first stage of developing a stock market, which provides for increasing companies' capitalization. The next step will be Russia joining the International Organization of Securities Commissions (IOSCO).
Is Europe Open for High-Tech Russian Companies?
This week we have received more evidence that European stock markets are looking very favorably on the listings for Russian companies. One of my colleagues that participated in an investment conference this week reports that he had very healthy discussions with representatives of Deutsche Boerse and Euronext. We are very keen to hear our colleagues suggestions, as FINAM runs a FINAM-IT mutual fund that has a number of quality IT companies on board. This is in line with XING's successful IPO on Frankfurt stock exchange last December. Unless American regulators reduce their SOA requirements, very few Russian companies are thinking about listing shares in the USA. I really agree with a recent comment from one finance blogger that today, compared to the 1990s dot com bubble, high tech companies are now (i) more mature; and (ii) IPO candidates are presenting themselves to a truly European investment community, where national barriers no longer matter so much. FINAM has some quality high-tech companies in its portfolio that in my opinion would enjoy great success with European investors.
Natalia Kaspersky, CEO of the Russian security software company Kaspersky Labs
New IPO Candidates
- Kaspersky Labs, a computer security software company, is considering listing on a Western stock exchange; however these reports have been questioned.
- Rosno insurance company - IPO scheduled for Autumn 2007, hoping to raise $400 million.
- Technosila, a consumer electronics retail chain -- will issue an IPO in 2008.
And finally a bit of discouraging news: the U.S. dollar fell below 26 rubles on the Russian currency market for the first time since October 1999, raising the price of Russia's exports. This was the result of two simultaneous factors: high interest rates on the Interbank loan market and the weakening of the dollar against the euro on the world market. WHAT'S NEXT?
The views expressed in this post are the personal opinions of Vladimir Kuznetsov and do not necessarily reflect the views of the Finam Investment Company. Click here to read the original post on Mr. Kuznetsov's Equity Financing in Russia blog.