Emerging Market Fund Managers Bullish on Russia
Director of Equity Financing, FINAM Investment Company, Moscow
A globe depicting the world's fastest growing economies in red
(Hat tip: Jay Walker's Confused Capitalist blog)
This weekend Dow Jones published a news article ("Emerging-markets Fund Managers See Rebound For Russia, China") describing a report by Morgan Stanley Capital International on global emerging markets. While Morgan Stanley analysts noted that China and Russia have delivered lackluster stock market returns thus far in 2007, the report also states that:
- Russia faces political risks associated with the 2008 elections and remains heavily dependent on oil and gas prices, and is generally considered the cheapest buy of the BRIC (Brazil, Russia, India and China) emerging markets. However, Russia has better long-term growth prospects than most other emerging markets and is expected to outperform in the next 12 months.
- Russia's government and private sectors are investing oil and gas profits in updating the country's infrastructure and financial systems.
Click on the extended post to read more.
The Federation Tower viewed from Moscow's Sparrow Hills in April 2007 (Photo by: Yuri Mamchur)
To see some interior photos of this major construction site, go to the BACnet Interest Group (BIG) website
Record Trading Volumes on MICEX
The Russian stock markets continue to gain momentum. Just recently the trading volume on the MICEX exceeded the psychological barrier of $ 10 billion per day and it is going on further and further. On May 4th broke another record for trading volume recorded in a single day - $ 14.506 billion. Experts note that this was due to investors' activities prior to the Vneshtorbank (VTB) IPO. It turns out that the stock exchange's technical managers were not expecting such overload and over the last month there have been four hardware and software glitches resulting in brief suspensions of trading. Some market players estimate that by the end of the year we may see a 40% increase of MICEX trading and the market's daily volume surpassing the psychologically important $20 billion dollar mark.
Sukhoi 30MK - this type has been purchased by the Indian Air Force
Investment Perspectives - New Horizons
A few weeks ago I wrote about the next great Russian wave of privatization and its affect on the investment business in Russia. Last week we learned that the government included on the privatization lists more valuable state-owned assets that may whet investors' appetites. These state-owned firms are: Kamaz, SG-Trans, and the world famous Mikoyan Gurevich (MiG) Aircraft Construction Corporation. The latter proposal envisions initial turning it into a joint stock company. Then, together with the Sukhoi Company (designer of the Su-27 family of fighter jets sold to China, India, Malaysia, Indonesia, Vietnam, and Venezuela), MiG will be folded into Russia's United Aircraft Construction Corporation. An additional privatization program will also privatize the ownership of ten aircraft repair plants.
The view from a table at the Hotel Baltschug-Kempinski near Red Square
Another aspect of the IPO surge is related to Russia's construction boom. The Moscow City government has approved a general plan for hotel construction in the city. As many as 353 hotels capable of hosting 118,000 visitors will be built in Russia's capital in the next four years. By the end of 2010 Moscow is expected to have 556 hotels instead of the current 203.
If these announced figures are correct, then Moscow will be opening a new hotel about every two weeks for the next three years. This will definitely provide a reason for more IPOs and private investment in the construction and real estate development sectors.
Russian Airlines Consolidate to Form AirUnion
As I wrote last month, Russian state capitalism has created a hybrid that combines government and private ownership. This week there is another example in this field: five Russian Federation-based airlines which currently co-operate under an alliance known as AirUnion are set to establish common ownership as a joint stock company also named AirUnion.
On May 2, 2007, Russian President Vladimir Putin signed a decree establishing the unified company. The ownership structure will have the federal government owning 45% of the holding company and private investors having the remaining 55%. Initially the AirUnion alliance was created in late 2004 by KrasAir and includes Domodedovo Airlines, Omskavia, Samara Airlines and Sibaviatrans. The combined holding company will operate a fleet of more than 70 aircraft. AirUnion is supposed to assist in development of the Hungarian airline Malev, which was recently privatized and sold to AirBridge ZRT, a Hungarian company backed by KrasAir.
OMX is in the News Again
Pan-Scandinavian equity markets operator OMX continues their aggressive acquisition drive. This week OMX added new dimension to their multinational expansion, issuing a press release about a 2007 initiative to expand their subsidiary First North into the Baltic region. First North is an alternative market created by OMX, and has already been launched in Denmark (2005), Sweden (2006), Iceland (2007) and Finland (2007). Claiming that First North is one of the fastest growing alternative markets in Europe, the press release states that First North will be launched during 2007 in the Baltic countries. The stock exchanges of Tallinn, Riga and Vilnius are currently adjusting their listing rules and are establishing their Certified Advisers (analogues to NOMADs). This is another example of the growing numbers of junior equity markets. Statistics show that Q1 2007 (7 IPOs with $19.76 million raised -- that places it in fourth place among its European peers) was relatively modest for First North and the World Federation of Stock Exchanges (WFE) data does not list Tallinn, Riga and Vilnius stocks exchanges prominently, but we may see some Russian IPOs listed there too in the not-so-distant future.
Unified Energy Systems CEO Anatoly Chubais (Photo by: MosNews)
RAO UES CEO Talks About Plans for an IPO
The April 11, 2007 issue of Institutional Investor magazine featured an interview with former Russian Prime Minister Anatoly Chubais, who is now in charge of Unified Energy Systems. UES is the largest utility holding company in Russia, and is the principal domestic customer for the state natural gas monopoly Gazprom. I think that this article is worth reading in its entireity, but here are just two brief points from it:
"Whatever new political cycle comes in 2007-2008, and whoever becomes president, the country will still need light and heat. The new leader would have to be a complete lunatic to wreck this process of investment. Besides, I don't anticipate any big political disturbances connected with the coming presidential elections."
"In the fall we conducted the IPO of generating company OGK-5, and that demonstrated the practicality of our logic. The IPO was oversubscribed ten times, and the company's capitalization has risen 40% since then. For the next stage we are looking at about 17 IPOs, raising closer to $15 billion than $10 billion. If market demand begins to fall off, naturally we will delay to some extent. Some of the IPOs will end with investors owning more than 50%; some will require a capital increase later."
European Venture Capital Report
Following up on my previous post on venture capital investment, I offer here a few facts taken from the quarterly European Venture Capital Report recently released by Dow Jones VentureOne and Ernst & Young. The IT sector saw the most significant growth of any industry in the first quarter. A total of $724.73 million was invested in 133 technology deals. The software and information services segments showed the most activity in the European IT sector. Software deals increased by 20 per cent over the same period a year ago to 73, and investment increased 11% to $292.53 million. Deal flow in the information services segment increased 131% to 30 deals, and capital investment more than doubled compared with the first quarter of last year to $151.14 million. The emerging interest in Web 2.0 technology seems to be fuelling this growth in European technology investments.
You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.