Investment Trumps Rhetoric
Director of Equity Financing, FINAM Investment Company, Moscow
This week there have been many articles regarding investments in Russia and whether these will be affected by international politics. The heated rhetoric between Washington and Moscow, followed by President Putin's surprise offer extended last week at the G-8 Summit to host American missile defense radars in Azerbaijan added more fuel to the fires of media speculation.
Richard Shaw (QVM Group) posted an article titled "Investing in Russia: The Good News and the Bad" . While offering reasons to expect continued growth in Russia's economy, Mr. Shaw concludes by saying: "The big gains in the Russian stock market could well be more history than future. The political risks to your wealth in Russia are much greater now than they were perceived to be a few years ago."
The Motley Fool posted an article by Zoe Van Schyndel "Russian Bear or Bull?" that also ends on a sour note: "Russia is an emerging economy which, a decade ago, was nearly bankrupt. A lot has changed since then, but whether the opportunities in the Russian market are outweighed by the risks is a tough decision at this point. If oil prices stay at their lofty levels, this market is a safer bet, but if oil drops significantly, I wouldn't want to be anywhere near this bear."
Talking heads discuss European markets on CNBC
CNBC Focuses on Growth in Russia
In my view, the most realistic viewpoint came from a CNBC discussion broadcast on June 7, 2007 regarding investing in Russia. Ian Hague, a fund manager for Firebird Management LLC, admits that tensions between the U.S. and Russia have had some influence on investor sentiment, but advises that investing in the Russian market requires long-term commitment. If investors are worried about the recent war of words between the U.S. and Russia, then they are focusing on the wrong thing: "Political rhetoric in Russia has less of an impact on the conduct of business than you might think."
Alexander Kliment, an associate in Eurasia Group's Europe and Asia Practice, also attempted to quell investor anxiety about Russia on the CNBC "Power Lunch" television program. Mr. Kliment described global business and politics as "two different voices" -- and added that the "political noise" hasn't dampened the "bullish interest" international investors have in the Russian Federation. Surprisingly, he even said that foreign energy companies continue to expand their investment in Russia -- in spite of the fact that the Kremlin renationalized Yukos and jailed its CEO Mikhail Khodorkovsky, and has had some widely publicized disputes with Shell over the Sakhalin energy project and with BP's Russian partner TNK.
I completely agree with this opinion and want to add my own. Those of us on the ground here in Moscow know a lot more about investing in this country than analysts trying to understand Russia from New York, Miami or Washington D.C. However, we are pleased that a growing number of foreigners are starting to recognize the opportunities for investing in the New Russia. The news from the XI annual St. Petersburg Economic Forum offers more evidence that Russia is rapidly becoming one of the leading emerging markets in the world, with $13.5 billion in new business deals announced at the conference. An estimated 10,000 journalists, diplomats, and corporate executives turned out for this event.
Click here to watch a Russia Today TV video about the St. Petersburg Economic Forum
Today CNBC featured an interview with the world-renowned energy expert Daniel Yergin of Cambridge Energy Research Associates, who quoted one major American financier in attendance saying: "No one could have thought in 2000 that this was possible." Apparently, it wasn't just performances by the Scorpions and the former lead singer of the Bee Gees that impressed the visitors. Topping off this flurry of positive investment news, Coca-Cola plans to invest roughly $1.5 billion in Russia in the next five to eight years.
IT and Venture Capital Financing News
The Russian government is changing its attitude towards financing venture companies. A very descriptive article is available here from VentureBeat ("Russia Finally Gets Serious About Venture Capital"). In this interview, one Russian official describes the new efforts now underway in this area. To this end it is relevant to mention the results of an unscientific public opinion poll that we conducted on the FINAM Investment Company web site:
- 65.1% of investors surveyed replied that they are interested in investing in Russia's IT sector, while only 18% replied with a definite negative.
-64.1% are ready to invest by buying stock; while direct venture investments and personally starting new companies are not very popular options.
The Russian IT sector in general shows extensive growth, however, to date there are virtually no publicly traded companies in this rapidly-expanding industry. Many investors are still looking for a "Russian Google" to invest in, but I think that the Russian market is not quite ready for its own counterpart to Sergey Brin's juggernaut. Overall, the picture remains double sided. On the negative side, there is a noticeable absence of issuers; but on the positive side, there are still rich opportunities for new players to stake their claim to a brand new sector of Russian equity markets.
Here in Moscow, we still do not see many publicly traded IT companies -- in April both the MICEX and RTS began trading the stock of ARMADA, and next week the MICEX Innovation and Growth Sector (see "The Russian AIM Way") will launch its first listing - the FINAM-IT Venture Unit Fund.
Bank of Cyprus credit cards
The Changing Face of Russian Banking
The Bank of Cyprus has been granted a license to operate in Russia. This is the first bank from Greece and Cyprus to enter the Russian banking market. Cyprus has long been a popular haven for offshore accounts owned by Russians, but now this capital is coming back to Russia.
Initially the bank's activities will be focused on establishing of a credit portfolio and expanding the scope of services offered to existing corporate clients. Bank of Cyprus will operate primarily in Moscow and St.Petersburg. According to Russian regulations within two years of registration the bank has no sight to work in retail sector. Bank of Cyprus officials confirmed that they plan their expansion to Ukraine and Romania.
40 year-old Mikhail Prokhorov has an estimated net worth of $5.4 billion
More Private Equity Groups in Russia
The UNEXIM Group Private Investment Fund was formed several weeks ago in Moscow. The fund is based on the assets of Mikhail Prokhorov, who is the partner of Vladimir Potanin, President of the Interros Company. Prokhorov owns 22% of Norilsk Nickel, 22% of Polyus Gold and 50% of Interros valued at $17 billion. The UNEXIM Group will focus on innovative, high-tech projects in energy (including hydrogen fuels), nanotechnology, mining and metallurgy. Each investment holding in the group's portfolio will be valued at $1 billion or more.
Deutsche Bank Analyst: Russian IPOs to Reach $44 Billion in 2007
According to Elena Khisamova, Vice-President of Deutsche Bank-Russia, Russian companies should attract three times more capital for IPOs than they did in 2006, reaching $44 billion. According to Ms. Khisamova, Russian companies have raised about $22 billion this year, with $15.4 billion going to foreign listings (12 companies) and $6.5 billion for listings in domestic markets (4 companies).
The Eversheds law firm in London estimates that around 70 Russian companies are currently queuing up to list in London. Some of these companies will never make it to the market, while some will float on the main exchange and good proportion will likely make it to the LSE Alternative Investment Market (AIM).
Eversheds is currently working on two prospective AIM floats from Russia. Eversheds analysts note that half of the companies waiting to list are active in the power and utilities sector, while the remainder range from media holding companies to chemical producers.
A familiar Russian brand - Aeroflot is reportedly planning an IPO in the near future
New IPO Announcements
KIT Finance Investment Bank -- IPO on the MICEX in 2007 and the LSE in 2008
Arsagera Asset Management -- IPO in 2007
UralSib Bank -- IPO sometime before 2009
InvestorgBank - IPO at the end of 2008
Sukhoi Civil Aircraft -- IPO after 2010
Euroset - mobile handset retailer -- listing on RTS in autumn 2007; IPO in 2008
LSR Group, a St. Petersburg construction firm - IPO in November 2007
Far East Energy Company -- mulls IPO in the nearest future
MAX Insurance Company -- IPO in 2011
Sistema Mass-Media -- IPO in 2009
ST Group, real estate development company -- IPO in May 2008 on LSE
Aeroflot Russian Airlines - IPO in the near future
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.