Director of Equity Financing, FINAM Investment Company, Moscow
A new railway station at Moscow's Domodedovo international airport
Photo by: Airport-Technology.com
In April 2007 I wrote about Russian state capitalism, this curious hybrid of government-owned “national champions” in strategic industries operating alongside a booming private sector. In recent months some new developments have emerged and I want to pinpoint some new investment opportunities.
The trend towards public private partnerships (PPPs) is becoming more pronounced with every month. In fact, the MMD public relations firm recently released a report describing in detail what is going on in this area of the economy. Here are a few citations:
“Public Private Partnerships (PPPs) have become an integral part of a new national idea: creating a strong Russian state that defends its national interests, combined with strong Russian businesses [that are] competitive worldwide.”
Click on the extended post to read more.
Source: The World Bank transport web page
“Russia's Ministry of Transportation is now attracting consultants to develop a model for infrastructural PPPs to implement the federal program ‘Upgrading Russia’s Transportation System by the Year 2020’ (you can view the World Bank’s power point presentation on this topic here). The Russian government is launching a road show late this year to attract investors to develop hi-tech parks on a large scale. In parallel, representatives from the government are beginning to approach potential partners, such as DuPont, to initiate discussions on involving private businesses in these projects. The Government, in consultation with State Duma experts, is beginning to draft a green paper on PPPs that could become a piece of legislation in the nearest future."
Last week Kommersant republished some excerpts from a Dengi (money) magazine article with some examples of successful PPP's in Russia. The magazine showed how after a nitrogen compound making plant was transferred to a holding company owned by Gazprom, the stock of these chemical companies has gone up. This is because such companies are often undervalued due to risks associated with underdeveloped capacity and outdated equipment.
Another example is a government proposal to establish a management company that would operate about 40 airports throughout the country. In my view this may create an excellent opportunity for foreign investors. In the United States, municipal airport bonds have rebounded since the shock of 9/11, but in Russia the idea of investing in new aviation infrastructure remains unattractive to investors. A nice description of the Russian airport industry and PPPs has been posted online by the World Bank here.
In my opinion investing in PPP ventures in Russia may be very profitable, as they would be stable and enjoy a bright future as the economy grows. Here I have reproduced one slide from a World Bank report that supports my earlier advice that foreigners should seriously consider investing in Russian railroads:
Source: The World Bank railways web page
In other Russia PPP news, last week the Russian business media reported that Rusal owner Oleg Deripaska may cancel a $ 9 billion IPO for the world’s largest aluminum maker in favor of establishing a joint venture with the government. If Deripaska pursues this proposal, it would create the largest public-private partnership in the country.
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.
