A banner ad for Russian cellular provider MTS near the Kremlin
For months, the transition to a new President next year has been a hot topic for speculation in both the Russian and Western media. While President Putin's surprise appointment of Viktor Zubkov as Prime Minister has dominated the news from Russia this week, business marches on. Today Mr. Zubkov's statement that he would consider a run for the presidency has drawn a lot of attention to the previously obscure technocrat. But what do Russia's top executives expect in the upcoming election year?
Moscow's Tverskaya at night
Speaking about Russia's booming telecom sector, Alexander Izosomov, CEO of mobile phone and Internet service provider Vimpelcom, and Leonid Melamed, CEO of MTS, concurred that their industry will continue to outperform the Russian economy, as Russians upgrade to use more mobile wireless services. A few years ago, Vimpelcom was one of the first Russian companies to trade on the New York Stock Exchange, while MTS deposit receipts now trade in London.
AFK Sistema, the parent company for MTS, is weighing whether to merge its high-performing cellular provider with its fixed line service provider, Comstar. Sistema is one of the largest integrated holding companies in the Russian Federation. The majority owner of Sistema, Vladimir Yevtushenkov, told the Reuters audience that $50 million is not enough money to invest in Russia anymore, and $100 million is not much, either.
Sistema owner Vladimir Yevtushenkov (left) is ranked 93rd on the Forbes list of billionaires
Oleg Vyugin, the former director of Federal Financial Markets Service (Russia's counterpart to the American Securities and Exchange Commission) represented his new employer, MDM Bank, at the Reuters conference. In his remarks to conference attendees, Vyugin predicted that Russian banks would see even more foreign investment next year along with a wave of mergers and consolidations. Vyugin added that MDM Bank was pursuing a multibillion dollar private placement rather than an IPO to fund its expansion. MDM Bank is currently the tenth largest bank in Russia.
Another speaker from Russia's financial services industry, Patricia Cloherty, CEO of Delta Private Equity Partners, talked about the most attractive sectors for investment in Russia. In her remarks, Cloherty said that Delta is presently avoiding the politically sensitive oil and gas industry and the expensive Moscow real estate market in favor of investing in retail stores, consumer goods, and financial services. According to Cloherty, Delta's strategy is to look for smaller companies with high transparency that can be acquired at an attractive price. Delta is currently planning to open another $550 million private equity fund and a possible listing on the London Stock Exchange.
From the energy sector, the CFO of OAO Rosneft, Peter O'Brien, declared that the state-owned oil company will soon be issuing $10-$15 billion worth of bonds in the Eurobond market. When asked if Rosneft planned to continue its expansion by acquiring more privately owned oil companies in Russia, O'Brien said that his company would concentrate on streamlining its existing assets rather than expanding through mergers and acquistions (after the Russian oligarch Mikhail Khodorkovsky was prosecuted for fraud and tax evasion in 2005, Rosneft acquired many assets that had formerly been owned by Yukos at very favorable prices in a series of government auctions). Today 75% of Rosneft is owned by the Russian government, and roughly 1/3rd of the entire Russian oil and gas industry is state owned. The Reuters article reporting this fact mentions that this percentage is very low compared to the world's other major oil producers.
Nonetheless, during the conference, Boris Jordan, CEO of the Sputnik Group, a $2 billion private equity firm based in Moscow, criticized the Kremlin for its recent treatment of foreign investors in Russia's oil and gas industry. Mr. Jordan said that the state-backed giants Gazprom and Rosneft were crowding out private investment in the energy sector. However, Mr. Jordan went on to say that there is definitely some bias against Russian companies seeking to acquire assets abroad. Mr. Jordan added that Russia's leading businesses need to devote more resources to international public relations so that foreign governments will recognize that they need not fear Russian investment in their economies.
The Russian government sent several speakers to the conference, including Igor Artemyev, the head of the Federal Anti-Monopoly Service, the Central Bank of Russia Deputy Chairman Konstantin Korishchenko, Arkady Dvorkovich, one of President Putin's senior economic advisors, and Pyotr Kazakevich, who oversees Russia's $120 billion stabilization fund.