A 'New Wave' of Privatisation in Russia - The Opportunities & Risks for International Investors
London, November 7, 2013 – A new wave of privatisation in Russia is set to offer foreign investors unparalleled returns if they can successfully navigate the political landscape, according to a new report released today.
The extensive report, produced by State Solutions LLP and the Moscow-based Institute of Lobbying, predicts that the long-delayed privatisation programme will be jumpstarted by replacement of current ‘political’ Prime Minister Dmitry Medvedev by a more ‘technical’ figure early next year, with political decisions then taken by the Kremlin.
The privatisation drive will see more than $51Bn worth of state assets put up for sale before 2016, with more than $30Bn worth of large national companies such as Rostelecom, VTB Bank, RZhD and Rosneft.
The report, entitled “A New Wave of Privatisation in Russia: The Political and Economic Context and Investment Risks”, says the Russian Government will welcome the involvement of international investors in privatisation deals. At the same time, it acknowledges that the nature of the Russian political and legal environment and its poor property rights protection record makes prior approval of a deal by the country’s top-level political authorities a necessity, if risks are to be reduced.
It identifies eight powerful figures close to the Russian Presidency with interests across key economic sectors and suggests that “the most comfortable scenario for foreign investors would involve taking part only in those deals where an attempt to purchase an asset would not infringe on the interests of the most powerful figures in Vladimir Putin’s inner circle”.
The report comes one week after the Russian Government sold a 16% stake in state diamond miner, Alrosa, with US investors buying the bulk of shares. The report predicts that the initial wave of privatisations is likely to include shipping giant Sovcomflot, the national airline Aeroflot, the Archangelsk Trawl Fleet, Novorossiysk Commercial Sea Port, Rostelecom and Transneft. Other assets for the privatisation include over 1,500 state-owned regional companies and land plots.
“The new ‘wave’ of the large-scale privatisation in Russia presents historic opportunities for acquiring the government assets and stakes in state-controlled companies across various industries”, said Pavel Morozov, Managing Partner of State Solutions LLP. “For the investors – both foreign and domestic – who can navigate the risks, the return on investment is likely to be far higher than in comparable emerging markets”, he added.
“The Russo-British Chamber of Commerce is seeing a rapidly increasing level of interest in Russia, not only from UK exporters but also from those looking to invest into key sectors of the economy. Now is the time for a candid report that provides objective insights into the opportunities in Russia, and this is it - delivered by State Solutions and very readable," said Trevor Barton, Executive Director of RBCC.
“Russia is different in the same way as every country is unique and its risks and rewards should be analysed and accounted for in the same way as investors do when they consider investments in other mature and developing markets”, said Petr Medvedev, Head of CIS / UK Traderoute, Ernst & Young, who was part of the expert panel at the briefing.
The 70-page report was prepared by experts with knowledge of earlier privatisations in Russia was released at a joint Russo-British Chamber of Commerce – State Solutions briefing in the City of London on the evening of 6 November.
The full report can be accessed here: