Business Insider has a first-person narrative from Ivan Tchakarov of Renaissance Capital who attended a secret meeting in Moscow last week between opposition leader Alexey Navalny and about two dozen investment bankers, analysts and fund managers, who together control about $20-$25 billion of capital.
Tchakarov writes about the opposition blogger:
[Navalny] appears all of a sudden, and the first impression is definitely positive. Smartly dressed, tall, imposing. […] There is this unmistakable aura of determination and decisiveness about [him].
Alexey Navalny
But despite this steely-eyed determination to lead a movement, he is “quite fuzzy” on his economic views:
He says his goal is now to fight corruption and fight for wider political participation, rather than write economic programs [but] he is absolutely sure that Putin is just throwing sand in people’s eyes and is not ready to loosen the political constraints and put his coterie of corrupt underlings in prison.
All of this adds up to Tchakarov’s assessment that Navalny is elusive and hard to understand, “but two things are clear: he adds an interesting flavor to the current political process and he has a very long road in front of him to ingratiate himself with the majority of Russians.”
Click here read the full story.
Billed as “a place where unusual individuals who are capable of influencing the fate of Russia and the world can meet,” the annual Russia Forum wrapped up in Moscow over the weekend, with participating economists calling on the Putin regime to take immediate, concrete steps to encourage investment in Russia.
At a “Russia 2018” panel, New Economic School Rector Sergei Guriev said the Russian government could send an important signal to the investment community by releasing its most famous political prisoner:
To really prove that the Russian state is interested in a better business climate, first of all, they should release Khodorkovsky and fire all of the executives that are involved in the Magnitsky case. This will prove that the Russian government is interested in improving the investment climate.
Also on the panel with Guriev was former finance minister Alexei Kudrin, who called the current political system “obsolete” and in need of much reform in order to build a new economy. Kudrin applauded the fact that political competition has grown in the last few months. “That’s a good sign” for the economy down the road, he said.
CREF Founder & Chairman Pavel Ivlev
Writing on CNN.com’s Global Public Square, Committee for Russian Economic Freedom Founder and Chairman Pavel Ivlev writes that the recent push for political reform in Russia is tied to the compulsion for economic reform:
[M]ore than just a rigged election, Russians are protesting the inability of the current regime to lead the nation on a path of modernization. While various statistics show that wages on the whole are rising, millions of Russians are in fact experiencing worsening inequality, decreasing opportunities and a repudiation of basic free market principles.
You can read Chairman Ivlev’s full op-ed here: http://bit.ly/xlZr8a.
Fiona Rintoul ponders aloud in the Financial Times about whether now is the time for fund managers to look more seriously at investing in Russia. Her article gives a qualified maybe, with a whole host of negative factors to consider:
The political situation is uncertain, and the Russian stock market has been in helter-skelter mode lately. Moreover, the local fund industry is littered with the corpses of fund managers who came, saw and failed to conquer; companies such as Pioneer, Templeton, Crédit Suisse and Deutsche Bank have all at one time or another withdrawn with their tails between their legs.
Vladimir Kirillov
The last time Russia looked ripe for investment was 2007, right before the financial crisis hit. Many more pre-crisis ventures failed than succeeded. Wealthy Russians retreated to funds based in Zürich or London, and the regulatory framework since has remained an obstacle for international investors.
Vladimir Kirillov, chief executive of TKB BNP Paribas Investment Partners, has a warning to those looking to get in:
The Russian fund industry is interesting for international companies but only those that are ready to develop this business in the long term. We don’t advise companies to come in and catch up.
Read the full article here.
While the state of the Eurozone remains the most pressing economic issue on the Continent, post-recession Russia isn’t expected to accelerate its growth either, according to John Bonar of British-based Business Special Report-Russia, with the challenges that marked 2011 not likely to abate any time soon:
All the leading investment banks predict more-or-less the same thing for Russia in 2012: a poor and volatile first quarter of the year with growth, investment and stock markets picking up and gathering momentum in the second half of year, barring a train wreck in the rest of Europe.
Moscow rings in the new year. Credit: AP
Bonar reports that capital flight of roughly $6 billion a month is predicted through the first quarter, with some 150,000 Russians looking to emigrate to improve their economic standing.
Lack of investor confidence in Russia also means “there is little prospect of any significant Russian IPOs” on the London Stock Exchange until the second quarter or later.
Economists, Bonar notes, are anxiously awaiting the March 4 presidential election, which, although the winner is predetermined, will be more interesting given recent demonstrations across the country.
After more than 18 years of negotiations, Russia has finally been accepted into the World Trade Organization, making it the last of the world’s major economies to join the international body.
The Russian parliament has six months to ratify the responsibilities that are part of WTO membership.
For more information on the WTO accepting Russia, read this.
Reuters chief Russian financial correspondent Douglas Busvine writes that the price of Russian securities thought to have ties to Prime Minister Vladimir Putin, or to have profited the most under his economic policies, “have sold off hardest” in the days following this month’s rigged Duma election.
Russian companies mostly deeply in the red since Dec. 4 include gas firm Novatek, tied to Putin’s friend and oil trader Gennady Timchenko; potash miner Uralkali, which Suleiman Kerimov, backed by state banks, won control of this year; and gold mining company Polyus, in which Mikhail Prokhorov owns a major stake.
Busvine writes:
With the opposition crying foul over alleged fraud in the December 4 election, which cut the majority of Putin’s ruling United Russia party, investors have slashed their exposure to stocks whose prospects they see as tied to the stability of the regime.
Utilities stocks, like state-controlled Federal Grid Company, InterRao and RusHydro, are also underperforming, as analysts note that the Russian stock market is now trading at roughly a 40 percent discount to its emerging markets peers.
Read the full article here.
Russian search engine Yandex debuted today on NASDAQ at $25 a share over it’s $20 its pre-IPO estimate. However, political risk looms large over its future performance. And smaller companies seeking capital from international markets face a tough environment. Nadia Popova writes:
Foreign investors are also becoming increasingly sensitive to political uncertainty ahead of Russia’s presidential elections in 2012. What’s more, lacking ruble liquidity has pushed local investors to start selling their current holdings, all the while showing little interest in buying new stocks.”
Paul Gregory of the Hoover Institute cautions investors to remember the Khodorkovsky trial when looking to Russia for big returns:
Let us hope the Khodorkovsky case will not be forgotten outside of Russia. The Council of Europe, Freedom House, and Amnesty International have concluded that Khodorkovsky was charged and imprisoned in a process that did not follow the rule of law and was politically motivated.”
“Any company considering investing in Russia should think twice. Those companies who invested in good faith in Yukos lost everything. They were politically expropriated. Major international companies, such as Shell and BP, have suffered arbitrary treatment at the hands of Russian officials and have no recourse. Companies considering entering the Russian market are assured that such things will not happen to them. They should realize that anyone doing business in Russia could find themselves in Khodorkovsky’s shoes.”
Russia Helicopters is the latest Russian IPO to be postponed because of political risk. Unable to release required details about its military contracts, Russia Helicopters joins four other IPOs this year that failed to close. Yandex is the most ambitious Russian IPO since it chooses to list on NASDAQ and must follow US securities law. Its $1 billion IPO is expected to be completed later this year.
The trend in increasing political risk for Russian IPOs is on the rise and the Russian government becomes more entwined with businesses in Russia. Today, Prime Minister Vladimir Putin’s cabinet approved the appointment of deputy premier Sergei Ivanov’s son to replace a first deputy prime minister to head the supervisory board at Russian Agricultural Bank. With political appointments at the helm, it may be increasingly difficult for Russian companies to access international capital markets as investors seek returns with risk.
Russia is a land of big appetites. But it’s starting to look like investors’ hunger for risk has become “very dainty,” a trader at CF Global in London tells Bloomberg News. Indeed, Russia’s Micex Index is the first among benchmark measures in the world’s 20 largest equity markets to fall at least 10 percent from a recent peak, the common definition of a correction, since mid-March, Bloomberg reports.
Yandex, the Russian internet firm, is preparing for a $1 billion IPO on the NASDAQ but news about its IPO is mainly about the political and oligarch takeover risk in the prospectus as well as having to provide information for the FSB, Russia’s secret service, on contributors to well known whistle blower Alexey Navalny. Investors may flock to the IPO as Yandex is the sixth most visited website in the world.
However, they should take note that just seven months after Mail.ru IPOed in London in November 2010, Mail.ru’s founders sold their stake last week and the stock fell 20%. With pervasive government and oligarch intervention in business in Russia, accessing foreign exchanges and investors may be the only way for Russia’s entrepreneurs to recoup their initial investment.
