Wall Street Heads to Petersburg Lured by Medvedev $30 Billion Asset Sales
Wall Street is headed to Russia as President Dmitry Medvedev tries to lure investors with state asset sales and revive the allure of the slowest-growing economy among the major emerging nations this year.
Citigroup Inc.’s Vikram Pandit, Bank of America Corp.’s Brian T. Moynihan, Blackstone Group’s Stephen Schwarzman and Deutsche Bank AG’s Josef Ackermann are among the bankers circling St. Petersburg for the annual economic forum. Medvedev is trying to combat Russia’s reputation as the world’s most corrupt major economy amid investor uncertainty about the future of his ruling tandem with Prime Minister Vladimir Putin.
The president will use the showcase to counter concern about Russia’s investment climate by unveiling a $10 billion sovereign fund to stimulate domestic private equity and a move to expand a $30 billion asset sale program. The plan to auction off company holdings will be the “thrust” of the president’s speech, Arkady Dvorkovich, his economic adviser, said June 15.
“They remain skeptical but are at least willing to sit down at the table because he keeps talking the talk they want to hear,” Bernie Sucher, a board member of Aton Capital and the former country head of Bank of America Merrill Lynch in Russia, said by phone from St. Petersburg on June 15.
Banks including Citigroup and Goldman Sachs Group Inc. are boosting their Russia headcount even as investors pause to see who will be in charge. JPMorgan Chase & Co.’s Jamie Dimon, Citigroup’s Pandit and Goldman’s Lloyd Blankfein are among a panel of 27 advising the Kremlin on how to turn Moscow into a global financial center.
The central bank on June 14 picked Goldman Sachs, JPMorgan, Morgan Stanley, Credit Suisse Group AG and Troika Dialog to manage a sale of part of its stake in OAO Sberbank, the country’s largest lender, in a transaction worth as much as $7 billion.
The government also has shortlisted Morgan Stanley, JPMorgan and Deutsche Bank to manage an IPO of OAO Sovcomflot, Russia’s biggest shipper.
Last year was the biggest for Russian mergers and acquisitions since 2007, helped by 96 deals worth $50.9 billion in the fourth quarter alone, Bloomberg data show. Russia has seen deals worth $36 billion in the first half, up from $26 billion for the same period a year earlier.
“A large part of why these banks are coming to St. Petersburg is because of this M&A and privatization business,” said Clemens Grafe, chief economist for Goldman Sachs in Russia. “The old corporate landscape is changing. Russian international corporations like Rosneft want to integrate with the West.”
The authorities plan to raise $30 billion by 2015 from the sales, helping to improve corporate governance and replenish state coffers, Economy Minister Elvira Nabiullina has said. OAO TransContainer, a unit of Russia’s rail monopoly, was the last state-owned company to hold an IPO, raising about $400 million in November 2010.
Russia’s economy needs a “multifold” increase in investment to be modernized, Medvedev said March 30 while unveiling his 10-point program to make the nation more attractive to investors. The measures included removing senior officials from the boards of state companies they oversee, approving a state-asset sale program for the next three years and proposing a law on minority shareholders’ right to information.
“This is big stuff,” Liam Halligan, the chief economist at Prosperity Capital Management in London, which oversees more than $5 billion in Russia and the CIS region, said in an interview. “You’ve now got very senior people in the government stepping down from running multibillion-dollar companies. That should be seen pretty positively.”
Even so, Medvedev, who has called Russia’s reliance on oil “humiliating,” said the investment climate remains “very bad.” The nation’s failure to stop corruption and diversify the economy means it needs $200 a barrel oil to match the economic growth of China and India, Mikhail Khodorkovsky, the former billionaire jailed since 2003, said in written answers to questions relayed through his lawyers.
Khodorkovsky said his case should remind global business leaders gathering in St. Petersburg that no one is safe from extortion. Graft threatens the foreign investment Medvedev to help boost growth to as much as 10 percent, he said.
Russia’s 30-stock Micex Index has dropped 7.9 percent so far this quarter and was 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.
Russia may have total net outflows of $30 billion to $35 billion for 2011, roughly equal to the $35.3 billion of capital that left last year, central bank First Deputy Chairman Alexei Ulyukayev said May 31. Investors pulled $353 million from Russian stock funds in the week to May 18, the biggest outflow since 2006, EPFR Global data show.
Political uncertainty is “part of the reason, but I think it’s more complicated than that,” Roland Nash, chief investment strategist at Verno Capital, said June 10 in a telephone interview. “There’s the general business environment.”
Putin, 58, chose Medvedev, a 45-year-old lawyer from his hometown of St. Petersburg, as his successor in 2008 because of a ban on serving three consecutive terms. Neither Medvedev nor Putin has ruled out running for president in 2012.
“Russia is far from a perfect place to do business but there is plenty of easy money to be made for global banks involved in big deals and privatizations,” Michael Kart, a managing partner at Moscow-based investment company Spectrum Partners Ltd., said in e-mailed comments. “It’s a matter of holding your nerve.”