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Kremlin-Backed Fund Seeks European Investments, Arab Partners

Kremlin-backed private-equity fund plans to buy into at least two European companies this year, part of the Russian government’s drive to gain access to western expertise to modernize its industry.

The Russian Direct Investment Fund is looking at companies in Italy, France, Germany and Netherlands, its head Kirill Dmitriev said by phone today. The $2 billion Moscow-based fund may conclude deals in the third or fourth quarter by acquiring minority stakes.

The Kremlin established the fund in June to co-finance international investment in modernizing industries amid efforts to wean the economy off its dependence on energy exports, which account for 17 percent of its gross domestic product. While it targets to finance domestic projects, the fund also wants to use financial turmoil in Europe to snap up technology assets to help its cause.

“Historically, Europe has been prejudiced against investment from Russia,” Dmitriev said. “We think that one of the positive effects of the crisis is that people become more pragmatic, see better synergies and understand that mutual cross-border investments can be one of the best antidotes to the crisis.”

Closer Integration

Prime Minister Vladimir Putin, who announced in September his intention to return to the presidency this year, said Russian capital should be invested abroad to allow for the country’s closer integration with Europe and the rest of the world.

“Our partners invest in the Russian economy many times the capital that we do in foreign countries,” Putin said in a televised phone-in show on Dec. 15. “The West is not very good about letting us enter into its life-important spheres.”

Dmitriev said that the fund is looking for companies in areas such as automotive components, energy efficiency and aviation. He declined to identify the target companies or say how much the fund is prepared to spend.

The fund can invest as much as 20 percent of its resources outside of Russia. It may also use some of the $1 billion that China Investment Corp., the nation’s sovereign-wealth fund, committed last year, Dmitriev said.

The joint Russia-China Investment Fund is looking at investment projects in agriculture, logistics, energy efficiency and pharmaceutical sectors in Russia and other former Soviet countries, he said.

Arab Investors

The Russian fund may also create a similar joint venture with Arab investors, potentially worth “billions of dollars,” Dmitriev said.

The private-equity fund set up by President Dmitry Medvedev is trying to reassure those wary of investing in the country by putting government money alongside their capital in pursuit of returns of as much as 30 percent, Dmitriev said in a Sept. 22 interview.

The Russian government will pump about $10 billion into the fund in the next five years, and wants to attract an additional $50 billion of co-investments from foreign buyout firms, sovereign-wealth funds and companies seeking to expand in the country, he said at the time.

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