Russian Rail Said to Seek 5% Stake Sale to State Funds in 2014

OAO Russian Railways wants to sell a 5 percent stake to the country’s wealth and pension funds in 2014 as the first step toward cutting state ownership of the monopoly, according to two people with knowledge of the matter.

The state railroad owner included a sale of new shares to the National Wellbeing Fund and the Pension Fund in its so-called privatization road map, the people said, asking not to be identified before the government signs off on it.

Management is proposing an initial public offering of 20 percent more of the company only after 2016, the people said. Russian Railways may sell both new and existing shares.

The government is trying to speed up sales of stakes in its largest companies and raise 427 billion rubles ($13.5 billion) this year. Russian Railways Chief Executive Officer Vladimir Yakunin fought last year to slow plans to offer investors a 25 percent stake that was in the asset-sale plan for 2011 through 2013, saying the industry needed restructuring first to boost its value. Yakunin called for the pension fund managed by Vnesheconombank, the state development bank known as VEB, to invest in Russian Railways to fund expansion and upgrades.

Russian Railways aims to sell 100 billion rubles of infrastructure bonds to VEB this year, with a yield of 1 percentage point more than the inflation rate and maturity of as long as 30 years, a press official, who asked not to be identified because of company policy, said by phone yesterday.

The company is seeking as much as 406 billion rubles of private investment in Siberian and Far Eastern projects from 2013 to 2020, Vedomosti said today, citing company documents.

Before IPO

Russian Railways’ press service declined to comment on the proposals. VEB’s press service said such decisions are made by the supervisory board, which is headed by Prime Minister Dmitry Medvedev. The prime minister’s press service referred questions to the Finance and Economy ministries. The Finance Ministry, which oversees the Wellbeing Fund, didn’t immediately comment.

The Federal Property Management Agency has approved the roadmap submitted by Russian Railways, which includes private and public placements of stock, the body, overseen by the Economy Ministry, said by e-mail, without elaborating.

Before an IPO, the government will have to change the structure of rail fees, decide what to do with the company’s unprofitable units and projects, such as passenger travel, and undertake other measures to make the rail monopoly more attractive to investors, according to the people. Investors won’t buy into the company while the state continues to fund it by acquiring new shares, the people said.

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