Putin’s Forum Billionaires Lament Ukraine Chill: Russia Credit
While ruble bonds are up for the first month in three, they’re losing money this year as capital flight topped $50 billion in the first quarter amid Putin’s annexation of Crimea and rising tensions with the U.S. and European Union. The White House is lobbying western business leaders to skip the forum, even as more Russian billionaires plan to attend than last year.
“This is bad,” Sergey Kolesnikov, the billionaire president and co-founder of Technonicol, Russia’s biggest producer of insulation and roofing materials, who is attending the May 22-24 conference, said by phone May 14. “Russia needs investors to enliven the economy, but money is flowing out.”
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Russia’s dollar notes increased 0.7 percent since Putin’s Crimea incursion on March 1, the worst performer among 56 nations in the Bloomberg (BEMS) USD Emerging Market Sovereign Bond Index, which gained 4.8 percent in the period. Sergio Trigo Paz, who manages emerging-market debt at BlackRock Inc., said his funds sold all their Russian bond holdings last month because of the risk of escalating U.S. sanctions, the Financial Times reported last week. The press office of the world’s largest money manager declined to comment when contacted by Bloomberg yesterday.
Thirty-two Russian billionaires are scheduled to visit the forum -- two more than last year -- and big names from the U.S. are missing after White House officials called on the country’s top corporate leaders to pull out as the Ukraine crisis deepened.
Visa Inc.’s Charlie Scharf and PepsiCo Inc.’s Indra K. Nooyi are no longer participating. Citigroup Chief Executive Officer Michael Corbat will send others in his place, the company said last month. Goldman Sachs Group Inc. CEO Lloyd C. Blankfein probably won’t attend, according to a person briefed on the matter, and Morgan Stanley CEO James Gorman is canceling his plans, another person said.
Alcoa Inc. CEO Klaus Kleinfeld won’t visit the forum and the company will “participate via its most senior Russian executives,” spokeswoman Monica Orbe said this month.
“I’m an optimist -- there will be fewer people, but they will come,” billionaire David Yakobachvili, chairman of Bioenergy Corp., who’s never missed the forum, said by phone May 15. “The Russians will be there.”
Alexander Lebedev, 54, a former billionaire who owns Russia’s National Reserve Corp., plans to swing by the conference for meetings with business partners, he said by phone May 13. “I always skip the official part, where officials beat the drums and declare that everything is OK.”
Putin is returning to his hometown for the event after overseeing the signing of a 30-year gas supply deal with China. Kolesnikov from Tekhnonicol said he’s keen to sit in on the Asia panel discussions in his first visit to the forum.
Russian officials have called for boosting business ties with the region as the U.S. and Europe ratcheted up sanctions and threatened to target key industries if Russia interferes in Ukraine’s presidential vote on May 25.
While the ruble and bonds have clawed back some of their declines this year on speculation Russia is seeking to de-escalate the tension in Ukraine, tougher penalties risk tipping the economy into recession after growth slowed to the weakest pace since a 2009 contraction. The ruble strengthened 0.3 percent to 34.4150 as of 7:29 p.m. in Moscow, a 4.5 percent decline in the year.
Sanctions have pushed international business and finance leaders “into a difficult decision,” Roland Nash, chief investment strategist of Verno Capital in Moscow, said this week. “By choosing to attend, or not, they are forced to make not just an economic decision but also a political decision.”
Russia-dedicated bond funds saw outflows of $886 million in the first quarter of the year. From April 3 to May 14 they have had $532.5 million of inflows, according to Alexey Demkin, an analyst at OAO Gazprombank, who cited data from EPFR Global.
“It’s logical” for this year’s forum to be attended by fewer foreigners, while “the Russian business elite will be interested in being represented,” Konstantin Nemnov, who helps manage $3 billion at TKB BNP Paribas Investment Partners in St. Petersburg, said by e-mail yesterday. “Russian markets are very big and, as we see, investors have returned to Eurobonds as soon as that market normalized.”