Russian Deal-Making Tumbles to Four-Year Low Over UkraineJason Corcoran and Matthew Campbell
Takeovers in Russia tumbled in the first half to their lowest value in four years as the crisis with Ukraine led companies to delay acquisitions and sanctions dissuaded foreign buyers.
The dollar amount of completed and pending deals sank to $16.6 billion for the first six months, the weakest since 2010, and compared with $27 billion for the same period a year ago, data compiled by Bloomberg show.
Economic sanctions from the U.S. and European Union curbed acquisitions from abroad while Russian companies had difficulty securing financing for their own expansions. Even before the sanctions, Russia was struggling to boost growth in its $2 trillion economy as consumer demand couldn’t make up for sagging investment. Gross domestic product grew 0.9 percent in the first quarter from a year earlier, compared with a 2 percent gain in the final three months of last year.
“The sanctions have created an atmosphere of uncertainty for companies,” Sergei Ostrovsky, a partner at Ashurst LLP in London and head of the law firm’s Russian group, said by phone. “In the short term of six months to a year, people are putting projects on hold, but it’s difficult to see Russia being frozen out of the international markets over the long term because it’s become so integrated over the past decade.”
The risk of further sanctions is abating, said Christopher Granville of research firm Trusted Sources UK Ltd., even as U.S. and European officials warn of stiffer measures if Russia doesn’t do more to ease tensions in Ukraine. Russia’s President Vladimir Putin last month backed a cease-fire proposed by his Ukrainian counterpart, Petro Poroshenko, and Russian lawmakers on June 25 rescinded authorization of using force in the neighboring country.
“If the Ukraine situation continues to improve as it seems to be, I don’t see any quick recovery,” Granville, managing director at the research firm, said by phone. “Russia will continue to bounce along the bottom with a very weak equilibrium for the near future.”
Qiwi Plc, which runs a web-payment service similar to PayPal Inc., completed the first equity sale on June 23 by a Russian company since an initial public offering by retailer Lenta Ltd. in February. Lenders Alfa Bank, OAO Sberbank and OAO Gazprombank sold Eurobonds in June in the first foreign-denominated bonds since Russia’s annexation of Crimea.
The largest deal this year was the 5.1 billion-euro ($7 billion) sale by Germany’s RWE AG of its oil and gas unit to L1 Energy, an investment vehicle established by Russian billionaire Mikhail Fridman. Eni SpA’s sale of a 60 percent stake in Arctic Russia BV to Yamal Development LLC for $2.9 billion was also completed in January.
“Capital markets are clearly coming back with the first transactions in equity and debt markets launched or completed in the past few weeks,” Anton Cherny, acting head of Russian investment banking at Renaissance Capital, wrote in an e-mail. “We believe that this is a precursor of more activity in the M&A market as well.”
Deals postponed until next year include OAO Rosneft’s purchase from diamond monopoly Alrosa of gas assets for $1.4 billion. Rosneft also withdrew the sale of a stake in its oil refinery Lisichansk in Ukraine, Prime news agency reported on June 16, citing Chief Executive Officer Igor Sechin.
Raiffeisen Bank International AG and UniCredit Bank Austria AG both called off the sales of their Ukrainian units this year. Raiffeisen’s sale had attracted bidders from the region including from Russia.
“Despite the market conditions, there are very few desperate sellers who are willing to take any price as a lot of businesses in Russia generate strong underlying cash flows,” Cherny said.
Steelmaker OAO Severstal received bids for its U.S. plants from U.S. Steel Corp. and Brazil’s Cia. Siderurgica Nacional SA, people with knowledge of the matter said in May. Severstal may receive as much as $1.5 billion for the U.S. plants, they said.
Russia’s 1 trillion-ruble ($29 billion) privatization program has ground to a halt this year because of the volatile stock markets and government unwillingness to sell at discounted prices. Plans for this year had included the sale of shares in telecommunications provider OAO Rostelecom, shipping company Sovcomflot and OAO Novorossiysk Commercial Sea Port.
“The Russian state’s preference is to wait for the optimal window to maximize price in privatizations,” Daniel Jacobowitz, co-head of investment banking at Deutsche Bank AG in Moscow, said by phone. “The state has not felt the need to sell its assets at any price.”