Russia’s Political Risk Hits Canada’s Magna

Below is an excerpt of a very good article published in the National Post by Pat Akey and Art Durnev, commenting on the very important issue of Magna’s highly political business dealings with Russia (a topic we cover here with some frequency).  The Mikhail Khodorkovsky and Yukos cases are cited examples of the political risk volatility that many Canadian shareholders may not be aware of.

Canadian investors should think long and hard about the objectives of politically connected individuals from emerging economies like Russia and China who are investing in Canada. While these international transactions potentially bring significant capital and investment opportunities for the Canadian public, they may force Canadian firms to bear significant political risk from politically unstable markets. (…)

The benefit for Magna, Canada’s largest automobile parts manufacturer, in entering this deal is apparent: access to the expanding auto market in Russia with one of the best-connected businessmen in the Kremlin. However, Magna may have discounted the opaque nature of Russian businesses and the objectives of its newest investor when agreeing to the deal. Mr. Deripaska has stated publicly that his interests corresponds to the Kremlin’s, which are likely not the same as the interests of the existing stakeholders in Canada.

Russian politics are quite volatile. Last month, Vladimir Putin publicly blasted the oligarchs and, before a TV audience, forced Mr. Deripaska to sign a contract for supplies to restart production at idle factories. Should Mr. Deripaska fall out of favour, his existing companies’ future would be very uncertain, adversely affecting Canadian co-investors.