Probing Russian Privatization

What to make of Russia’s announcement that it will sell stakes in some of its publicly-owned companies next year?  The government has already drawn up a list of 5,500 companies that will be divested, and Bloomberg’s report suggests that the move could spur growth in companies whose remit had previously been restricted by state ownership.  Prime Minister Vladimir Putin and Finance Minister Alexei Kudrin have previously suggested that the relaxing of state controls would help the economy return to growth, although plenty of critics are questioning the government’s intentions, as the more glaringly obvious point is that the privatization is an unavoidable bid to bolster flagging public funds.  

The Moscow Times is running an interview with Steven Meehan, CEO of UBS in Russia, who is expressing some good old-fashioned skepticism about the news.  Meehan says that, whilst the announcement has been welcomed in the investing sector, question marks remain over the transparency of the offers and indeed over the solubility of the Russia economy.  Or is it a question of just how much control the government is willing to give up that is worrying potential acquirers?

[T]he status of Russian companies’ balance sheets remains a big concern for investors, Meehan said.

“I think the restructuring of assets and liabilities is a key concern for foreign investment into Russia, but it’s often less discussed,” he said. “International investors … can be uncomfortable investing with short-term liabilities that are disproportionate to long-term assets.”

Russian companies have reduced their foreign debt — which exceeded $500 billion around the start of the year — to $303.5 billion as of Oct. 1, according to Central Bank data. Recapitalized state banks helped with refinancing, but the overall debt burden remains high.

Investors will also want more clarity on navigating the country’s bureaucracy and on which stakes will be sold and when, said Meehan, who took over as head of UBS in Russia and the CIS in March 2008.

“The government’s announcement is obviously not a signal that they’re ready to cede control of oil companies to foreign investors,” he said. “But it would clearly help if Russia could fully define to what extent foreign investment and foreign control is welcome.”

Read more here.