Russia kicks off new privatisation drive

14th February 2011, Comments 0 comments

Russia on Monday kicked off a new wave of major privatisations after a long hiatus, raising more than $3.0 billion from the sale of a 10 percent stake in state bank VTB.

The government said in a statement that the offer was more than two times over-subscribed by domestic and foreign investors, and the sale raised 95 billion rubles ($3.2 billion).

It said the offering was the most "successful offering of share capital in the Russian market" since the global financial crisis.

The government did not identify the names of the biggest new shareholders in VTB but said that "many major US, European, Middle Eastern and Asian companies for the first time invested significant money in the Russian economy."

Russia last year unveiled a huge five-year privatisation drive in which it hopes to raise some $60 billion, a dramatic change in policy after a decade that saw the government increase state control over key assets.

The government trumpeted the VTB sale -- spearheaded by Prime Minister Vladimir Putin and his deputy Igor Shuvalov -- as blazing the trail for future transactions and Russia's further integration into the global economy.

"The sale of the stake in VTB is a pilot project and an example for all following privatisation transactions," the government said.

"This is one more step forwards on the way to integration with big global business which will help the creation of a global finance centre in Moscow."

Putin personally congratulated VTB chief executive Andrei Kostin Monday on the "successful" sale at a meeting at his residence outside Moscow and said it showed "confidence in our financial system."

According to the state RIA Novosti news agency, US investment fund TPG and Italian insurer Generali were among the most prominent buyers, picking up $100 million and $300 million worth of shares respectively.

The sale was also the first time the government has employed foreign investment banks -- Bank of America Merrill Lynch and Deutsche Bank -- to organise a state sell-off.

The Vedomosti financial daily said the main interest in the share sale had come from abroad, with 41 percent of the bids from Britain-based investors, 22 percent from Europe and 15 percent from Russia.

German Gref, the head of Russia's largest bank Sberbank, said that a stake in the state-owned bank would be sold later this year and another in 2012, in a total sell-off of 7.6 percent of its capital.

"The value of this stake is two times more than a 10 percent stake in VTB," he noted.

Frequently lambasted by Western economists for high corruption levels and the opaque role of the state in business, Russia has over the last months been at pains to show that it really is open for foreign investment.

Its biggest oil firm Rosneft last month agreed a landmark deal with BP for a cross shareholding and Arctic exploration, although the accord remains on ice after Russian shareholders in BP's Russian joint venture launched a complaint.

The country is also promoting its hosting of the 2014 Winter Olympic Games and 2018 World Cup as a chance to increase foreign participation in the economy.

Yet the business environment remains overshadowed by the controversial imprisonment of Russia's former richest man Mikhail Khodorkovsky, whose supporters claim he has been punished for daring to stand up the the Kremlin.

"The killers and swindlers are in jail, the chaos is over, there are rules of the game. And for investors this is the main thing," Deputy Prime Minister Igor Sechin said last month as he touted for foreign investment at the World Economic Forum in Davos.

The stock market listing of VTB in 2007, when 22.5 percent of its capital was sold off, was one the the last major Russian public offerings which were then frozen as the global financial crisis hit and the state increased its control on the economy.

"While we see all this fuss about Khodorkovsky, investors do not think about this when tasty morsels of VTB are put on offer and Rosneft and BP exchange shares," the Interfax news agency quoted a Russian official as saying.

© 2011 AFP

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