Government commits to $32 billion privatization plan

The Russian government has approved a plan to sell stakes in major state-owned and state-controlled companies over the 2011–2013 time frame worth an estimated $32 billion.

The last finalized privatization plan includes 7.97% minus one share stake in hydropower holding RusHydro, a 4.11% minus one share stake in electric power grid operator Federal Grid Company of Unified Energy Systems (FGC UES), a 50% minus one share stake in shipping company Sovcomflot, and a 25% minus one share stake in railroad monopoly Russian Railways.

The government also approved selling a 7.58% minus one share stake in the country’s largest bank Sberbank, a 35.5% minus one share stake in VTB Bank, a 25% minus share stake in Russian Agricultural Bank, a 50% stake in agricultural leasing company Rosagroleasing, and a 25% minus one share stake in oil major Rosneft.

The Minister of Economic Development Elvira Nabiullina emphasized that the focus of the plan is to bring in further investment in the companies.

“The key difference of the plan for 2011 to 2013 is of course its large scale character. The aim of such a privatization program is not only to bring additional funds to a state budget, even if it is of prior importance. Our key task is to encourage investment to companies”

Chris Weafer, Chief Strategist at Uralsib says the success of the privatization plan will reflect market conditions and investor appetite for Russian assets, adding that a key issue to be addressed is lowering the perception of risk associated by global investors with committing funds to Russia.

“The timing of these sales, and the actual proceeds raised, will obviously depend on market conditions and investor appetite for Russian assets in this period. That will partly be a function of global market conditions but also, in no small measure, it will depend on how successful the government is in changing the current image of Russia as a high-risk investment location.”

The earlier draft privatization proposal had included Novorossiisk Commercial Seaport and the Economy Minister may also add mid-size companies such as Apatit and S7 to a privatization plan of 2011-2012. Uralsib’s Weafer noted that the scope of the governments’ privatization plans will impact private companies planning listings over the coming years.

“If market conditions, and Russia appetite, remain as tough as they have been this year, and the state pushes ahead with its planned program, then private company issuance will remain a struggle unless those issues are priced much more keenly than they have been in the past.”