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29 Jul, 2010 07:56

Privatization back on the agenda of state looks to offload stakes

The Russian government has dropped Russian railways and the Federal mortgage agency, from the list of companies it is preparing to sell stakes in, and in the process raise $29 billion.

If you want some of Russia's blue chips – oil giant Rosneft, or say the largest bank Sberbank – now is the time – The government is considering selling minority stakes in 8 of Russia's leading companies.

Some call it the biggest privatization since the 1990s – but Natalya Orlova, Chief economist at Alfa Bank, says it is very different from what took place in the 1990’s.

“Definitely we are talking about privatization of minority stakes, and this is much different from what we have seen in Russia taking place in 90’s, or privatization in the general sense. Because usually when we are talking about privatization, we assume some sale of assets to strategic investors. In Russia's case now we are really talking about government intention to increase free float of the state owned companies.”

Only months ago some said Russia no longer deserved its position as a leading emerging market.
A new inflow of foreign investment could change that perception. But the government has work to do, before it can sell some of these companies. Some state monopolies are known to be unfriendly to individual investors. Others are simply too big to be easily sold according to Vladimir Kuznetsov, Equity analyst from Unicredit Securities

“If we talk about large stakes as Rosneft, that can cost $20 billion or more or VTB’s pretty large stake, it’ll take serious effort from the Government to make them suited for investors to sell it at a fair price.”

The pricing of the assets – and the timetable – are unclear. The government initially suggested about $30 billion over 3 years. Analysts say the government has a choice. It can sell quick and cheap. But to get the best price the privatization could stretch over several years.