Privatization agenda to shape new corporate landscape

The privatization agenda outlined by First deputy Prime Minister Igor Shuvalov, will seek to both shore up the government’s budget gap, and bring about major change in the Russian corporate market.

It’s going to be the biggest privatization since the 1990s. The programme covers the whole range of the state’s involvement in business. The government has put for sale 900 state firms. The launch of the total or part-sale of the state companies was announced by the first deputy Prime Minister Igor Shuvalov, who announced better reliability and transparency of Russia’s economy as the prior goals of privatization.

“The main goal of the asset sell-off will be to change the investment appeal of these assets – to attract private investors and therefore change the structure of ownership of the companies to make them more transparently stable and reliable.”

With the privatization, the government also hopes to patch the budget hole hoping to rise up to $60 billion. The country’s budget plunged into the red last year for the first time in a decade. Among the most notable offerings is the sale of shares in VTB bank to below controlling. The state will reduce its stake to controlling in the country’s biggest lender Sberbank and in the national airline Aeroflot. Chief economist at Otkrytie, Vladimir Tikhomirov, says that while demand could outstrip supply for the better known names, lesser lights will wait until the government is surer of the economic direction.

“The demand could outstrip supply if we are talking about larger companies which are being traded on the market such as VTB, Sberbank, Rosneft, Aeroflot and few others. Concerning other companies it would very much depend on the attitude of investors, which in turn would depend on the way the Russian and global economies are proceeding.”

Privatization designed to fuel structural changes in the real sector is expected to improve the free float of companies, and attract more investors to Russia’s equity market. The financial market, which is often criticized for overdependence on commodity prices, may benefit too. Privatizing the state banks might be the way to diversify the structure of the market. The sell-off of state companies may change the financial landscape but according to Natalya Orlova, Chief Economist at Alfa Bank it will not turn ordinary Russians into share-owners.

“My personal take is that the government might sell some companies – it can also be Sberbank, VTB or very well-known names like oil companies to offer these shares to the retail investors, however I think that within the $60 billion privatization package I’m not sure that the largest part of this placement will really target the retail investors.”

The government’s attempt to reconsider its property can be a sign that the state is loosening its grip across the economy. But market players warn against premature optimism as and say they have been looking for a more aggressive sell-off.