Pushing the privatization boundary
The government’s submission for an extended privatization schedule has filled in more knowledge about its privatization intentions in a further revision of the plan approved in November 2010
The new proposal submitted by First Deputy Prime Minister Igor Shuvalov to President Medvedev, extends to 2017 the privatization horizon, and expands the originally envisages list of companies and the size of the government stakes to be sold. The new plan proposes the sale of government stakes in 13 companies, keeping a golden share in 6 of them.
Sovcomflot, Sheremetyevo Airport, Inter RAO, VTB and Rosagroleasing are going to be completely privatized. The sale of stakes in RusHydro and Rosneft should start in 2012, with the Government retaining its control over these companies through the golden share mechanism, as well as outlining a golden share in Alrosa, Zarubezhneft, United Grain Company and Rostelecom. Government stakes in FGC and Transneft could be lowered to no less than 75% + 1 share. Instead of the sale of MRSK Holding the government has suggested privatization of its subsidiaries starting from 2012.
RT: Will the extension of the privatisation plan give a boost to Russia's investment climate?
LG:“I think it is certainly welcome news because this time it is a meaningful privatization, meaning not just minority shares, as before.However to boost the business environment you would really need to carry out structural reforms, such as the strengthening of the judiciary, the shareholders rights, and so forth.And these things have yet to happen.We haven’t seen much progress yet, so there is not direct link between the announcement of this programme and improvement of investment environment.”
RT: Is Russia looking for money in its privatisation spree, or rather for management skills and know-how?
LG:“I think all of that.Initially, right after the global economic crisis, I think the money mattered more.But as the oil prices rise then it is more the know how and exchange of management skills that Russia is looking into.I think the Russian government is interested to get rid of the functioning state owned badly managed companies.It is a good opportunity to take the load off, and also, of course, when it comes to strategically important companies, such as the energy companies that we are talking about, it is absolutely necessary to bring in new technologies and new management styles.”
RT: What companies on the list are among the most interesting for the investors and why?
LG:“I think the major companies, especially in the energy sector are quite lucrative, probably for similar reasons – they are quite profitable, and relatively stable revenues, so the investors would be much more interested to invest in these companies rather than the small ones.But, again, the issue of transparency, the issue of how these companies are run will arise again, so on one hand the investors will look at the lucrative energy companies, or transport companies like Aeroflot, but at the same time they will really have to have a close look at how these companies are run, how profits are shared.”
RT: The government reserves the golden share in the companies it put on sale. Could this scare off investors?
LG:“Well, not necessarily, it depends how these companies are governed.The fact that the government has the golden share could actually boost confidence, but there is an image problem when it comes to Russia amongst foreign investors, and this image hasn’t been raised so far because it is associated with state interference and persecuting sensible business people and so forth.So there is a lot of work to be done before the project that has been announced could materialize.”
However, according to analysts from Rye, Man & Gor Securities, the final decision on the whole plan is yet to be approved and could be subject to changes, noting that proposals to privatize some of Transneft should be paid particular attention.
“Of this list of companies we would pay special attention to Transneft. If its privatization goes ahead, this could become a strong driver for preferred shares, which are the only traded company stocks as of now. Our analysis suggests valuation of Transneft common shares could be about $10000 per share, indicating a large discount of preferred quotes (prefs are traded at about $1500). We believe investors would view such a large discount as unfair, even though the company has paid scanty dividends on prefs. However it remains unclear whether the government stands to keep 75% in the whole share capital or only common stocks. In the former case only 3% stake would be privatized.”