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13 Oct, 2010 14:01

Shuvalov flags upcoming privatizations

First Deputy Prime Minister Igor Shuvalov says the Russian Government will soon begin privatizing stakes in 10 – 15 large companies, with the gains likely to mostly cover budget deficit.

Shuvalov said the Russian Government is going to sell both state owned assets and also stakes in companies it is in full control of, including the Russian railways (RZD) and Russian Technologies, and added that it was necessary to stop speculation about a particular list of companies the State will sell, stressing that once it announced the list, "the government will not withdraw these offers."

Shuvalov noted that "there will be no final list for privatization," as it could be expanded at some point, should circumstances require it, and adding "the government needs to be flexible in dialogue with investors.”

"If there are serious signals (from investors) about their willingness to buy large stakes at a fair price, we shall agree to that."

Noting that privatizing stakes in the two biggest banks, Sberbank and VTB, alone would raise significant funds he made clear that some would plug the budget deficit, and some would be directed "towards selected programs with a distinct time span."

Renaissance Capital macroeconomist, Anton Nikitin, says that an additional impact of the privatizations will be improved decision making and operational efficiency for the privatized companies.

“The prime goal of Russian privatization is funding the budget deficit, but once private investors get access to the decision making process operational efficiency of companies will significantly increase.”

Aleksey Devyatov, analytical management chief economist at Uralsib also indicated that company management could get a boost , but downplayed the economic impact of the privatizations.

“Frankly, I don’t expect this privatization to bring in any revolutionary changes to the economy – this will be mostly a change of an owner. The process is likely to improve management inside the companies, but I wouldn’t overestimate its importance.”

Highlighting the progress made in preparation to sell a further stake in VTB the First Deputy Prime Minister said further developments on other privatizations could be expected shortly.

“We've drafted the plan for selling VTB shares in 2010 and submitted it to the prime minister, who has agreed that the sale could go through by the end of year if the situation is good. The sale could fetch "at least $3 billion. We'll approve, in the next few weeks, a list of 10-15 companies in which stakes will be privatized. The volume of privatization will be so high that we'll be able to compete for international capital.”

Renaissance Capital macroeconomist, Anton Nikitin believes that depending on what stakes in companies are slated for sale the energy and banking sector stakes will attract interest.

“The oil and gas sector will be the most attractive one, with Transneft and Rosneft now being on the list. While Transneft is going to offer just 3% of its assets, Rosneft intends to sell a good stake of about 24%, that can attract strategic investors.

Then, of course, a banking sector, that proved to be quite a reliable structure during the crisis. Sberbank, the market leader, is going to sell 9.3% of its shares, with VTB bank planning to make private around 10% of its assets already by the end of this year.
Energy companies are another attraction in Russian market, where Rushydro, for example, has a good chance to attract both strategic and portfolio investors.

However, there are some markets, where I don’t expect a lot of investment interest. These are the branches, that can’t do without Governmental presence and has always been supported by the State – in Russia that’s agriculture. So, I think, Russian Agricultural Bank and the United Grain Company won’t be too popular. ”