beyondbrics

Since Russia’s First Deputy Prime Minister Igor Shuvalov announced last September that the state planned to plug its deficit by selling assets, potential investors have been buzzing about a so-called “second wave of privatisation”.

Nobody expects round two to be as controversial as round one, but there has still been great debate about what sort of juicy assets the state would be selling and at what price.

While most of the questions have yet to be answered, the finance ministry put some of them to rest today with its first proposal on the three-year privatisation scheme.

The ministry hopes to raise close to 900 billion roubles ($29bn) by selling stakes in 10 major companies, it said, including banks VTB and Sberbank, oil companies Transneft and Rosneft, and Russian Railways, the state rail company.

The finance ministry predicts the asset sales will reduce the country’s deficit from 4 per cent in 2011 to 3 per cent in 2012 to 2 per cent in 2013.

The proposal has a lot for investors can take comfort in.

For one, it offers specifics. According to tables published in Russian dailies Vedomosti and Kommersant, the proposal will see the state’s majority stakes in Transneft, Sberbank and Rosneft reduced by as much as 25 per cent to 51 per cent. Under the proposal, its stake in Russian Railways will be reduced from 100 percent to 75 per cent plus one share, as will its stake in Sovcomflot, Russia’s largest shipping company.

Russian markets seemed cheered by the news, with the rouble-denominated Micex rising as much as 1.2 per cent to 1,396.92 and the dollar-denominated RTS adding 1.3 per cent to 1,467.68.

Yet, for some, the proposal veered a little on the anti-climactic. The finance ministry has yet to receive the government’s backing or state what form the share sales would actually take.

As one western banker speculated to the FT before the proposal was announced, much of the state’s privatisation plans appear to be a “PR thing… lip service that they’re paying to the markets and financial community.”

The state has been talking about reducing its stake in Sovcomflot and Russian Railways for a long time, he said, but that alone does not constitute a “meaningful privatisation programme”:

You will see one or two companies do what they promised to do several years ago and this will be propagated and heralded as a great achievement toward the greater privatisation of the company, but in reality it will mean nothing.

Mikhail Galkin, an analyst at VTB Capital, agreed. As he told Reuters: “It’s not a sensation and it’s only a draft. We’ve heard such talk before.”

Will the government show that this time is different?

Further reading:
As long as it is trapped, the Russian bear will growl, Martin Wolf, FT
Russian privatisation, Lex (Sep 2009)