Moscow ex-mayor's son sells advertising business

Russian Press at a Glance, Tuesday, November 15, 2011

Kremlin pressure on Tajikistan continued Monday as President Dmitry Medvedev denied that the deportation of Tajik migrants from Russia was a tit-for-tat response to the harsh sentence Tajikistan handed down to a Russian pilot.

This weekend's presidential election in South Ossetia ended with a surprise tie between the candidate supported by Moscow and a major opposition figure. Voters also ruled to make Russian the country’s second state language

Russia opposes the Arab League's decision to suspend Syria and believes that Western nations are inciting opponents of President Bashar Assad to seek his removal, Foreign Minister Sergei Lavrov said

Authorities in Siberia have ruled that political ads denouncing "crooks and thieves" could only be interpreted as an attack on the ruling United Russia party. The slogan "For Russia - Against Crooks and Thieves" was included on posters that the newly opposition party A Just Russia placed on 30 buses and shuttle buses in the Siberian city of Novosibirsk

 

ECONOMY

The Russian state statistics service said the estimated dynamics of GDP growth in the third quarter of 2011 will stand at 4.8 percent this year, below forecasts of the economics ministry and experts. This year’s economic growth is estimated at above 4 percent

(Kommersant)

The crisis changed political views of Eastern Europeans: while in democratically developed countries the public support for democracy and market economy weakened, while in the countries with authoritarian tendencies pro-democratic sentiments have been on the rise recently 

A reduction in the number of members of the euro zone may cause "irreparable damage," President Dmitry Medvedev said

Aluminum giant United Company RusAl said that its net profit grew to $432 million in the third quarter from $29 million a year ago

 

AEROSPACE

Russia has time until the beginning of December to establish contact with its Phobos-Grunt unmanned spacecraft that is stranded at a low-Earth orbit after launch, the Russian space agency Roscosmos said.

(Rossiiskaya Gazeta, Moskovskie Novosti)

 

VEHICLES & ENGINEERING

The new rules of new and used vehicle imports to Russia would hardly affect the car market, but Russian truck producers would be deeply affected by import customs duties for used trucks

(Kommersant, Vedomosti)

Russian car sales grew 75% in January-September 2011 in money equivalent and 45% in quantity equivalent. Despite a slow growth in Russian incomes, estimated at about 3%, Russians prefer to buy more and more expensive cars

 

TELECOMS & IT

Russia was ranked first in Europe in terms of absolute number of Internet users, ahead of Germany and the United Kingdom

(Vedomosti)

 

DEFENCE

Prime Minister Vladimir Putin ordered the military industry complex to form a special commission to oversee government contracts and spending on defense projects.

(The Moscow Times, Rossiiskaya Gazeta, Izvestia)

 

SOCIETY

The city court in Russia’s second largest city of St. Petersburg found major violations ex-governor Valentina Matviyenko’s city-planning policy. The court ruled that the city hall wrongfully removed 38 historic buildings from the list of buildings protected by the state. Most of them were demolished

(Kommersant, Nezavisimaya Gazeta)

Bolshoi Ballet principal dancer Ivan Vasiliev and prima ballerina Natalia Osipova are leaving Moscow to join St Petersburg's Mikhailovsky Theatre

Russia faces a new wave of brain drain. The authorities should change the financing of scientific institutions, or it simply be short of specialists to prepare the next generation of scientists. Many young scientists admit they go abroad because of social problems in their home country

 

For more details on all the news in Russia today, visit our website at www.en.rian.ru

http://www.bne.eu/storyf3030/Medvedevs_privatisation_programme_runs_off_the_rails

There were several big surprises at the privatisation auction of Russia's biggest rail cargo company First Cargo Company (FCC) on October 28, the biggest sell-off this year. The first was how fast the bidding was over. The second was how small the premium paid was over the minimum starting price. The third was that Russia's richest man Vladimir Lisin won instead of Kremlin insider Gennady Timchenko, who had been widely tipped to walk away with the company.

FCC is a spin-off from state-owned monopolist Russian Railways (RZD) and is the country's biggest cargo rail company with more than 200,000 cars, or a fifth of the entire Russian fleet. With the markets crashing and fears of a second crisis palpable, the auction of FCC is likely to be the only significant sale this year in Russian President Dmitry Medvedev's much-vaunted privatisation programme, which aims to raise more than RUB1 trillion ($33bn) from the sale of state assets between 2012 and 2014. And with two of Russia's biggest oligarchs facing off to take control of the company, the auction was expected to result in a bidding war.

bne's industry sources said prior to the sale that Timchenko was very keen to buy the company and it was assumed he would get it. However, Lisin was just as determined and went as far as registering two separate bids and paid two separate deposits simply to make sure the minimum two-bidder condition for auctions to proceed was fulfilled. Moreover, according to the business daily Kommersant, Timchenko's Transoil company board pre-approved spending up to RUB500bn ($16.7bn), while Lisin's companies put RUB300bn ($10bn) into his war chest ahead of the auction.

But as the big day drew closer, the smell of fish started to waft. On October 13, the president of Russian Railways, Vladimir Yakunin, bizarrely started talking the price down, calling the sale "unwise under the current market conditions," but the company still planned to "fulfill its obligations" and go ahead with the sale. The company has no binding "obligation" to privatise itself and state-owned bank giant Sberbank postponed the sale of a 7.6% stake the same month, precisely because of those same market conditions. Yakunin followed up five days later announcing that the auction would be closed to the press. "The auction will be confidential, so journalists will learn about the results afterward," Yakunin said.

Medvedev's promise of transparency and accountability in Russia's privatisation programme was locked out of the room along with the press corps.

The end of the story is predictable. Lisin made a single bid that was the minimum RUB100m step over the starting price, or 0.8% of the total, to clinch the deal, ultimately paying RUB125.5bn ($4.1bn) for the company. Timchenko didn't move a muscle throughout the 10 seconds that the auction took to conduct.

So what really happened? The first point to make is the government didn't get as badly burned as it did in the now notorious loans-for-shares deals during the mid-1990s: $4.1bn is not to be sniffed at, but it still values FCC at slightly less than Globaltrans, another rail cargo company that was sold via an IPO in April 2008. "The price could be higher, but not much," says Andrew Rozhkov, an analyst with Metropol. "According to our calculations, with premium for control, it should be 15-20% higher than final price. However, I don't think RZD made a bad bargain. Considering the market situation, RUB125.5bn is close to market price."

Analysts speculate that as they were both interested in different parts of the company anyway, the two men reached a deal rather than waste billions of dollars bidding against each other. "I think there was a deal between Timchenko and Lisin to use FCC's fleet together in future. Timchenko is more interested in tanks and Lisin in gondola cars. So I expect in a year we'll find that most of tanks are used for the benefit of Timchenko and most of gondolas for the benefit of Lisin's business. I don't think FCC will be divided between them - it's against the conditions of sale," says Ekaterina Andreyanova of Rye, Man & Gor Securities. "But if there was a backdoor deal, then Timchenko and Lisin agreed to split the fleet."

Lisin owns NLMK, a huge steel mine that needs gondola cars to move ore about, whereas Timchenko is an oil trader and needs tanker cars. Other analysts suggest that the Kremlin itself might have been behind keeping a lid on the bidding. The very same day that FCC was being sold, the investment company Dellawood Holdings, which is co-owned by Timchenko and Leonid Mikhelson, was reported to have closed a deal to secure 95% stake in Sibur, Russia's largest petrochemical company, for an undisclosed sum.

Mikhelson bought a 50% stake in Sibur from Gazprombank last December and subsequently increased that to 57.5%. In the October deal, Timchenko separately bought another 37.2%, leaving Sibur's management holding the last 5%. "It is possible that Timchenko decided not to take part in the FCC auction when it became clear that he was about to secure a major stake in Sibur - a company whose core business complements his other major holdings no less than ownership of FCC would have done. At the same time, it cannot be ruled out that there was pressure from the top to prevent the oil trader from walking away with two major prizes on one day," says Christopher Granville, director of research house Trusted Sources.

If this is true, then the government rather perversely gypped itself out of several billion dollars for the sake of maintaining the balance of power amongst the oligarchic elite. But that is what the anti-trust laws are for. All in all, the auction was a sorry showing for the "new-look Russia" that the Kremlin has been trying to sell to international investors. It is also a providential indicator of the way Russia may be run after Putin's almost inevitable return to the post of president in the spring. Rather than getting government out of the economy, this privatisation showed the same old oligopoly from the naughties is in charge, with ZAO Kremlin overseeing deals and taking its cut.

Watch this space for the next instalment of the privatisation saga. Next up is a sale of 7.97% in Russia's hydropower holding RusHydro slated for July 1, 2012. The key here is that the state currently owns 57.97% and nominally this could be a very attractive asset. The caveat is no-one knows who owns the free float except that oligarch Oleg Deripaska is a big shareholder.

Rumour has it that a share swap is being discussed. Deripaska owns EuroSibEnergo, Russia's second biggest hydropower company that controls Irkutskenergo, the most attractive hydropower asset in Russia. The deal would end up with Deripaska controlling RusHydro, which could sell cheap power to his aluminium production, in exchange for Rushydro obtaining a blocking stake in EuroSibEnergo – in other words another oligopolic deal between ZAO Kremlin and its client oligarchs.