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Summit News

Russia asset sales may reveal govt, investor resolve

MOSCOW (Reuters) - Russia is set to resume asset sales by the end of 2010 in a privatization push that will test investor appetite for its underperforming securities and show the seriousness of its pledge to modernize, bankers said.

Foreign investors remain wary of Russian governance, state dominance and legal uncertainties, casting doubt on how any asset sales will be received, they said.

But they added it was important for Russia to grab windows of opportunity and give a clear signal of future intentions.

Speaking at Reuters Russia Investment Summit, the head of VTB Capital, a state-run investment bank and likely organizer of the deals, said he expected the sale of two companies by year-end.

“I believe that the government should get the ball rolling as soon as possible,” Yuri Solovyov told Reuters. “The government is also looking to realize some quick successes ... to pave the road for the next on the list.”

“I think there will be two transactions this year. It will be a great start to the privatization.”

Russia plans to raise about $29 billion in asset sales over the next three years in its biggest privatization drive since the 1990s, as it seeks to replenish budget coffers drained by a recession and improve competitiveness.

Mikhail Alexeyev, the head of Italian bank UniCredit's CRD.MI Russian operation, was more reserved about the chances of a successful new push on privatization but acknowledged that some small trial balloons might now be considered.

“I definitely do not believe in massive privatizations like what happened in the early and the mid-1990s, but something may take place even with respect to state-owned banks,” Alexeyev told the summit.

“There is a clear intention but, as we know, sometimes relatively big gaps may exist between intentions and final results and reality.”

EMERGING ASSET THIRST

With global investor appetite for emerging markets rarely keener and available liquid assets relatively scarce, plans for state divestments such as those in Russia are awaited with great interest. Together with Poland and Turkey, some $80 billion of stakes may be on offer over the next three years.

“There is a lot of money around ready to flow into these assets if the news is favorable,” Kaspar Bartholdy, head of sovereign strategy at Credit Suisse told Reuters in London.

But the fate of a new wave of Russian privatization is largely dependent on overseas concern about local governance and also on the authority of Vladimir Putin, who is widely expected to return as president in 2012 and has criticized past sell-offs.

Russia’s near-pariah status among investors means its stocks sell at big discounts to other major markets and emerging economic peers such as Brazil, India and China.

And some investors have questioned the extent to which Russia is actually ready to part with stakes in lucrative, high-profile companies that include oil and gas giants such as Gazprom GAZP.MM and Rosneft ROSN.MM as well as the world's biggest infrastructure firm Russian Railways.

Moreover, there have been doubts about whether Russia would come back to the market at all if a recovering oil price gave it budgetary leeway to avoid doing so.

“We have heard about those (privatization) plans even in 2008, and nothing happened in 2009,” Alexeyev said.

Yet Solovyov said he was confident of deals in the infrastructure and transport, and financial sectors this year.

“I would expect a fairly big interest from foreign investors, both strategic and financial, toward a big number of companies which are going to be privatized ... Both strategic investors, like companies, are sitting on a pile of cash, and also there is plenty of liquidity among financial investors as well.”

VTB Capital is on the list of 20 banks that might take part in advising the government on its privatization plans and has been talking to government officials on the issue, he said.

VTB VTBR.MM, Russia's second biggest-bank and parent of VTB Capital, is itself a likely early privatization candidate, with officials saying a 10-percent stake could be sold to a strategic investor this year.

Solovyov declined to comment on VTB’s privatization, but on the wider view of Russian assets he acknowledged the negative overseas perceptions and said restarting asset sales could help convince investors that Russia was serious about modernizing by reducing the “state policy discount.” (Writing by Mike Dolan and Toni Vorobyova. Additional reporting by Oksana Kobzeva, Michael Stott, Dmitry Antonov, Melissa Akin, Sebastian Tong, John Bowker; Editing by Sitaraman Shankar and Will Waterman)

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