Assets for sale

22.10.2010 (10:59) | RBC

Gov’t launches large-scale privatization

The government will privatize over 900 state-owned companies raising RUB 1.8 trillion (approx. USD 58.44bn) – this was the result of yesterday’s government meeting chaired by Prime Minister Vladimir Putin at which a comprehensive privatization program was approved. To pour more cash into the budget, the government is even ready to surrender its control over Rosneft and RusHydro. Furthermore, the sale of RusHydro will require changes to the Russian law. However, the government expects the reluctance of regional authorities to be the largest obstacle on the way.

By 2013, 7.97 percent in RusHydro will be sold, and in the two years after that the government will cut its shareholding to a blocking stake. According to the current law, the state-run stake in a generation company cannot fall under 50 percent plus one share.

Rosneft will start bracing up for sale in 2011, and in 2012-2013, up to 15 percent in the company will be offered to investors, with the exact size of the stake to be determined based on the market situation. After 2015, the government will also surrender its control.

Meanwhile, 25 percent in Sovcomflot will be rendered private as early as next year, and by 2015 the government may also give up control of the company. Similarly, the authorities will start preparations for the sale of 4.11 percent in the Federal Grid Company, with the total state-owned stake being 75.11 percent now. However, the deal will not be possible unless the price reaches RUB 0.5 (approx. USD 0.016) per share.

The government made a final decision on bank privatization. Before the year-end, 10 percent in VTB will have changed hands, to be followed by 30 percent more in the next few years. In another move, the government will sell up to 25 percent in the Russian Agricultural Bank, and may even reduce its stake to a controlling one in Sberbank.

Transneft, Zarubezhneft, Svyazinvest and the Agency for Housing Mortgage Lending have been dropped from the privatization plan, while some new regional companies are to be added. Yet, there are serious concerns when it comes to selling regional companies, as local authorities are reluctant to part with stakes in paying assets, a source in the government familiar with the privatization plans told RBC Daily.

The actual launch of the privatization hinges on Dmitry Medvedev, as the decisions are pending his signature, with most of the assets deemed strategic.

“The government’s major objectives are to enhance the transparency, improve the investment climate, and foster competition and structural changes in the economy. We are also taking budget needs into account,” a source in First Deputy PM Igor Shuvalov’s secretariat explained. As for the timeline, the government will be looking at the market situation and technical parameters that could work to increase investment for each company in particular.

“The budget deficit will clearly remain a serious issue for a few more years. In this situation, privatization appears to be an important source of financing,” chief economist at Deutsche Bank Yaroslav Lisovolik said. “At the same time, but not in the first place, privatization will also reverse the trend of the government’s increasing role in the economy, and raise transparency and corporate governance,” the expert added.

Analytical department of RIA RosBusinessConsulting

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