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Aug. 13, 2012, 12:01 a.m. EDT

Russia puzzles investors with privatization plan

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By Anna Andrianova, MarketWatch

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The government plans to sell a 50% stake in Sovcomflot, minus one share, by the end of 2013, and to eliminate governmental ownership of the Russian shipping giant by the end of 2016. The company, Russia’s largest shipping firm, specializes in crude oil and petroleum products transportation.

Risks

But Barlcays analysts said that there are some potential risks linked to privatization, such as a change in the rating evaluation for the companies after the sale of state’s stakes. Rating agencies take into consideration the sovereign support — that will change once the ownership changes hands.

Bondholders may also face potential problems given that many of the state-owned companies have issued bonds in local currencies and in euros.

“This is relevant to Sovcomflot, Russian Railways and RusAg which are 100% state owned at present. In contrast, issuers such as Sberbank, VTB, Transneft and Gazprom do not face technical selling risks due to current lower than 100% ownership,” analysts at Barclays said.

Current market conditions will continue to weigh on the timing of privatization, they said.

Chris Osborne, head of the Troika Dialog USA, said Russia will not give a go to a privatization any time soon. Russia does not have a cash need and its budget is in fine shape. The only exception is Sberbank, which is likely to offer more shares to the market in the near future, he said.

“It is very possible that the budget will be in surplus this year as it was last year,” said Osborne, whose company is a New York-based arm of Russia’s large investment company Troika Dialog, recently purchased by Sberbank.

He also attributed Russian capital outflow, widely spoken about as a negative sign for the economy, to a current account surplus. The state uses that extra cash to buy Treasurys abroad, he said.

Osborne said that it is possible that privatization will occur in several years once a fiscal deficit arises and the market environment changes.

Financial services, food processing, manufacturing, agriculture and retail sectors are contributing the most to the economic growth in the country — not the energy sectors, he said. Those high contributors will present a great opportunity when they go public, said Osborne.

Anna Andrianova is a MarketWatch reporter, based in New York.

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