Page 16 - IFR Opportunities in Russian capital markets

CHAPTER 01
ifrintelligence reports/Opportunities in: Russian Capital Markets
The Kremlin is setting up a series of national champions, in the hope of reviving the battered aviation and automotive sectors among others, into which all the state's holdings are gathered. Funding for investment and expansion will come from offering shares in these holdings to investors in a series of IPOs. But a key element of this strategy is to attract a ‘foreign expert partner’ who is offered a minority stake in a national champion.
By the start of 2007, the most advanced of these national champions was the state-owned United Aviation Company that unites Russia's planemakers and design bureaux. EADS holds a 5% stake in jet planemaker Irkut, which is the core asset in UAC and is the expert partner. However, the Kremlin is finding it hard to implement the plan, as European politicians are resisting Moscow’s attempt to increase is concurrent 5% stake in EADS, held by state-owned bank VTB, for political reasons.
The BRIC prediction
Jim O’Neill at investment bank Goldman Sachs coined the term BRIC (Brazil, Russia, India, China) in 2003 to sum up his prediction that these four countries would provide most of the global growth in the next two decades. O'Neill calculated that the Chinese economy could overtake Germany and Britain in four years in US dollar terms, before outstripping Japan by 2015 and then the US, to become the world’s biggest economy by 2040.
Putin famously set Russia the task of overtaking Portugal in his state of the nation speech in 2002, a task Russia has already completed, as well as overhauling Italy in terms of the value of the economy.
Finance Minister Alexei Kudrin predicted in February 2007 that Russia would catch up with France in 2031–32 and with Germany in 2037–38 in terms of GDP. At current growth rates, Russia is already set to become the world's 10th largest economy by the end of 2007 (see Figure 1.6).
However, economists remain sceptical whether Kudrin's projections can be met, as they assume the state successfully carries off all the reforms it plans and Russia maintains the heady growth rates it currently enjoys.
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