Page 50 - IFR Opportunities in Russian capital markets

CHAPTER03
ifrintelligence reports/Opportunities in: Russian Capital Markets
The result is that, in the last three years, the RTS index has become less useful as a litmus test of the state of Russian equity market. For example, at the end of the 1990s there were a handful of stocks worth more than US$10bn but the liberalisation of just Gazprom's stock to allow foreign investors unfettered access to the domestically traded shares has seen the company's market capi- talisation soar to about US$250bn (as of January 2007) – or about a quarter of the entire value of all Russia's companies listed on all exchanges.
Likewise, all of Russia's oil stocks have made massive gains in recent years, yet there are only six stocks (as of the end of January 2007) in the exclusive US$30bn market cap club, all of them oil companies except Sberbank and UES, which between them make up over half of the entire market capitalisation of the Russia's publicly traded companies (see Table 3.2).
Table 3.1: Market breakdown, by sector, Nov 2006 (%)
% of total market*
Oil 35.5 Gas 30.7 Metals 8.7 Telecoms 7.3 Electricity 7.0 Financials 6.6 Consumer 3.0 Manufacturing 1.2 Total 100.0
*Based on closing prices on November 30
Source: DataStream, Alfa Bank Research
Table 3.2: Top Russian stocks, Jan 2007 (US$bn)
Gazprom 246.0 Rosneft 96.0 LUKOIL 66.0 Sberbank 44.7 TNK-BP 35.0 UES 48.0
Source: RTS (as of 25/01/2007)
Growing state share of the index
Maybe the most noticeable change in the composition of the index in the last two years has been the state's rapidly growing presence.
The Kremlin has been roundly criticised for its ‘backdoor’ re-nationalisation of the so-called strategic sectors, such as oil and gas companies. The state is now the biggest shareholder in Russia, commanding a bit less than two-fifths of all shareholder equity in the country, as shown in Table 3.3 and Figure 3.4.
In value terms, the state is now by far the most exposed to the equity market, with an estimated exposure of US$352bn. That is 4.5 times greater than the money in the Stabilisation Fund and represents almost 40% of GDP.
Shares and IPOs have moved to the front of the Kremlin's grand plan of reforming the economy and are at the core of Putin's private-public partnership philosophy.
While the international press has been quick to pick up and lambast the Kremlin's efforts to reassert control over key money-making sectors, in parallel with this centralisation the Kremlin's reforms to deregulate the stock market infrastructure and lift controls on share ownership have gone largely unreported.
This dual approach was best illustrated by the changes in 2005 to Gazprom's ownership structure. In a complicated asset swap the state-owned gas giant transferred some 14% of its treasury shares to the Kremlin, raising government ownership from 38% to 50.5% and so giving the Kremlin direct control over the company.
US$bn
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