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52 I Eastern Europe bne May 2018
names. Bond traders are equally keen on Russia: in the midst of the recent spy poisoning scandal in March, Gazprom and the Russian state got bonds away worth a total of $3.75bn in the same week as the UK government expelled 23 Russian diplomats.
Phosagro has also had a warm reception on the bond markets. “We just made a $500mn Eurobond deal with a historically low coupon yield for a non-energetic com- pany – 25 years for less than 4% at a fixed rate. 41% of the investment came from the US, and that happened only a few weeks ago,” says Guryev. “The issue was five times oversubscribed. And all the banks that worked on the issue said they had never seen [demand like that] in their life.”
Another motive for the recent SPO was to get included in the MSCI benchmark index that has recently become a theme amongst leading Russian traded companies, which are increasingly interested in improving the attractiveness of their stock.
“It’s a good exercise to be included in the MSCI index as it gave us more liquid-
ity to stock and brought a passive flow into our shares. Today we have 26% free float (30% in the index) and this gave
us another inflow and the liquidity and daily trade volume went up. In Russia if you are bluechip then you have to be in the MSCI index,” says Guryev, who displays the interest in his share prices that is growing increasingly common amongst Russia’s top companies.
“It's a good market environment to do an IPO or SPO. I know there are a lot of com- panies in Russia that are thinking about this despite the political environment, despite the sanctions,” he continues. “The prices are recovering. Look at steel, coal, even oil and gas, they are looking at IPOs. In terms of operations and cashflow Rus- sian companies are in very good shape.”
Russia is not a country for old men yet
Phosagro is still growing but plans steady-as-she-goes organic growth going forward. It added new urea production facilities last year and continues to invest a steady RUB30bn a year, but capex is limited on principle to a maximum of half the company’s profits.
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Guryev says with the 12% growth in production volumes in 2017 and the 10% he is expecting to maintain in the coming years, the company will double in size over the next decade.
However, Russia’s economy is still volatile and prone to shocks and crises. In 2014 the ruble halved in value against the dol- lar, although Guryev says the devaluation was mitigated for Phosagro as fertiliser prices in Russia are de facto linked to the export price, which gives the company a natural hedge in its domestic business.
“Ruble volatility is an issue, but the Russian government is very keen today to support export orientated companies. They do a lot of tax reduction and spe- cial programmes. There is a central bank policy to prevent the ruble appreciating and fight against inflation. We are one of the countries that is winning against inflation – it is less than 2% – which has never happened before in Russia since
And Guryev is expecting more progress. Now the presidential elections are over everyone is expecting a big government reshuffle, probably in May, and a new detailed long-term reform programme.
“I think that we have quite a clear picture of where to invest and what to do. The president and government know what are the steps and what are the problems. We have very frequent discussions with the economic, industry and finance min- istries and they really understand what should be done,” says Guryev. “And we have fantastic implementation. Today we have so many programmes that work.” He then counts off a long list of state programmes to support export orientated businesses and the construction of new factories, and tax breaks to promote various economic goals.
“It's a lot of stuff. Russia wants to be more competitive and [that involves] not just companies that will work on the
“The problem is not that interest rates are high. The problem is the availability of money”
the collapse of the Soviet Union,” says Guryev, who is also in constant talks with the Russian government on how it can improve the business climate.
On interest rates, Guryev complains the domestic cost of borrowing is still high after the Central Bank of Russia (CBR) made an emergency hike in rates dur- ing the 2014 collapse of the currency’s value, but falling now.
“The problem is not that interest rates are high. The problem is the availability of money. The central bank was fighting against inflation and limited the access to money. They were fighting against the bad banks and that is why the growth of the Russian economy was also questionable. The availability of money is not there and is still not there,” says Guryev. “The central bank was tightening the liquidity and as a result inflation went down, together with economic growth. Today we need to understand what is happening: liquidity has to be given to business.”
domestic market, but those that will be competitive in the rest of the world too. And the government is giving money; in agriculture the effective interest rate after all subsidies for a Russian farmer is 3% – its unbelievable. I tell this all to the foreigners but they don't believe it because they don't know.”
Guryev says the Russian government
is simply becoming more professional as the crisis focused it on improving efficiency because it had to raise more revenues. He also points to the digitisa- tion drive and, like many others inter- viewed by bne IntelliNews, highlights the revolution that has been the new tax authorities’ IT system. All this gives Guryev confidence in the future. “Russia is going, it is growing. Look at me. We are the largest shareholder in Phosagro and we invest $500mn into the company every year. We are sure of what is going to happen and we know how to grow. We have confidence in the numbers.” Checkmate.