Emerging Markets Roundup: Russia

NEW BANK CAPITAL REQUIREMENTS COULD HEAT UP M&A

 

By Kim Iskyan

 

Acting finance minister Anton Siluanov threw his support behind a proposal to increase minimum capital requirements for banks after 2015 by more than five times—to around $34 million.

 

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Open-cut mine in Yakutia, Siberia

 If adopted, slow-moving consolidation would probably speed up: Only 30% of the roughly 1,000 banks would now meet the proposed minimum requirement. President Dmitry Medvedev has proposed cutting the state’s share in the two largest banks to less than 50%. But the measure will likely meet with strong resistance from president-elect Vladimir Putin.


In late March, Russia issued $7 billion in Eurobonds, the largest emerging-markets bond issuance since 2009. Five-year bonds worth $2 billion were issued at 230 basis points over US Treasuries, $2 billion of 10-years had a spread of 240 bp over, and $3 billion of 30-years were issued at 250 bp over. Russia’s government debt as a percentage of GDP stands at 12%, the lowest of any major economy, but spending promises made by Putin are taking their toll on the economy. After posting a federal budget surplus of 0.8% of GDP in 2011, the budget ran a 3% deficit for the first two months of 2012.


Russian diamond giant Alrosa announced it hopes to raise $1 billion by privatizing a 14% stake later this year. The company is controlled by the federal government and the republic of Yakutia—the Russian region in which it operates. The sale would be an important step forward for the government’s broader privatization plans, which have been postponed in the face of poor global market conditions.


Rusal—the Hong Kong–listed Russian aluminum producer—is facing the latest battle in a long-running shareholder war after chairman Viktor Vekselberg resigned in mid-March, claiming that management—headed by largest shareholder Oleg Deripaska—is in “deep crisis.” The crux of the disagreement lies in Deripaska’s refusal to sell Rusal’s stake in metals producer Norilsk Nickel. Following the appointment of Barry Cheung as Vekselberg’s replacement in mid-March, Sual Partners—an investment vehicle in which Vekselberg is a prime partner—announced its opposition to the candidacy. Sual Partners holds a 15.8% stake of Rusal.

 

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