Author: Kim Iskyan

Capital Flees In Fear Of Political Uncertainty

By Kim Iskyan

The specter of presidential elections in March 2012 has resulted in a sharp increase in capital outflows.

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Russian heavy vehicle market returns

The specter of presidential elections in March 2012 has in recent months resulted in a sharp increase in capital outflows, which totaled $21 billion in the first quarter, following total outflows of $35 billion in 2010. The exodus of capital, which has taken place despite a strengthening ruble and high oil prices, is widely attributed to investors and local oligarchs shifting capital outside of Russia out of fear of destabilizing political change. A sharp but brief increase in outflows in the autumn of 2010 was attributed to some large investors shifting capital abroad following the autumn 2010 axing of Moscow mayor Yuri Luzhkov.

More than a dozen Russian companies in recent weeks have announced that they hope to go public to sell nearly $10 billion in shares to investors. But they’ll have to compete with the Russian government’s privatization program, which in February derailed three private company IPOs as state bank VTB soaked up new issue demand by selling $3.3 billion worth of shares.

The high-profile tie-up between BP and Russian oil producer Rosneft announced in January, involving a share swap and joint cooperation on large projects in the Arctic, was on the rocks after an arbitration court blocked the deal. BP’s local partners in its TNK-BP joint venture claimed that BP had not notified them of the deal, as their agreement required (see M&A; focus, page 107.) In mid-April, BP started trying to round up funding—most likely with Rosneft—to buy out its minority partners in TNK-BP. The collapse of the deal would be one more high-profile black eye for the Russian investment market, although another foreign oil producer eager to book new reserves would likely replace BP. Indeed, soon after the deal started to unwind, Rosneft showed signs of distancing itself, suggesting that it would be assessing other potential partners for Arctic exploration.

German truck and diesel engine maker MAN announced a plan to launch production in St. Petersburg, following in the footsteps of Volvo, Daimler and Scania, all of which have substantial operations in Europe’s largest heavy vehicle market. The Russian truck market collapsed during the recent global economic crisis but has rebounded sharply, drawing large investors back into the market.