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Russia approves $32 bn privatisation plan

Russian Prime Minister Vladimir Putin on Wednesday approved a plan to sell 1 trillion roubles ($31.9 billion) in state assets over the next three years to help plug a gap in the budget and lure investors.

world Updated: Nov 17, 2010 23:32 IST

Russian Prime Minister Vladimir Putin on Wednesday approved a plan to sell 1 trillion roubles ($31.9 billion) in state assets over the next three years to help plug a gap in the budget and lure investors.

Russia's leaders need cash as they struggle to get the country out of its worst recession in 15 years and ratchet up growth ahead of the 2012 presidential election, in which Putin, a former president, has hinted he may stand.

Russia ran a budget deficit of 2.1% in the first 10 months of the year, the finance ministry said last Friday.

Analysts polled by Reuters have forecast a 4.4% deficit for 2010 while the government expects 5.4%, a shortfall of some 2.4 trillion roubles ($76.60 billion).

Economy Minister Elvira Nabiullina said a cabinet meeting chaired by Prime Minister Putin approved the privatisation plan -- which includes stakes in the country's two biggest banks, main oil producer and railways monopoly.

"The goal (of privatisation) is not only budget revenues but, above all, investment in these companies. This is why we are considering primary placements," she told reporters following the meeting.

The sale will be Russia's biggest privatisation drive since the rigged sell-off of former Soviet Union assets in the early 1990s, which saw multi-billion dollar companies and assets fall into the hands of a small number of individuals.

In contrast, the first state-owned asset to be sold is almost certain to be a 10% stake in second biggest lender VTB to US private equity group TPG for at least $3 billion.

Bank of America Merril Lynch has already been appointed to handle the sale, which could bring the first of many new foreign investors into Russia state companies.

The shortlist of banks which may advise the government on privatisation includes Goldman Sachs, Deutsche Bank, Morgan Stanley and Credit Suisse.

Nabiullina said about 1 trillion roubles in state assets would be sold off between 2011 and 2013.

An earlier draft of the plan outlined sell-offs of up to 1.8 trillion roubles over the next five years, but the additional 800 billion roubles has yet to be approved.

Russia has been trading at a discount to emerging markets peers as foreign investors remain wary of widespread corruption and the spectre of recent shareholder disputes, leading some financial experts to question the likely success of the sale.

"Russia seems to be on the outskirts of BRIC countries ? it is not as an attractive investment market as it used to be," Sergey Sidorov, the head of UniCredit Russian unit UniCredit Securities, told the Federal Financial Forum conference in Moscow earlier on Wednesday.

But Deputy Finance Minister Alexei Savatyugin told the same conference the government was dedicated to pursuing the privatisation drive -- partly to loosen the grip of the state on Russia's economy.

"The privatisation is worth it by itself as the mechanism of reducing the state role in the economy. Even if we had a budget surplus we would offer privatisation," he said.