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Strategies & Market Trends : Countries

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From: Sam Citron9/23/2008 12:15:04 PM
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Russia Appears Set for Shakeout [WSJ]
Kremlin Announces Some New Measures to Ease Liquidity

MOSCOW -- Days after the Kremlin announced a $120 billion rescue package that steadied Russian financial markets, signs emerged that the crisis is set to spur consolidation and a slew of bankruptcies. Monday, a billionaire businessman bought a 50% stake in one of Russia's largest investment banks in what he said was a sign of things to come.

Metals magnate Mikhail Prokhorov paid $500 million for new equity equal to a 50% stake in Renaissance Capital, the investment-banking business of Moscow-based Renaissance Group. Analysts said Mr. Prokhorov got a bargain, since Renaissance's value had been estimated to be at least several billion dollars before the crisis.

The deal came as the Kremlin announced fresh measures to ease liquidity, suggesting it believes the banking system remains fragile. State-controlled banks have begun to throw lifelines to smaller private rivals that have run into trouble, in some cases with a view to acquiring them. Leading retailers have also begun to change hands or strike emergency refinancing deals. Cellphone retailer OAO Euroset, one of the country's biggest, got a new owner Monday, while closely held electronics retailer, Eldorado, accepted a loan that its creditor says may be converted into an ownership stake.

"The strongest companies will survive, and others will cease to exist," predicted Mr. Prokhorov, regularly listed as one of Russia's wealthiest individuals. The crisis was a "peak time" for acquisitions, he added, singling out banks, real estate and construction firms as particularly vulnerable.

Mr. Prokhorov and Renaissance Group said they had been discussing the deal for "several months," but that market turmoil last week -- when Russian markets suffered their biggest drop in a decade -- had "accelerated" the process.

"The rules for investment banking have been totally rewritten," said Stephen Jennings, chief executive of Renaissance Group. He said he was keen to share risk, find fresh capital and gain strong local partners. Alexander Pertsovsky, CEO of the banking business, said the freshly refinanced entity would occupy a "unique niche," possibly boasting more capital than any other investment bank in the world because of global restructuring.

The banking sector had already begun to feel the pinch. Last week, the pension-fund arm of energy titan OAO Gazprom agreed to buy brokerage business KIT Finance after it failed to meet some of its obligations. Moody's Investor Services Monday cut debt ratings for Svyaz-Bank, saying the bank had defaulted on its obligations and that its capital had been "significantly damaged." It added that it understood the bank was in talks with "publicly undisclosed parties with regard to possible mechanisms for further support." A Svyaz-Bank representative declined to comment.

Renaissance's Mr. Jennings said the crisis was spurring "long overdue" consolidation. "Russia doesn't need 900 banks," he said in an interview. "It needs about 10 big banks."

Analysts said the crisis might also affect a fierce shareholder conflict at OAO Norilsk Nickel, where two wealthy businessmen are vying for control. The company's share price has fallen so low that it could be a great chance for either of the businessmen to snap up shares at bargain prices. "It could change things tactically," said Steven Dashevsky, head of equities at Unicredit Aton brokerage in Moscow.

Meanwhile, Russian stocks inched higher Monday after bouncing back Friday following a week of heavy losses. The ruble-denominated MICEX index finished 0.62% higher, while the dollar-denominated RTS index was up 1.05%.

Analysts said markets would likely start making solid gains though only when the situation in the U.S. became more stable. "Russia cannot detach itself from the global economy," Mr. Dashevsky said.

Last week, the government assembled a rescue package valued at $120 billion to shore up the banking system. Monday, it offered greater relief, suggesting that liquidity levels haven't been fully restored. The government extended a deadline for value-added-tax payments by three months to ease liquidity. Prime Minister Vladimir Putin ordered the Finance Ministry to consider raising the size of bank deposits covered by government guarantees.

Mr. Putin told a cabinet meeting that the Kremlin's anticrisis measures were working. "The market situation has stabilized," he said.
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