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Russia hopes to raise $5.5 billion from privatisations in 2014

By Agencies - Feb 17,2014 - Last updated at Feb 17,2014

MOSCOW — Russia’s prime minister said on Monday he hoped to raise more than $5.5 billion this year by selling stakes in state companies, reviving a delayed privatisation programme that could spur a flagging economy.

At a meeting with deputy prime ministers, Dmitry Medvedev also sounded a note of caution, saying the sale of shares in companies such as Rostelecom or shipping group Sovcomflot could happen only in good market conditions.

Launched in 2010 by then finance minister Alexei Kudrin, the $50 billion privatisation drive to reduce the state’s direct role in the economy and improve a much-criticised investment climate has been dogged by delays.

Assets have since been removed from the lists, prey to volatile markets and a tug-of-war between more liberal-minded politicians and hardliners favouring a slower approach to privatisation.

“Just this year, we have a quite serious privatisation plan to raise 200 billion rubles ($5.7 billion), and I hope that these plans will be fulfilled,” Medvedev told the meeting.

“[The approach to privatisation] should be balanced. We should not delay but at the same time we should consider the economic circumstances in the world and in the country,” he said.

Russia’s economic growth has slowed, reaching just over 1 per cent last year after hitting an average 7 per cent before the 2008/09 financial crisis. Privatisation revenues would help meet generous election promises made by President Vladimir Putin.

Last June, Russia halved its privatisation target for 2014 to around $5.5 billion after many previously planned sales were stalled because of adverse market conditions.

The results of the sales so far have been mixed.

Sberbank, Russia’s largest bank, attracted strong investor demand for its stake sale in 2012, raising more than $5 billion, and the country’s second-largest bank, VTB, last year won sovereign backing for a $3.3 billion share issue.

But a 16 per cent stake in state diamond miner Alrosa was priced at the bottom of a planned range, valued at $1.3 billion, in October.

The main sell-off pencilled in for 2014 is a stake in Rostelecom, which competes with Russia’s three main private mobile operators — MTS, Megafon and Vimpelcom. Rostelecom recently merged its mobile assets with VTB’s Tele2 Russia mobile unit into a single company, T2 RTK Holding.

Olga Dergunova, head of the State Property Agency, told the meeting Russia expected to receive 150 billion rubles from that sale and the privatisations could start in the second quarter with Sovkomflot. She did not disclose the amount expected to be sold in Rostelecom.

State capitalists such as Igor Sechin, the head of state energy company Rosneft and a long-time ally of Putin, oppose privatisation — including of his own company.

The state had been planning to sell its stake in Novorossiisk Commercial Sea Port (NCSP) by the end of 2013. Rosneft asked Putin in October to sell it the state’s 20 per cent stake.

A further stake in VTB is due to be sold in 2015.

Separately, Russia’s central bank signalled for the first time that it could tighten policies in response to a ruble plunge that has outpaced all other emerging currencies.

The central bank matched market expectations by leaving its key interest rate unchanged at 5.5 per cent for the 16th consecutive month.

It based its decision on slowing inflation and disappointing growth.

But the bank went out of its way to caution that inflation still remained a “source of uncertainty” owing to the ruble’s drop against the dollar that has exceeded 7 per cent since the start of the year.

If the negative effects of the currency collapse widen, “the likelihood rises of inflation deviating from its medium-term targets,” it said. “In this case, the Central Bank will be ready to tighten its monetary policy.”

The central bank’s guidance was issued moments after the ruble established a historic low against the euro on the Moscow Exchange.

The Russian currency made a slight recovery after the statement was issued and stood at 48.04 against the euro — stronger than the 48.39 inter-day low it hit on January 30.

The dollar was worth 35.07 rubles and also within striking distance of its historic high.

Analysts at VTB Capital estimate that emerging market currencies have lost 1.5 per cent of their value against the dollar since the start of the year.

This makes the ruble the emerging world’s worst performer. The South African rand is second-from-bottom on the list with losses of 4.5 per cent.

Economists have concluded that the central bank purchased more than $8 billion (5.8 billion euros) of foreign currency on the Moscow market in January in an effort to stem the ruble fall.

This was the largest volume since the closing months of Russia’s 2008-2009 economic collapse.

Emerging markets have suffered from the Federal Reserve’s launch of monetary tightening measures that have seen investors flee riskier assets in anticipation of higher rates of return on US bonds.

Some policy makers in the Kremlin had spent recent months advocating an interest rate cut that could spur growth from just 1.3 per cent last year — the second-slowest pace of Vladimir Putin’s 14-year rule as both president and prime minister.

Many thus read Friday’s statement as a vow by Russia’s regulators to ignore political pressure and redouble their focus on their new mandate of fighting inflation risks.

“The meeting represents a statement of intent by the central bank and will dash any remaining hopes [including from within the Kremlin] that the bank might loosen policy aggressively in the face of continued economic weakness,” said Neil Shearing of the Capital Economic consultancy.

“This in turn will shift the emphasis back on to the government, and the need for a new wave of economic reforms that is now needed to revive growth,” he added.

But market players remained apprehensive and several complained that the central bank did not make its commitment to a stronger ruble explicit enough.

“The market has reached a consensus that the central bank does not intend to support the national currency by raising key interest rates,” Moscow’s Nord Capital financial advisory said in a research note.

Its economists accused regulators “of fuelling market fears and then squandering resources on currency interventions”.

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