Medvedev’s reform programme

In fashion, as in finance, things move quickly. It is clear from Moscow’s ubiquitous designer handbags and expensively tailored suits that the 1990s are but a fading memory for the devoted fashionistas of the new millennium. But in finance, the 1990s are still very much at the front of people’s minds. For those outside Russia looking in, the association between the past and the present is very strong. That decade is a time remembered for lawlessness, corruption and chaos of astonishing proportions in Russia. Some in the West have not revised...

To many market professionals, especially those in Russia, the country has moved a significant distance down the path of convergence with the West in terms of business. “Russia has become increasingly integrated into the world economy,” said Steven Fisher, corporate bank head of Russia and CIS at Citi in Moscow. And it continues to move in the right direction, he said. “International accounting standards, transparency and corporate governance continue to become more prevalent.” Others agree. “From an empirical standpoint, since 1992 when...

From a legal perspective, it pays to keep M&A deals offshore in Russia, according to Sergey Komolov, partner at Hogan & Hartson in Moscow. Global M&A deals are typically completed according to English law, but Russian courts would have trouble applying it, he explained. If either of the entities involved in a transaction is outside Russia, the legal documentation is likely to be governed by English law or in certain cases by the law of the relevant jurisdiction, he said. Regardless of the nationality of the companies involved in a merger, it is...

If M&A is the barometer by which the state of an economy can be measured then Russia is in good health. “M&A is becoming increasingly visible in Russia,” said Pavel Malyi, UBS’s head of investment banking for Russia, Ukraine and Kazakhstan. “In the past you expected Russia to be on the sellside and an international company to be on the buyside. You can’t say there has been a reversal exactly, but it has become much more of a two-way street. There have been some important transactions with Russian companies buying outside Russia.” Russian...

“The black cloud hanging over Russia is inflation,” said Stephen Cohen, managing director of asset management at Troika Dialog UK, a significant investor in the country. It is a problem the government is well aware of and is trying to manage it via a taskforce headed by the former deputy prime minister Alexei Kudrin. “The results remain to be seen,” said Cohen. Russia has built up a Stabalisation Fund worth US$500bn and is on the cusp of using some of this money on an astronomical investment in its infrastructure throughout the country. “Russia...

Many Russian commodities companies have found themselves in an enviable position of strength, having benefited from a multi-year bull market, widely expected to continue for the foreseeable future. In the short term, high commodity prices act like a buffer to Russia’s economy, said Steven Fisher, corporate bank head of Russia and CIS at Citi in Moscow. The country has pressing needs in terms of infrastructure spending and almost every other sector, he said, and the government has no choice but to tackle these problems with significant spending...

At the end of the first quarter of 2008 market conditions are clearly much harder – in all asset classes – than was the case at this stage of 2007. In the world of corporate loans liquidity has vanished like water on hot sand. But according to Andrew Dell, head of emerging markets debt finance at HSBC, unlike in previous cycles, where global financial problems were amplified in emerging markets, since the summer of 2007 those same markets have been relative oases of calm and have shown more resilience than developed economies. “The money is...

Use of derivatives is not completely new to Russia. It was accepted practice before the economic crisis of 1998, according to Sergey Komolov, partner at Hogan & Hartson in Moscow, although even then they were shrouded in legal uncertainty. Since 1998, however, questions about the enforceability of derivatives contracts have been at the forefront of the minds of those who use them; in the aftermath of the sovereign default, Russian courts refused to enforce certain contracts entered into before the crisis, demonstrating that they regarded...

Mortgage securitisation had auspicious beginnings in Russia. It burst onto the scene in 2005, and issuance volumes ballooned the next year. Driven by white-hot growth in the country's mortgage and consumer finance markets, securitised assets went from nil to US$3.5bn by the end of 2006. By 2007 it was looking even better for bankers, with some US$2.5bn worth of securitised deals in the first half alone. Then the problems started. "Everyone in 2007 was expecting a deluge of deals in the second half, with many banks choosing to accumulate...

Russian ECM activity more than doubled to record levels of US$53.5bn in 2007, despite the fact that investors were concerned about a range of issues. Uncertainty over the political transition process and how the government planned to deploy its huge oil and gas revenues were both significant factors, and some investors felt that valuations had got ahead of themselves in late 2006. As a result many chose to look for opportunities in Brazil, China and India instead, but strong economic growth and a rising oil price continued to attract others...

When the credit crunch started to bite, Russian direct exposure to US MBS and MBS-related products was limited. According to figures derived by Wachovia’s Economics Group from the US Treasury’s benchmark survey of foreign holdings of US securities, as at 30 June 2006 Russia had about US$50bn’s worth of exposure to the US mortgage market in total (for comparison, China had over US$250bn’s worth of exposure, the UK approximately US$70bn). The bulk of Russia’s exposure, however, resulted from the ownership of securities issued by...

Just as Russia’s landscapes vary, its regions differ in the economic sense. Each republic, land, region or town has various means of raising funds through different financial instruments. Their dissimilar capital markets activity leaves a gap between the developed and the developing regions. Sub-federals and municipals – regions in other words – can no longer raise funds externally – except to refinance existing debt. Russia is the world’s largest producer of oil, despite not holding the largest reserve. It has the largest natural gas supply...