Vladimir Kuznetsov, Equity Analyst at UniCredit Securities.
The state is ready to sell stakes in 10 of the largest state-controlled companies and banks in 2011E-2013E, raising at least $30bn and partly covering the budget deficit, Reuters reports, quoting sources at the Finance Ministry. Prime Minister Vladimir Putin reportedly approved the idea in principle at the latest government meeting.
The Finance Ministry proposed selling the following:
■ 27.1% in Transneft (current stake – 78.1%)
■ 9.3% in Sberbank (60.3%)
■ 24.5% in VTB (85.5%)
■ 24.16% in Rosneft (75.16%)
■ 49% in Russian Agricultural Bank (100%)
■ 28.11% in Federal Grid Company (79.11%)
■ 9.38% in RusHydro (60.38%)
■ 25% in Sovcomflot (100%).
The government decided to postpone the sale of stakes in the Agency for Housing and Mortgage Lending (49% of 100% owned) and Russian Railways (25%-1 share of 100%), the latter until the privatization of its subsidiaries, Reuters reports. According to its sources, the privatizations should bring RUB 298bn into the state budget in 2011E, RUB 276bn in 2012E, and RUB 309bn in 2013E. We regard these numbers as minimum amounts, since the stakes in Sberbank, VTB, and Rosneft alone would be worth about $30bn at current prices.
Our view: The idea of further privatization of state companies is hardly new, but we believe such specific news could prove a catalyst both for the valuation of the companies themselves and for the stock market as a whole. If at current ownership levels dividends from state-owned entities are insufficient to meet fiscal needs, yet the state still wants to retain control, then we believe it makes more sense to sell everything above the controlling level.
We believe that the stock market should take the news positively, as greater liquidity would not hurt any of the stocks mentioned, even market leader Sberbank. At the same time, we think that the process of privatization might – and in some cases, such as Transneft, should – improve corporate governance. We also believe that the Russian equity universe would benefit from the addition of new names, should the state decide in favor of a public offering of Sovcomflot, Russian Railways, Russian Agricultural Bank and/or AHML.
As for the demand and the eventual outcome of the privatizations, much will depend on the terms of each sale, as well as market conditions. In better times, such as 2007, the market had no difficulties digesting $40bn of Russian IPOs/SPOs, and so if market conditions are favorable, the state should have little difficulty placing USD 10bn in each of the next three following years.
Looking ahead to 2011E, we regard the stakes in RusHydro and Sberbank as the most easily “sellable” assets; a Sberbank sale could be facilitated by the launch of long-awaited depositary receipt program and their listing in London. The Sovcomflot IPO has also been preannounced for 2011E.
We also believe that the plan is a positive development for the RUB, as such a sell-off could support stronger capital inflows into the country. The sale of Rosneft and Sberbank stakes was the key factor behind the record $81.7bn in private capital inflow in 2007 and the related strong appreciating pressures on the RUB during the period. We also note that a $30bn boost to the budget could reduce the cumulative deficit over the period by 20%- 25%, which should also ease any rise of domestic interest rates.
Conclusion: We regard the news as positive for the RUB, the market as a whole, and the specific companies mentioned, especially those most sensitive to privatization news, such as Transneft.
