Russia talks to foreign investors – in private

October 30, 2008

Posted by Gleb Bryanski

Foreign investors who filed into a Moscow hotel on Wednesday anxious to hear what Russia’s anti-crisis tsar First Deputy Prime Minister Igor Shuvalov had to say about the future of the market were disappointed to find he had not shown up.

They had many questions: the stock market is down around 70 percent since May peak, gold and forex reserves are have fallen below $500 billion for the first time in eight months as Russia props up the rouble and the economic outlook is uncertain.

Investors were left to listen to economists from UBS, whose conferences in better times used to attract the cream of Russia’s business and political elite. Other official speakers later took the floor.

“I am not going to answer your questions for now because there are journalists in the hall and I will have to give you very stupid answers,” said Stanislav Voskresensky, a 32-year-old deputy economy minister who is tipped as a rising star.

“Let’s talk more informally in the bar this evening, I will be able to give you more honest answers,” he added, before being ushered out of the hall by UBS-hired security guards, with reporters kept at a safe distance.

Russian officials, armed with the third largest forex reserves in the world, are trying to project an image of self-confidence. They are blaming the crisis on the United States.

They need to calm nerves among foreign investors in particular because much of the money that had been fleeing the Russian market and causing dramatic stock market loss is foreign-owned.

But ordinary Russians, who have been dumping roubles, and Western portfolio managers are not entirely convinced.

“The question everybody has is where is the bottom? I am sick of putting money in and watching it disappear. There is no liquidity, no-one is buying, it is like a nightmare,” said John Connor, portfolio manager at U.S. fund Third Millennium Russia. “It is like going to Las Vegas and watching the money fall through the floor. I am not into gambling with my investors’ money.”

Aivaras Abromavicius, from Sweden’s East Capital, asked Kremlin’s economic aide Arkady Dvorkovich what the government is planning to do about some majority owners pulling out of share buyouts despite complaints from minority shareholders.

Dvorkovich said the matter should be taken to court and the government did not plan to interfere in court decisions. Abromavicius said he was happy Dvorkovich was at least aware of the problem.

He added that Western funds were worried about arbitrary trade stoppages in the Russian bourses, which hindered fund redemptions, and were in his view a sign that the Russian market was still far from being civilised.

The government has unveiled a package of over $200 billion to keep the economy going and some investors, who also work in other ex-Soviet countries, have praised Moscow’s response.

“Unlike many other states, Russia makes decisions, takes measures, works out strategy. They have the money and the political will,” Abromavicius said. “What you need the least is officials sowing panic.”

Russian officials have become harder to reach with secretaries saying they are out in meetings all day. Shuvalov spent all morning on Tuesday in closed-door talks with a group of UK businessmen led by business minister Peter Mandelson.

Shuvalov’s office told Reuters the official had to prepare for the afternoon government meeting chaired by Prime Minister Vladimir Putin and had to cancel his speaking arrangement at the
UBS conference.

The economic crisis has also forced Russia to finally launch its own “Invest in Russia” Website, available at www.investinrussia.info, in a sign that the country may warm up to foreign investors.

“We hope this will somehow help us,” Voskresensky said.

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It is interesting the way that Aivaras Abromavicius was able to ask Dvorkovich about the Prokhorov TGK-4 share buyout dispute without using any names.

However the minority shareholders already appear to have expressed zero confidence in Russia’s courts to handle this issue – they instead moved for a direct appeal to President Medvedev.

Without a functioning and independent legal system, no investment in Russia is safe, no matter what Lord Mandelson may try to argue from his chaise lounge aboard Deripaska’s yacht.

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