Navigating Real Russia: Part Four
Today, I will wrap up our miniseries with a few final thoughts. The seas in Russia, as elsewhere, for doing business and investing, are always churning and the political atmosphere ebbs and flows, not in predictable waves. “I feel a free person” is a sentiment uttered by 70% of Russians today, as opposed to 42% in 1992. Chaos reigned after the 1996 re-election of Boris Yeltsin, as the oligarchs who had financed his survival, asserted themselves in politics. Order was re-imposed under Vladimir Putin starting in 2000 and in 2003, continuing with Khodorkovsky’s imprisonment. Also, in 2003, a flat income tax was enacted, businesses stopped transfer pricing profits abroad, consolidated operations, got full audits and corporate transparency and stock market investing took off… Read more →
Navigating Real Russia: Part Three
The third part of our miniseries will cover an oil and gas company based here in the United States, Teton Energy. Based in Denver, Colorado, this public company had rights in a West Siberian brownfield oil property 10 years ago, which during the time I was on the Board of Directors, we failed to get operating control of. The new operator promptly squeezed us out of Russia. With the proceeds we did get, management launched a Rocky Mountain gas company and built an outstanding team. Unfortunately our oil play in the Kansas Uplift did not come on stream in time to compensate for the collapse in the price of natural gas in the West, the bank line called for more collateral than our reserves then counted for and the company was done for. Read more →
Navigating Real Russia: Part Two
The second part of this miniseries will be on the Russian internet company used today by over 27 million people. As I said before in the last post, the Russian economy collapsed in the 1998 Crisis and that spelled a slow death for our life insurance company ROSGAL, but 1998 also saw the launch of Russia’s internet mail service, “mail.ru”. Eugene Goland and Michael Zaitsev, Russian-Americans entrepreneurs in New York, designed what is today the leading internet mail service in Russia, used by 27 million people. Read more →
Navigating Real Russia: Part One
Over the next couple of days, I will be writing a miniseries that will provide you with an overview on what’s it’s been like doing business and investing in The Russian Federation during the last twenty years. In the process I hope to illustrate the improvements that have occurred during this period and, although doing business in Russia still has its challenges, it is a vastly different investment climate that the one I first encountered twenty years ago. Foreign places are by definition foreign to us. Being from New Jersey, in fact, I feel out of sorts most places l go. In this miniseries I will present three very different business investments I have developed in this foreign Eurasian country:
- A life insurance company launched into the Russian home market in 1993
- The Russian internet company used today by over 27 million people…
- And finally an oil & gas company based in Denver, Colorado
It is my hope in presenting this miniseries that my experience in these very different business sectors will provide you with some insights into the realities of operating in the Russian market. Read more →
Recent Performance of Russian Public Companies
Consumer Sector stocks: some have doubled during this past year. Commodities, now including grain, remain strong, in addition to steel, fertilizer — as well as oil and gas… All and all, during the past twelve months, Russian public companies have prospered. And, except for the fog of fire last summer in the Moscow area and another harsh winter, Russian consumers have enjoyed a nice recovery in disposable income as a result of the economic resurgence.
Once again the Steel Sector had a number of top performers based upon continuing strength in prices and their ability to maintain margins with the lowest cost inputs in the world even while costs of iron ore, coking coal, power and labor continue to increase. Severstal enjoyed a 59% stock price increase during a six month period, with Novolipetsk following at 54% and Mechel trailing at a still respectable 35%. Norilsk Nickel, now known as Norilsk Metals, increased 43% and Uralkaliy fertilizers went up 78% during six months. Read more →
A Tale of Two Titans
The Russian “oligarchs” are business entrepreneurs who emerged under Mikhail Gorbachev as a result of the Privatization program when formerly State-owned enterprises were auctioned off to private purchasers. The term “oligarch” reflects the huge, fast-acquired wealth of some businessmen of the former Soviet Union in 1990s. While there are a dozen or so of these oligarchs, this posting will focus on just two of them, and how their careers were once so close and now so very different. Boris Berezovsky and Roman Abramovich were once friendly business partners who were extremely successful, and now Berezovsky is a political refugee and Abramovich a wealthy celebrity. Born into two separate worlds, these two became major business players following the breakup of the Soviet Union, and now inhabit separate spheres. Read more →
The Resurgence of Steel
Steely Danov
Let’s face it; everyone enjoys a comeback story. It is a part of human nature, and the Russian steel industry is a true example of a comeback. When you think of the Russian economy, you generally think of natural gas and oil, and while these two industries have contributed the most to the rebirth of Russia, the first Soviet-era industry to be reborn was the Russian steel industry. The steel industry’s rise from a dormant, near bankrupt state in the 1990’s has helped thrust Russia into becoming the world’s largest exporter of commodities. The owners of New Russia’s steel industry have demonstrated the best in modern business practices by putting to work substantial cash flows generated from steel sales in a recovering market to replace archaic equipment and outdated plants. When the steel industry was privatized following the collapse of the Soviet Union, the owners were not given everything on a silver platter. They were given companies with outdated equipment that were drowning in debt, which they subsequently transformed into world-class steel companies.
To understand how Russia has emerged as a global juggernaut in the steel industry, you should know the history of Russian steel. Russian steel producers first entered the world market in the 1730s, and by the 1770s had become a world leader in exporting steel. In fact, in the 30-year span between 1770 and 1800, Russia supplied Great Britain with almost 50 percent of their steel used. This period of dominance did not last long though, as protectionist policies and war put Russian steel exports at a competitive disadvantage. In 1790, Great Britain began imposing a tariff on Russian imports that increased annually to allow for the development of its own fledgling industry. Increasing tariffs, the Napoleonic Wars (which created periodic trade embargos) and an increase in competitive global production sunk Russia’s status as a preeminent global supplier of steel. It wasn’t until a new period of Russian industrialization began that the nation reemerged as a giant in steel production. Read more →
Expert Corner with John Connor: Investor Attitudes Improving
Occasionally, Modern Russia will speak to industry experts and analysts to get their views on Russia’s modernization efforts. To launch the series, Modern Russia spoke with John Connor, founder and portfolio manager of the Third Millennium Russia Fund and longtime Russia watcher, who gave his impressions coming out of the 2010 St. Petersburg International Economic Forum and President Medvedev’s June visit to the United States.
What was the atmosphere like at this year’s St. Petersburg International Economic Forum (SPIEF)?
You just cannot help but start any conversation about this year’s SPIEF with “the weather.” St Petersburg, Russia, is an increasingly pristine (read: “restored”) Old Europe venue which would be a great destination for any conference but the weather can be “iffy.” This year, the sky was blue, bright and sunny and it certainly helped create an upbeat atmosphere for world business and government leaders as they gathered.
Substantively, although the world economy remains in a dangerous place, there was definitely a constructive and positive approach to consideration of the challenges we face. The high level of attendees from Fortune 500 CEO’s to government ministers and heads of state contributed to the overall serious tenor of the Forum’s discussions. I left with the impression that I had just participated in “Davos East.” Read more →