Russian Interest from Foreign Investors
This excerpt is from an open source article and is not necessarily the opinion of bostatic.com
In the latest sign of Russia's financial comeback, Moody's, the credit rating agency, last week upgraded Russia's sovereign debt. In effect, Moody's said it was safe to invest in Russia, five years after it defaulted on its foreign debt and devalued the rouble.
"The upgrades reflect the strengthening of the government's commitment to prudent fiscal and debt management policies," Moody's said.
Russia's energy sector (Russia has the world's second largest oil and gas reserves) has attracted particular attention. ExxonMobil, the US oil giant, is reportedly in talks to take a large stake in the newly merged Russian oil giant, Yukos-Sibneft, for at least $25bn (£15bn).
Where ExxonMobil might go, BP has already ventured. In February, the British oil company announced a $16bn joint venture with TNK, one of Russia's largest oil firms, giving BP a 50% stake in the company.
BP is returning to Russia despite burning its fingers in 1997 when it bought a 10% stake in the Sidanco oil group. Caught in the crossfire of rival oligarchs scrambling over the assets, BP lost almost its entire $848m investment.
Russian assets are up for grabs because the oligarchs are keen to cash in on all they amassed in the huge sale - some say looting - of public of assets in post-Communist Russia. After having divided the spoils, the Russian oligarchs are now ready to convert some of those assets into hard cash.
Roman Abramovich is a case in point. The 36-year-old tycoon, who is worth at least £1.8bn, sold his stake in Sibneft to Yukos to consolidate his position as Russia's second richest man. With plenty of cash to play with, Mr Abramovich has branched out into English football by buying Chelsea and throwing money at the club.
But even as Moody's gives Russia a vote of confidence, there are cautionary voices from those who have tangled with the Russian legal system in disputes between foreign and Russian firms.
"The legal system has not kept pace with changes in the economic system," said Grant McCrea, a partner in the New York law firm of Dewey Ballantine. "A new procedural code has eliminated some of the extreme anomalies inherited from the old Soviet system, but if you haven't changed the people, you will have problems."
Mr McCrea grappled with the Russian legal system when he represented Indosuez International Finance, an affiliate of the French financial group, Credit Agricole, in a dispute with Russia's National Reserve bank.
Indosuez had entered a series of foreign exchange contracts with National Reserve and was owed about $120m before the 1998 financial crisis. After Russia defaulted, many foreign institutions had to settle for a few cents on the dollar on the billions of dollars they were owed by Russian companies.
Indosuez, however, decided to go for the money it was owed and took National Reserve, a small Russian bank, to court. The New York state supreme court last year finally required National Reserve to pay and a settlement has now been reached.
But that was not before National Reserve had brought its own lawsuits in Russia. At one point National Reserve cited an obscure Russian statute requiring that contracts be signed by the chief accountant of a company.
On that basis, National Reserve argued that the foreign exchange contracts with Indosuez were invalid because they had only been signed by deputy chairmen of National Reserve. Fortunately for Indosuez, the courts in New York ruled that Russian law did not apply because the parties had agreed on New York and English law.
Mr McCrea's misgivings about Russia are echoed by other ratings agencies, which believe that Moody's is being too hasty.
"We think that it is premature to move Russia up to investment grade, as most of the recent positive story has been due to windfall oil prices," Robert Richards, the head of Standards and Poor's sovereign rating desk in Moscow, told The Business newspaper.
"What is important is changes that are long-term and not cyclical. We are looking for progress in key reforms like the banking sector and liberalisation of energy markets or at least clear evidence that these reforms is coming," he said
For High Net Worth Individuals wishing to deposit or invest $500,000 USD or more, for a telephone consultation appointment with a private banker phone: 0044 151 261 0989, please feel free to ask about any of our services you are unsure about.
For a free online consultation with a Swiss Private Banker, click here.