Foreign investors return to Russia
The Russian government is creating conditions for the attraction of foreign investors to the national stock market, which takes place through the change of dividend policy of the country’s leading state corporations as well as implementation of other measures.
According to a recent order of Russia’s President Vladimir Putin, all the country’s leading state-owned companies and corporations will use the new dividend policy, which involves payment of dividends in the amount of not less than 25% of their annual profit.
So far, the majority of Russian state-owned companies have determined their dividend policy by themselves, calculating their annual dividends on the basis on the net profit, cash flow and debt-to-EBITDA. At the same time some of the companies even refuse from payment of dividends. Due to this, an interest of foreign investors to the shares of Russian companies was relatively small.
However there is a possibility that much will be changed already in the near future, as local companies will be forced to significantly increase the amount of dividends, paid to their shareholders.
In the meantime, the latter presidential decision, however, has already sparked criticizm from some leading state corporations, and in particular Gazprom and Rosneft, according to which, this may negatively affect their financial positions, which significantly suffered due to the current economic crisis in Russia and Western sanctions.
However the government believes that Putin’s decision will allow to significantly increase the share foreign capital in the local market, despite the fact that it already accounts 70% of the market, a significant part of which, however, are Russian capitals, which are brought to the market through offshores.
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According to analysts, so far, the majority of foreign investors, which suspended their activities in Russia due to the crisis, have decided to return to the market. The ever growing interest is observed in the case of a wide range of foreign investors from hedge funds to large investment funds.
Overal, the biggest activities of foreigners in the Russian market are currently observed in the segments of corporate bonds, as well as government bonds and equities.
According to analysts of the Russian Ministry of Finance, since the middle of 2014 and the beginning of the economic crisis in Russia, the share of foreign investors in the segment of Russian federal loan bonds has declined from 26% to 23.7%, however, due to ongoing recovery of the market it has already started to grow.
In the case of companies, a particular interest of foreigners is related with Lukoil, Surgutneftegaz, Norilsk Nickel, as well as other local oil, gas and mining companies. In addition, there is also the ever growing demand for the securities of the companies from the Russian consumer sector.
The Russian government currently remains a major shareholder of a significant part of Russian «big» companies, along with major businessman (many of which act as founders of these companies). At the same time the share of free-float remains small. According to the Moscow Stock Exchange, among the Russian companies which have the highest free-float coefficient are Sberbank, Transneft, Tatneft, Yandex and Lenenergo. The free-float coefficient of the majority of Russian companies is significantly below 30%. The latter, however, is considered by foreign investors as one of the weaknesses of the Russian stock market.
According to Eddie Astanin, chairman of the National Settlement Depository, (one of Russia’s leading non-bank credit companies, which specializes on the provision of settlement and depository services on the Russian financial market), the profitability and credit quality of Russian assets currently remain very attractive for foreign investors.
According to his predictions, the volume of portfolio investments in the Russian market will significantly increase already during the next several months.
However much will depend on futher development of geopolitical situation.
Devaluation of the Russian currency – ruble against the US dollar, euro and other currencies, (which are used for commodities’ trading), has made many Russian industrial sectors, such as agriculture, processing, textiles, petrochemicals, more competitive and, therefore, more attractive to foreign investors. In addition, many assets in the Russian market are currently undervalued.
At the same time, according to analysts of the Russian Central Bank , speculative capital still dominates in the Russian stock market, while the share of long-term funds remains small. That means that investors both domestic and foreign still not prefer to invest funds in the implementation of long-term projects in Russia.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>