UPDATE 3-Russia’s $29 bln asset sale plan cheers investors

* Analysts upbeat on plan to sell stakes in major firms

* Sales would plug budget holes before 2012 election

* Plan could boost Medvedev’s investment drive

* Concerns over transparency of the possible sales

(Adds Rosneft comment)

By John Bowker and Lidia Kelly

MOSCOW, July 26 (BestGrowthStock) – Russia’s move to sell $29
billion in state assets fleshes out the Kremlin’s plan to lure
investment and slash the budget deficit, but much will depend on
how the sales are implemented, investors said on Monday.

If approved by Prime Minister Vladimir Putin, Russia’s most
ambitious asset sale plan since the rigged privatisations of the
1990s could help President Dmitry Medvedev plug a hole in the
budget ahead of the 2012 presidential election.

Finance ministry sources told Reuters on Saturday that
minority stakes in 10 firms — including Russia’s biggest oil
producer Rosneft (ROSN.MM: ), lender VTB (VTBR.MM: ) and oil
pipeline monopoly Transneft (TRNF_p.MM: ) — would be sold off.

“The whole point about privatisation programmes is that they
never happen, so what is important here is whether anything
happens at all — something or nothing,” said Christopher
Granville, a Russia analyst at London-based emerging market
investment research firm Trusted Sources.

“This initiative by the Finance Ministry suggests that at
least something will happen,” he said.

Ministry sources said on Saturday the asset sale idea had
been discussed and judged realistic at a preliminary meeting
chaired by Putin, Russia’s most powerful politician.

A Finance Ministry spokesman on Monday confirmed that a
shortlist of companies had been drawn up but gave no figures and
said no final decision had yet been made on the sales. It was
also unclear whether the sales would involve foreign investors,
be through open stock market tenders or targetted deals.

The plans have also been devised to ensure that the state
keeps control over major companies, a step that could ensure
support from many of the powerful clans within the Kremlin who
are eager for state control of assets deemed strategic.

Rosneft said any sale of its shares should be coupled with
reforming the tax system to give more clarity to the market on
the company’s growth.

“If the government proceeds with the sale of the Rosneft
share it would make sense to do so after reforming the tax
regime,” Peter O’Brien, Rosneft’s vice president for finance and
investments, told Reuters.

Moscow’s MICEX (.MCX: ) index jumped over 1.26 percent on
Monday. Transneft shares rose 3.7 percent and Rosneft, which
also published second quarter results, was up 3.2 percent.

For a factbox on the proposed asset sales, please click on


Investors said the asset sale plan offered the government an
attractive alternative to higher taxation in its battle to
reduce budget deficits ahead of the 2012 presidential election.

Russia wants to cut its budget deficit to 4 percent of GDP
in 2011 and 2.9 percent in 2012 from around 5 percent — or $80
billion — this year. Russian officials say they want to balance
the budget by 2015.

Moscow has huge reserves built up over years of high oil
prices and can afford to cover the deficit. But the finance
ministry is using the debate over the shortfall to seek to
advance market and fiscal reforms while times are good.

“Russia is dealing with a budget deficit this year and next
year. The privatisation plan is one way of dealing with the
budget deficit,” said Kevin Dougherty, a Moscow-based fund
manager at Pharos Asset Management.

“This is a genuine attempt to broaden the investor profile
in Russia,” he said.

Medvedev, Putin’s handpicked successor, says he wants more
foreign investment to upgrade the country’s ageing Soviet
infrastructure and fuel growth after the crisis hammered
Russia’s energy-dependent economy.

But in a country where privatisation remains a dirty word
for most of the population after the rigged asset sales of the
1990s, Russia may have an uphill battle to ensure the sales
achieve the intended results.

In Russia’s first wave of chaotic privatisations in the
1990s under President Boris Yeltsin some of the world’s biggest
natural resource companies were sold off on the cheap to a tiny
group of businessmen, known in Russia as the oligarchs.

Supporters say those privatisations helped Russia’s
transition after the collapse of the Soviet Union, though
opponents say the murky sales undermined stability by
discrediting the very idea of a market economy.

“To sell stakes through transparent and open auctions is the
most logical way,” said Anton Struchenevsky, senior economist at
Troika Dialog.

“The key for investors will be what they get with those
stakes, will they get a seat on the board of directors? Will
they be involved in the sale process?”

Stock Investing

(Reporting by Lydia Kelly, John Bowker, Dmitry Sergeev and
Vladimir Soldatkin, Writing by John Bowker and Guy
Faulconbridge; editing by Patrick Graham)

UPDATE 3-Russia’s $29 bln asset sale plan cheers investors