Maria Ivanova and Roman Rozhkov
Statistics of the Year
A $99 billion slump
The total capitalisation of the state-owned Sberbank and Vneshtorgbank, which conducted IPOs in 2007, has plunged by $99 billion this year.
Naturally, this drop in bank capitalisation was caused by the global financial crisis, which became aggravated in September and expedited this process. The price of Sberbank and VTB shares has tended to decline since early 2008. This is hardly surprising in view of the global financial crisis, caused by the 2007 US subprime mortgage crisis.
Consequently, Russian companies and banks found it harder to get easy-term loans in the West and posted worse economic results. Due to the global economic crisis, the number of sellers began to increase on the stock market as the number of buyers steadily declined. This primarily affected emerging markets, including Russia. Foreign investors also began to withdraw their assets from Russia.
One Sberbank share cost 102 roubles ($3.4) in early 2008, and now stands at 22.5 roubles (76 cents). In effect, these securities have lost 78% of their par value this year. In early 2008, one VTB share cost 12.06 roubles (41 cents) and is now worth just 3.04 roubles (10 cents). Over the last 12 months, the value of VTB shares has plunged by 73% in relative terms.
It appears that VTB has fared better than Sberbank. VTB capitalisation has plunged by $26 billion, as compared to $73 billion for Sberbank. The 5% margin is also quite impressive. After their respective IPOs in 2007, the price of VTB shares dropped from 13.06 roubles (44 cents) to 12.06 roubles (41 cents). After Sberbank split its shares, their price increased from 89 roubles ($3) to 102 roubles ($3.4). It turns out that the value of both banks' shares plunged by 75% in relation to the IPO placement fee.
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Scandal of the Year
The Price of the Prime Minister's Statements
On July 24, Prime Minister Vladimir Putin addressed a meeting on ferrous-metallurgy development issues in Nizhny Novgorod and slammed Mechel, one of Russia's leading mining and metallurgical companies producing coal, iron ore, nickel steel, rolled steel products and hardware, and its CEO Igor Zyuzin.
Putin said corporate metallurgical feedstock being supplied abroad was sold abroad at half the price of what the domestic market was paying. He inquired about the relevant margin in the form of the federal budget's tax proceeds. Putin said he had invited Zyuzin for the meeting, but that the Mechel CEO had come down with a sudden illness.
"Although health problems should be taken seriously, I believe that Mr Zyuzin should get well quickly. Otherwise we will have to get a doctor to pay him a house call and deal with all these problems," Putin said. The Prime Minister noted that the Federal Anti-Monopoly Ser
vice (FAS) and the Investigation Committee of the Russian Prosecutor-General's Office must focus on this situation.
Investors who sustained losses caused by plunging stocks of the now bankrupt oil giant Yukos, which had been pressured by the state, reacted promptly to Putin's statements. On July 24, the value of Mechel's American Depositary Receipts fell by 37.6% on the New York Stock Exchange. During the next trading session, the value of Mechel shares fell by another 38.3% on the Russian stock market.
In its July 25 press release, Mechel promised to prevent subsequent gaps between global and domestic coking-coal prices and said it was ready to cooperate with federal agencies on raw-materials prices. On July 28, Putin once again criticised corporate activities, namely, raw-materials exports via offshore zones. Such feedstock costs four times less than that being sold on the domestic market.
Mechel's NYSE stocks plunged by 25.6% in a single trading session. Corporate capitalisation dropped from $15 billion to $7 billion. From July 24 to 28, the RTS index dropped by 8.8% in three trading sessions. In effect, the Russian stock market's capitalisation dwindled by $60 billion.
It's worthy of note that as early as after the July 15 FAS investigation i.e. before the meeting in Nizhny Novgorod Mechel was fined 797 million roubles ($27.1 million) or 170 times less than the $5.5 billion lost by Zyuzin after Putin's medical diagnosis.
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Project of the Year
The End of the Unified Energy Systems Empire
The nationwide energy industry reform, conducted under the supervision of Anatoly Chubais, the father of the Russian privatisation programme, is the main successful project of 2008. Established in 1992, utility giant Unified Energy Systems (RAO UES) has ceased to exist. Its functions were relegated to the state and infrastructure companies.
On May 28, RAO UES shareholders held their last general meeting, which accepted all the proposals of its top management, including the recommendations of financial director Sergei Dubinin, who advised them to vote against dividend payments.
"Frankly, I do not like reforms. In general, both the subjects of reforms and the reformers tend to find this activity unpleasant."
Each stockholder exchanged his or her RAO UES shares for the securities of companies that received independent status after restructuring.
Six wholesale power generating companies (OGK), 14 territorial generating companies (TGK), 11 distribution grid companies (MRSK) and the hydropower wholesale generating company GidroOGK (Now called RusGidro) were established.
RAO UES was abolished on July 1. Before this deadline, Chubais managed to sell virtually all generating companies, except OGK-1 comprising six state regional power plants with a total capacity of 9,531 mWt, TGK-11, whose sale was delayed by a minority Rosneft shareholder and a federal stake in KuzbassEnergo.
The sale of OGK and TGK shares attracted 803.5 billion roubles ($27.3 billion) worth of private investment during the reform. The energy industry reform would still be continuing if the global stock-market crash this fall had happened six months earlier.
After the final news conference on June 30, Chubais removed a plaque with his name from the door of his office and ordered workers to take RAO block letters off the main entrance. "Although RAO has been abolished, Unified Energy Systems remains and will continue to develop," Chubais said.
He said the RAO UES reform was the most labour-intensive projects of his life. "Intellectual resources generated by our entire team in this building are a mixture of delight and anguish," Chubais said.
Chubais added that he planned to spend at least two years making up for missed sleep. On September 22, however, the Kremlin published President Dmitry Medvedev's decree on appointing Chubais CEO of the state-owned Russian Nanotechnology Corporation with a 130 billion rouble ($4.4 billion) capital in place of Leonid Melamed.
"When they made this offer to me, I was overwhelmed and agreed almost instantly. It took me about ten second to make the decision," Chubais said.
By July 1, 2009, the Russian Nanotechnology Corporation would be expected to have 30 to 60 officially approved projects with 60 billion rouble ($2 billion) funding.
"I will find sizeable allocations, no matter what. I know many places in the world where such funding is available," Chubais promised.