- The panel discussion focused on Russia's ongoing privatization efforts and achieving structural reforms to reduce the state's role in the economy and increase private sector involvement. - Most panelists agreed that privatization is necessary for structural reform, though there were debates around whether the primary goal is to finance budget deficits or institute reforms. - Issues around privatization tactics, rules for sectors being privatized, and the roles of exchanges, private equity funds, and pension funds in the process were discussed.

1. www.TheRussiaForum.com
RUSSIA
FEBRUARY 2 3, 2012
Russia Forum Buzz
Privatization: Interim Results
█ The panel included all the parties engaged in the process: CEOs of state
companies, government officials, investment bankers, private equity investors
and fund managers. The key outcome of the discussion was that privatization
is good and necessary for Russia. But some internal contradictions and
internal conflicts in the process need to be cleared up.
█ First, is privatization aimed at financing the budget deficit, or is it merely a
political decision designed to bring in structural reforms? The majority of
panelists said that the latter was more important. Privatization is necessary to
reduce the state’s role in the economy, shrink the public sector and increase
the role of the private sector.
█ Aleksei Uvarov said it is not only important to privatize large state holdings,
but also to spin off related entities from state holdings to reduce the size of
the public sector. Slava Pivovarov recalled research by McKinsey that labeled
privatization as “low hanging fruit” to achieve growth. Kirill Dmitriev said that
promoting competition was important, and privatization could help achieve
that. Alexei Kalinin mentioned the importance of privatization for growth of
the market in breadth and in depth. Nikolai Shvets said that as the head of a
state company, he needs to see the rules for the development of a particular
sector made before privatization is carried out, while he praised the state as
the most effective owner of assets. Ruben Aganbegian pointed out that fiscal
goals and structural reform are actually at loggerheads.
█ The moderator summarized the remarks by saying that everyone apparently
agreed that privatization is good, but the prevailing thought was that nothing
would happen until the budget comes under pressure.
█ The panelists then discussed a number of technical issues. It turns out that the
legislation has been changed so that the state can now privatize assets
without the need to create a special fund.
█ Privatization deals from last year were mentioned: VTB and Freight One, as well
as the failed Sovcomflot deal. There was also a mention of upcoming deals, such
as United Grain Company, a block in Apatit and the sale of SG Trans.
█ There was suggestion that privatization should occur in small blocks, with a
gradual increase in the free float. Private equity deals can also be conducted in
the same manner as pre IPO deals.
█ The discussion moved on to the question of whether privatization deals should
involve new shares and new equity deals to finance company development, or
simple divesture from the state. The moderator mentioned that there is a
dichotomy between the goal of structural reform via privatization and the
government’s paternalistic approach and hope that it can be successful in
tackling corporate finance issues at the privatized companies.
█ It was mentioned that there are other ways to privatize, such as through share
swaps or issuing convertible bonds, as Blackstone did in autumn 2011.

2. FEBRUARY 2 3, 2012 RUSSIA FORUM BUZZ – PRIVATIZATION: INTERIM RESULTS
2 TROIKA DIALOG
█ The role of private equity funds was discussed. Dmitriev said that he would be interested in buying
some assets, particularly agricultural, banking and logistics and transportation assets. Kalinin sees
the main role for private equity firms as “sherpas”, taking stakes pre IPO or intermediating further
sales of these assets to investors.
█ The role of exchanges in privatization was also highlighted, including the need to conduct
privatization deals on MICEX. There was a reference to the Brazilian experience, where
Novo Mercado, the exchange that set the listing rules, revolutionized corporate governance for
companies trading on the exchange and ran well ahead of the legislative process. There was also
mention of two OECD models for the treatment of minority investors: the “conventional majority
model” and the “majority model based on a 3% threshold”.
█ The conversation touched on what requirements buyers must meet.
█ There was also a brief mention of the opportunities for Russian private and state pension funds in
privatizations.
█ There was a discussion of dividends from companies up for privatization. Gleb Nikitin and Uvarov
take dividend policies of state companies very seriously as a way to improve corporate governance
and said there was a great deal of discussions on the issue.
█ Pivovarov indicated that two types of dividends are possible: special dividends distributing cash
before a sale, and regular dividends, which are a part of a normal corporate governance and
dividend policy and should be generous for state companies with strong cash flows.
Panel
Said Batkibekov Managing Director Parastatal Projects Group, Sberbank of Russia
Ruben Aganbegyan President, CEO, MICEX RTS
Kirill Dmitriev Chief Executive Officer, Russian Direct Investment Fund
Alexei Kalinin Senior Partner, Baring Vostok Capital Partners
Gleb Nikitin Acting Head, The Federal Agency for State Property Management
Vyacheslav Pivovarov Managing partner, Altera Capital
Nikolay Shvets Director General, JSC IDGC Holding
Aleksei Uvarov Head of The Property Relations Department, Ministry of Economic Development of The Russian
Federation

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