• Strategy
  • CFO Europe Magazine

Selling Russia

Finance chiefs at the heart of corporate Russia's current wave of reform face tough hurdles.

“See, no bodyguards with machine guns, no armored car,” Vitali Podolsky points out as he removes a laptop from the back seat of his Audi sedan on a sunny spring morning just off Petrovska Street in Moscow’s pricey — and fairly customer-devoid — shopping district. He says it with a smile, but the fact that this unsolicited comment comes from the finance chief of a supermarket chain suggests that it is still a little strange being a company executive in Russia.

American Peter O’Brien is another Moscow-based executive who scoffs at the idea of having bodyguards, though he perhaps has more reason to look over his shoulder as the newly appointed finance chief of Rosneft, Russia’s second-largest oil company (and the state-owned vehicle that swallowed up oligarch Mikhail Khodorkovsky’s main oil assets before he was dispatched to a Siberian penal colony for tax fraud last year). “People get shot every day in New York City,” he says dismissively, though avoiding direct comment on the frequency with which the victims in Russia’s cities have tended to be businessmen in the back of SUVs.

Both men have made leaps of faith in their mid-30s as part of the latest wave of young executives in corporate Russia who have left safe and promising finance careers with western companies for riskier but potentially far more rewarding jobs at Russian ones. As the country emerges from the prikhvatizatsiya (“grabification”) of former president Boris Yeltsin’s 1990s, and the backlash under current president Vladimir Putin, they’re part of a rush to tap into world capital markets, especially while the commodities boom underpins the Russian economy.

Last year was pivotal for Russian firms, with seven making their debut on the London Stock Exchange, raising £2.7 billion (nearly €4 billion), the biggest capital raising spree since Lukoil came to the market in 2002. The most successful of that crop was the sale of 17 percent of Novatek, Russia’s third-largest natural gas producer, which raised $1 billion (€800m).

Tellingly, Novatek’s prospectus contained 27 pages of risk warnings, making it clear that the company operated at the whim of the Russian government, and that court rulings on matters such as license agreements and verdicts of the tax authorities could be arbitrary. It also mentioned that, because of its history, allegations of corruption against top executives and potential legal challenges to ownership of some key assets may continue. The prospectus described, in short, a typical Russian natural resources company.

As Mark Gyetvay, Novatek’s American finance chief, who was hired from PricewaterhouseCoopers in 2003, noted at a Russian CFO roundtable in April, none of that mattered to investors: the stock offering was 13 times oversubscribed. Even after falling 30 percent in May’s global markets sell-off, Novatek’s shares were still 100 percent above last year’s listing price. (See “Greed and Glory” below.)

Novatek and the other IPOs in 2005 were just a taste of what is ahead. There are dozens of Russian companies lining up to float stock in London (rarely New York), from entities such as Intourist, the former Soviet tourist-babysitting outfit now owned by oligarch Oleg Deripaska, to the banking unit of all-powerful state-controlled Gazprom. Key to their success are efforts to put in place the kind of corporate governance infrastructure designed to give comfort to overseas investors and stock exchanges. While CFOs are at the forefront of efforts to be more transparent, set up audit committees, and attract independent directors, these moves are often overshadowed by far bigger concerns.


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