RTS plans raft of new derivatives - Incisive Media

political focusParadise lost in a post-Putin world?Expect the Russian bear to bare its teeth well after Vladimir Putin retires, as itsresource wealth becomes increasingly important, experts tell David Walker. Oh,and if you have a spare fiver, maybe place it on Putin making a come-back...While eyes may be set on 2008,when presidential elections installVladimir Putin’s successor, expertsnote whoever follows him will keepusing the country’s vast commoditieswealth to Russia’s global politicaladvantage.Stephen Capon, head of countryand credit risk management withinthe risk and credit division of ACEInsurance Company of NorthAmerica, says: “We believe therewill be a smooth transition, andif you look at the Budget put up(recently), it’s quite clear that withthe implementation of that Putinwill leave quite a legacy behindhim and will have tied the handsof his predecessor (by) movingtowards a three-year budgetaryprocess rather than an annual one.”Few would argue Putin has notleft Russia in a stronger economicposition than when he gainedpower in 2000.With the global influence thatstems from ownership of commodityprices, Putin and the Statehave sought international influenceusing gas and oil, and usingcompanies such as Rosneft (oil)and Gazprom (gas) as projectionsof this power, Capon says.Sberbank, the State-owned bankthat has 60% of Russia’s retailbusiness, or Gazprombank, couldbe used similarly in the bankingsector, Capon notes. The State ownershipwould clearly obviate anyneed to go after oligarchs such asMikhail Khodorkovsky of Yukosfame, to bring corporate Russiainto the government’s fold.Capon understands the risksof renationalisation in Russia,working for ACE Insurance Companyof North America, which providespolicy cover for events suchas renationalisation and expropriation,among other event risks, ofprivate companies.He numbers hedge funds amonghis clients seeking protection cover,and consulting advice.While the renationalisation ofgas and oil concerns is proceeding,Capon also notes Putin’s moves tocreate a “centralised holding companyfor the nuclear sector andthose companies who buy andexport capabilities around it.”nervous trepidation?Many observers express at leastsome trepidation about post-PutinRussia. Standard & Poor’s, normallysanguine on its pronouncements,says of Putin’s rule: “Asthe Kremlin has extensively centralisedpower during Putin’ssecond term in office, a changeat the helm comes with aboveaverageuncertainties and risks topolicy continuity.”Centralisation has included inS&P’s views, “ending the directelection of regional leaders, tightermedia control, and the introductionof a restrictive law regulatingthe activities of non-governmentalorganisations. A new president willbring risks for prudent economicmanagement.”This will occur, S&P says, if theincoming, who is widely expectedto be a recipient of a Mexican-styleel dedazo (the ‘big finger’ wherethe incoming is designated by theincumbent), cannot wield powerand respect as Putin has, and sohas to “buy” respect and favour,loosening fiscal strings to do so.far from perfectHailing Vladimir Putin’s achievementsis not to say Russia is perfectas it stands.The World Bank’s GovernanceIndicators show in Standard &Poor’s analysis, that “Russia hasthe weakest institutional environment(of its peers), (and) also thatit has actually deteriorated duringVladimir Putin’s second administration.The sub-categories ‘voiceand accountability’ and ‘politicalstability/no violence’ have deterioratedparticularly sharply,” the ratingsagency says.(Stephen Capon says simply ofRussia’s corporate environment, itis “abysmal.”)Indeed, one large Russian hedgefund notes in its monthly fact sheetthat one major listed firm’s newissue was beset by “a series of contradictory,and apparently uncontrolled,announcements by severalof the parties involved in the issue,and the consequent volatility inthe share price suggested attemptsat price manipulation may have“Governmental, legal, andeconomic institutions andaccountability remain veryweak (and) energy assets areincreasingly concentrated in Statehands and used as a political toolin Russia’s foreign policy.”standard & poor’s, the russian federation report, 11 January, 2007been afoot.” Another major foreigninvestor makes little secret that,when he first began investing indomestic stocks back in the 1990s,bodyguards were an importantpart of any activist hedge fund’sbusiness plan for Russia. (He distanceshimself from such daysnow, prefering the rule of law.)Nevertheless, Russia scores particularlypoorly in the period 2002-2005against its peers in the World Bankstudy – South Africa, Malaysia,Kazakhstan, Poland, Saudi Arabia,is russia’s end-game iran?If Iran is bombed in 2008, whatdoes this mean for Russia, whichis believed to supply much of thatcountry’s scientific expertise?Russia could block any UN vote onfurther sanctions against Iran underPresident Mahmoud Ahmadinejad,with China abstaining, leavingAmerica, and possibly allies, toimpose its own penalties on Iran.If it then comes to bombing Iranfor fear of a developed, offensivenuclear programme, Russia couldprove the ultimate beneficiary, nothaving got Tehran offside by votingfor a blockade against it.Oil would spike while Iran’soilfields closed temporarily, butthereafter it is a fair bet AmericaBulgaria, Thailand and Mexico – on‘control of corruption,’ ‘rule of law,’‘regulatory quality’ and ‘governmenteffectiveness.’Standard & Poor’s also noted,not without some concern that“governmental, legal, and economicinstitutions and accountabilityremain very weak (and)energy assets are increasinglyconcentrated in state hands andused as a political tool in Russia’sforeign policy.”So much for Aussenpolitik.On the front of Innenpolitik,Standard & Poor’s adds: “It is alsodoubtful whether Putin’s successorwill be equally able to balance therival factions of technocrats on theone side and the so-called siloviki(politicians from the security or militaryservices) on the other.“These uncertainties increase therisks to the policy outlook.”So, by 2009, Putin will be goneand the world will have to adjust toboth the domestic and foreign policystance taken by his dedazo Kremlinsuccessor. Oh, really?Not so fast: Stephen Capon saysPutin could be headed for a leadershipposition in the Duma, and notone without political influence.the comeback comrade?And after that? Place your bets forPutin Mach II. “There’s always thechance Putin could make a comeback,”Capon says. “If Belarussiais absorbed into Russia in time, youwould need a new Constitution,and that could be a trigger...”would not receive contracts to drill ordevelop Iran’s oilfields. If not the US,then who?Experts say Russia and China.Russia’s regional influence wouldthen be strengthened, and alsocontrol over much of the world’s oilproduction (including, of course, itsown) affirmed.While Vladimir Putin has left Russiain a stronger position than it wasin 2000 – partly due to Crude oil’sand commodities’ prices – and ifthis scenario delineated above playsitself it, his successor could leavethe Kremlin having put Russia in astronger position still.(Just in time, then, for VladimirPutin to enter [again], stage right?)