The rationale behind Russia's controversial loans-for-shares scheme, say observers, is the reformers' desire to privatize as many state assets as possible while they still hold power.
If so, the strong showing of the Communist party in Russian parliamentary elections last month appears to vindicate these fears. As Euromoney went to press, preliminary results indicated that the Communist party might win as many as a third of all seats in the Duma (lower house of parliament).
The Russian loans-for-shares scheme is one of the most controversial privatization programmes devised. It has raised some cash for the government. But it remains to be seen whether it has improved corporate governance at the companies involved.
Last month, the Russian government invited Russian commercial banks to hold in trust large blocks of shares in leading oil and natural resource companies in return for loans to the government. No-one in Russia expects the government to repay these loans when they fall due this September. Instead, Russian banks look set to consolidate their holdings.
As a privatization technique, it has few fans. Western financial experts' descriptions of the scheme vary from, at the politest, "shady" to at the more emotive, "a rape of the country". Russian banks, especially those which feel they have lost out in a series of smash-and-grab raids on companies' shares, are also furious. Three of them - Inkombank, Alfa Bank and Rossiisky Kredit - complained publicly that Bank Menatep had an unfair advantage in the tender auctions for a stake of up to 78% in oil giant Yukos, as it was also arranging the auction and had cut a deal with Yukos management.
The stake in Yukos, Russia's second largest oil company, was eventually won by Laguna, a partnership financed by Menatep. The other three banks were disqualified from the tender after they tried to deposit a mixture of cash and government bonds, rather than pure cash, into the ministry of finance's account at the central bank.
Separately, Rossiisky Credit threatened to sue the State Property Committee, when its bid of over $350 million for 38% of Norilsk Nickel was rejected, allowing Uneximbank to win the auction with a bid of only $170 million. Defenders of the Uneximbank deal question whether Rossiisky Kredit had the $350 million. There have also been criticisms of other loans-for-shares deals, such as that for a controlling stake in Surgut Oil, which was acquired by the company's own pension fund in a deal which seemed to seal management control of the company.
But the scheme has its supporters even among bankers who do not expect any direct gains. "This scheme is not about budget financing, it is about politics," said one Russian banker before the election. "The reformers wanted to get as many assets as possible out of state hands before the elections."
Leading reformer Maxim Boycko, who is chief executive of the Russian Privatization Centre and one of the architects of the country's privatization programme, cautions: "I would not describe myself as an unconditional supporter of loans for shares." But he does think corporate governance will be improved: "The only blocks of shares included are ones that would not otherwise have been privatized. And the state has shown itself a remarkably incapable manager of companies." He draws comfort from the fact that many company managers hated the scheme: "Managers at Norilsk Nickel used every means at their disposal to escape it but couldn't in the end. It's a sign that this has potential to improve corporate governance." Peter Lee
