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Russian fund closes first deal with Gulf partner

A new $10 billion state private equity fund in Russia completed its first deal alongside private-sector investors last month, in the biggest of a string of M&A transactions in the Russian power sector. In addition to private-sector money, the deal included the largest-ever private equity investment in Russia by a Middle East fund, in this case one backed by sovereign wealth.

With $10 billion in pledged capital, the Russian Direct Investment Fund was set up last summer to co-invest in Russia alongside prominent global private equity funds or sovereign wealth funds, with the aim of promoting foreign direct investment. In its first deal, in late January, RDIF took a minority stake alongside the European Bank for Reconstruction and Development in the merged Russian stock exchange Micex-RTS.

This time, the target was a minority stake held by Russian energy firm Inter RAO in a group of power plants controlled by Italian energy firm Enel. According to Dealogic, five of the 20 biggest Russian M&A transactions so far this year have been in power and utilities: three involving Inter RAO, which is state-owned, buying up stakes in electricity firms around Russia.

Matched amounts

In the Enel transaction, RDIF invested $137.5 million, an amount matched by an infrastructure fund jointly managed by Russia’s Renaissance Capital and Australian banking group Macquarie. Rusenergo, a Russian electricity investment fund, put in another $175 million – as did AGC Equity Partners, a fund based in London and Dubai, and backed by Middle East sovereign wealth funds AGC’s chief executive, Walid Abu-Suud, is a former employee of the London arm of the Kuwait Investment Authority.

"We expect to close another deal in the Russian healthcare sector alongside a reputable, prominent private equity player in the next few months," says Kirill Dmitriev, RDIF’s chief executive. "We are regularly talking to around 70 top funds in various geographies."

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