The law signed by the president envisages that the state-owned corporation Bank of Development and Foreign Economic Activities (Vneshekonombank) will be created on the basis of the Soviet Vneshekonombank (VEB). Its authorised capital will be at least RUR70bn, raised by combining VEB’s property with shares of the Russian Bank of Development and Roseximbank, all owned by the government. If this does not add up to RUR70bn, the state will bring other property to the bank’s capital. The new corporation will also manage the investment fund, now managed by the Economic Development and Trade Ministry.
So, despite the traditional objections of the finance minister, which are doubtful as they are, despite the passivity of the Economic Development and Trade Ministry, which has failed to propose at least one true development project, free petrodollars will be invested in the Russian stock market. This may mean even acquisition of generating companies, both territorial and wholesale, which will not only increase the government’s present in the generation sector, but also encourage growth of these companies’ capitalisation. It is quite possible that the development bank will make huge investment in some infrastructure projects that have not been assigned to any big Russian company yet, but will not certainly find strategic partners.
As is well known, some measures seeking to set up a large state-owned, but at the same time independent in its business operations investment institution were taken beforehand.
Last February, the government expanded the investment declaration of another lending institution, VEB, allowing it to invest pension accruals in Russian stocks. This is a common global practice, the scale of which can be compared only to insurance investment. No one is scared off by the thought that pension and insurance money in fact belong to the state, as the state purposefully encourages both types of accruals.
Remarkably, another two Russian banks – Sberbank and VTB – have based the success of their respective IPOs on investment in Russian assets. Investment in Russian securities is the simplest and unregulated use for the stabilisation fund. Moreover, it will not trigger inflation, because investment resources are used first of all for development and not for paying dividends. Similarly, investing in Russian securities, the government insures everything and is ensured against a global decline of the most liquid stocks. At present the stock market has hit a local low, making state investment in stocks an almost safe lottery.
Besides, many Russian companies remain undervalued, which guarantees their growth in the long term.
Yet even a state-owned development bank may not have enough money to keep the market floating: experts estimate that the bank may accumulate up to RUR0.8-1.2trn by the yearend. This is not much compared to RUR4trn of private assets now at play on the Russian stock market.
But it is not bad, as it will not allow market players to sustain on the state pouring money and will encourage further active investment.
Yet the real prospect of further expansion of the Russian stock market, mainly due to the forthcoming series of IPOs, makes an influx of additional investment the necessary precondition for sustaining the growth pace. We should not forget about the well-known rule that one state-owned rouble attracts three private roubles. While two or even one private rouble may be sufficient for the Russian stock market now.
