Russia's longest economic boom since the breakup of the Soviet Union is proving irresistible to Merrill Lynch, Goldman Sachs and Citigroup five years after the world's largest securities firms lost billions of dollars in the country's worst default.
A lot of banks that left Russia when the nation defaulted on a record $40 billion on Aug. 17, 1998 are now coming back, said Bruce Misamore, chief financial officer of Yukos, the country's No. 1 oil producer.
All the major "banks and investment banks are constantly knocking on our door," Misamore added, declining to be more specific.
UBS, Europe's biggest bank by assets, lost about 630 million Swiss francs ($446 million) in the 1998 bond default, while New York-based Citigroup, the world's largest bank, had about $400 million of losses.
The two banks are now the top advisers on Russian acquisitions after UBS advised Yukos and Citigroup advised Sibneft this spring when Yukos acquired Sibneft for $11 billion.
After reducing its staff by more than 50 percent in 1998, Brunswick UBS now has about 125 employees, giving it the largest presence among international banks in Russia.
The firm is hiring "at all levels," says Ed Kaufman, head of investment banking at Brunswick UBS.
Another bank, Credit Suisse First Boston, had some of the biggest losses in Russia following the 1998 default, amounting to about $1.3 billion, prompting the firm to fire a third of its staff. With about 90 on staff in Russia, CSFB said it may "moderately" expand its equity team two years after reducing trading in Moscow.
"What you don't have yet is a lot of full-service operations inside Russia," said Misamore of Yukos. "Many of the banks fly senior managers in from London to supplement their very small, or even nonexistent teams inside Russia."
Not only did Citigroup advise Sibneft owner Roman Abramovich on the Yukos tie-up, it has also been hired by the tycoon to advise him on his personal business and it helped Abramovich buy London-based soccer team Chelsea for $233 million in cash this summer. Citigroup has seven investment bankers in Moscow.
New York-based Goldman Sachs, the world's third-largest securities firm by capital, is advising TNK on its $7.7 billion joint venture with BP, inked in February and finalized this month.
London-based BP, meanwhile, was advised by Merrill Lynch and Morgan Stanley, the No. 1 and No. 2 securities firms.
Morgan Stanley and Goldman have Moscow offices, though they both declined to say how many people are based here. Yelena Titova, who has run Goldman's Russia business since 1997 -- first from London, now from Moscow -- said only that Goldman is building a capital markets and corporate acquisitions team.
The BP-TNK deal, together with the Yukos-Sibneft merger, has helped boost Russian acquisitions to a record $19.2 billion this year, almost twice the total of the two previous years combined, which may help to entice foreign investment banks to set up shop here.
Merrill says it may reopen in Moscow. Together with Alfa Bank, the firm is advising Unified Energy Systems on a plan to spin off some units and merge others.
UES, the world's largest electricity company by capacity, will need as much as $100 billion of investment in the next 10 years to modernize the infrastructure of the old Soviet monopoly, said David Geovanis, a UES board member and managing director of Base Element, owner of half of RusAl, the world's second-largest aluminum producer.
"The reform of the electricity sector in Russia will create a massive market for investment," UES CEO Anatoly Chubais said in an interview, adding that the plan may bring the industry "as much as $5 billion in investment per year for the renewal and building of a new generation of network capacity."
While many of its counterparts concentrate on the energy sectors, J.P. Morgan, which ranks second only to Citigroup by assets in the United States, is advising the government on the sale of Svyazinvest, the national telecoms holding.
The economy -- Europe's seventh-biggest -- is growing for a fifth straight year, helped by 45 consecutive monthly increases in consumer spending on products ranging from mobile phones to appliances.
Economic growth is forecast to reach 6 percent this year, in stark contrast to the 0.75 percent growth predicted for the European Union.
Further exemplifying Russia's rosy trajectory, Brent crude has risen to $27 per barrel from $12 the day of Russia's default, boosting profits for the world's No. 2 oil producer after Saudi Arabia.
The country has 17 billionaires up from eight in 2001, according to Forbes magazine. Only the United States, Germany and Japan have more.
Against this background, Russian companies have raised $5.6 billion in the capital markets so far this year, with almost all the money -- $5.3 billion -- coming from bonds and loans, Bloomberg data show. Companies sold $5.7 billion of bonds and stocks in all of 2002, more than double the $2.3 billion raised in 2001.
Bond sales this year reached an all-time high of $4.7 billion, following February's $1.75 billion sale of 10-year debt by Gazprom, the world's biggest gas producer.
Gazprom has hired Frankfurt-based Deutsche Bank and UBS to underwrite more bonds after Morgan Stanley and Dresdner Kleinwort Wasserstein helped sell $1.75 billion of 10-year bonds in February.
Gazprom paid $20 million in fees to these two firms for its February sale, or 1.125 percent of the value. Such a commission is significantly more hefty than most bond-sale fees, which typically average 0.75 percent to 1 percent of the value of the bonds.
In another boon for investment banks, the government may sell $2.5 billion in eurobonds by the end of next year, its first sale of foreign currency-denominated debt since 1998, Finance Minister Alexei Kudrin said last week.
Investors such as Mikhail Khodorkovsky, 40, Russia's richest man with a fortune estimated at $8 billion by Forbes magazine, are being wooed by international investment bankers. He has also hired British financier Lord Jacob Rothschild to advise him on charitable ventures as he works to polish his public image after messy entanglements with minority shareholders in the past.
Khodorkovsky, the biggest shareholder in Group Menatep, controls Yukos.
"Our relationship with Yukos is not just with the company, but with the shareholders -- with Khodorkovsky and Menatep," UBS's Kaufman said.
"The competition is increasing," said Irakly Mtibelishvili, Citigroup's 32-year-old head of investment banking in Russia. "We are going to see a lot more M&A deals in Russia -- foreigners investing in Russia, Russians investing outside of Russia, and Russia-to-Russia deals."
A lot of banks that left Russia when the nation defaulted on a record $40 billion on Aug. 17, 1998 are now coming back, said Bruce Misamore, chief financial officer of Yukos, the country's No. 1 oil producer.
All the major "banks and investment banks are constantly knocking on our door," Misamore added, declining to be more specific.
UBS, Europe's biggest bank by assets, lost about 630 million Swiss francs ($446 million) in the 1998 bond default, while New York-based Citigroup, the world's largest bank, had about $400 million of losses.
The two banks are now the top advisers on Russian acquisitions after UBS advised Yukos and Citigroup advised Sibneft this spring when Yukos acquired Sibneft for $11 billion.
After reducing its staff by more than 50 percent in 1998, Brunswick UBS now has about 125 employees, giving it the largest presence among international banks in Russia.
The firm is hiring "at all levels," says Ed Kaufman, head of investment banking at Brunswick UBS.
Another bank, Credit Suisse First Boston, had some of the biggest losses in Russia following the 1998 default, amounting to about $1.3 billion, prompting the firm to fire a third of its staff. With about 90 on staff in Russia, CSFB said it may "moderately" expand its equity team two years after reducing trading in Moscow.
"What you don't have yet is a lot of full-service operations inside Russia," said Misamore of Yukos. "Many of the banks fly senior managers in from London to supplement their very small, or even nonexistent teams inside Russia."
Not only did Citigroup advise Sibneft owner Roman Abramovich on the Yukos tie-up, it has also been hired by the tycoon to advise him on his personal business and it helped Abramovich buy London-based soccer team Chelsea for $233 million in cash this summer. Citigroup has seven investment bankers in Moscow.
New York-based Goldman Sachs, the world's third-largest securities firm by capital, is advising TNK on its $7.7 billion joint venture with BP, inked in February and finalized this month.
London-based BP, meanwhile, was advised by Merrill Lynch and Morgan Stanley, the No. 1 and No. 2 securities firms.
Morgan Stanley and Goldman have Moscow offices, though they both declined to say how many people are based here. Yelena Titova, who has run Goldman's Russia business since 1997 -- first from London, now from Moscow -- said only that Goldman is building a capital markets and corporate acquisitions team.
The BP-TNK deal, together with the Yukos-Sibneft merger, has helped boost Russian acquisitions to a record $19.2 billion this year, almost twice the total of the two previous years combined, which may help to entice foreign investment banks to set up shop here.
Merrill says it may reopen in Moscow. Together with Alfa Bank, the firm is advising Unified Energy Systems on a plan to spin off some units and merge others.
UES, the world's largest electricity company by capacity, will need as much as $100 billion of investment in the next 10 years to modernize the infrastructure of the old Soviet monopoly, said David Geovanis, a UES board member and managing director of Base Element, owner of half of RusAl, the world's second-largest aluminum producer.
"The reform of the electricity sector in Russia will create a massive market for investment," UES CEO Anatoly Chubais said in an interview, adding that the plan may bring the industry "as much as $5 billion in investment per year for the renewal and building of a new generation of network capacity."
While many of its counterparts concentrate on the energy sectors, J.P. Morgan, which ranks second only to Citigroup by assets in the United States, is advising the government on the sale of Svyazinvest, the national telecoms holding.
The economy -- Europe's seventh-biggest -- is growing for a fifth straight year, helped by 45 consecutive monthly increases in consumer spending on products ranging from mobile phones to appliances.
Economic growth is forecast to reach 6 percent this year, in stark contrast to the 0.75 percent growth predicted for the European Union.
Further exemplifying Russia's rosy trajectory, Brent crude has risen to $27 per barrel from $12 the day of Russia's default, boosting profits for the world's No. 2 oil producer after Saudi Arabia.
The country has 17 billionaires up from eight in 2001, according to Forbes magazine. Only the United States, Germany and Japan have more.
Against this background, Russian companies have raised $5.6 billion in the capital markets so far this year, with almost all the money -- $5.3 billion -- coming from bonds and loans, Bloomberg data show. Companies sold $5.7 billion of bonds and stocks in all of 2002, more than double the $2.3 billion raised in 2001.
Bond sales this year reached an all-time high of $4.7 billion, following February's $1.75 billion sale of 10-year debt by Gazprom, the world's biggest gas producer.
Gazprom has hired Frankfurt-based Deutsche Bank and UBS to underwrite more bonds after Morgan Stanley and Dresdner Kleinwort Wasserstein helped sell $1.75 billion of 10-year bonds in February.
Gazprom paid $20 million in fees to these two firms for its February sale, or 1.125 percent of the value. Such a commission is significantly more hefty than most bond-sale fees, which typically average 0.75 percent to 1 percent of the value of the bonds.
In another boon for investment banks, the government may sell $2.5 billion in eurobonds by the end of next year, its first sale of foreign currency-denominated debt since 1998, Finance Minister Alexei Kudrin said last week.
Investors such as Mikhail Khodorkovsky, 40, Russia's richest man with a fortune estimated at $8 billion by Forbes magazine, are being wooed by international investment bankers. He has also hired British financier Lord Jacob Rothschild to advise him on charitable ventures as he works to polish his public image after messy entanglements with minority shareholders in the past.
Khodorkovsky, the biggest shareholder in Group Menatep, controls Yukos.
"Our relationship with Yukos is not just with the company, but with the shareholders -- with Khodorkovsky and Menatep," UBS's Kaufman said.
"The competition is increasing," said Irakly Mtibelishvili, Citigroup's 32-year-old head of investment banking in Russia. "We are going to see a lot more M&A deals in Russia -- foreigners investing in Russia, Russians investing outside of Russia, and Russia-to-Russia deals."
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