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This supplement is produced and published by Rossiyskaya Gazeta (Russia) and did not involve the news or editorial departments of The Wall Street Journal RTSI 1500 1400 1300 1200 1100

Jan

Feb

Mar

‘Sometimes the objectives of domestic policy can conflict with global objectives – this is where we are at the moment.’

‘ Politics is politics; business is

Neil MacKinnon, VTB Capital Global Macro Strategist

Denis Manturov, Minister of INdustry and trade

Dollar/Ruble

business. It is unlikely that [the situation in Ukraine] will affect volumes of investment.’

36 35 34

Mar 20

Jan 27

Distributed with The Wall Street Journal

Tensions between Russia and Europe and the U.S. have hit markets and caused Russian firms to take a hard look at their plans to list on stock exchanges in 2014

Politics & Business

No Love for Bitcoin

Central Bank of Russia reins in the virtual currency

lion, making it the best start to the year of all time, according to Dealogic, a data provider.

page 2

Restarting IPOs

Business & Politics

Indeed, the Russian IPO market appeared to reopen in 2013 with several significant companies listing stock. A total of $7.9 billion was raised via nine public offerings.

Those firms included state-controlled Alrosa, the world’s biggest diamond miner, which operates vast mines in Siberia. U.S. investors reportedly bought as much as 60% of the shares sold by the diamond miner.

VTB, Russia’s second-largest bank, raised over $3 billion in a secondary offering in May 2013.

Moscow-based lender Tinkoff Credit Systems was another big earner in 2013, pulling in just over $1 billion selling shares on the London Stock Exchange.

Those offerings had followed state-controlled Sberbank, the largest bank in Eastern Europe, listing a 7% stake in 2012.

David miller rBTH

Arctic, Offshore

Russia goes after harder-to-get energy reserves page 3

Special report

IPOs on Hold?

Plans are re-examined in light of the Ukraine crisis

Hopes for 2014

reuters

Russian markets took a dive after Russia intervened in Ukraine.

Russian firms had hoped to keep the ball rolling into 2014, with a focus on retailers as Russian consumers flex their rising spending power.

The Euromonitor Research group has predicted Russia will become the largest retail market in the world by 2018, according to Bloomberg.

Russian retailer Lenta, the country’s second-biggest supermarket chain, was first out of the gate in 2014, raising about $1 billion in February in a London listing.

getty images/fotobank

Privatization Left in The Lurch Massive sales of state-held assets are now in question pages 4-5

continued on PAGE 5

Feature

Chessboxing

Foreign policy The crisis in Ukraine has accelerated Moscow’s push to increase trade with Asia

Brains, meet brawn

Russia Turns East As Relations Sour With West

rbth

As relations with the U.S. and Western Europe sour over the conflict in Ukraine, Russian officials are turning eastward as officials talk of boosting cooperation with Asian economies and increasing investment in Eastern Siberia and the Far East.

“To avoid recession, we need longterm, strategic measures including increased trade and financial cooperation with China and Southeast Asia,” Russian daily Vedomosti quoted an unnamed Russian government official as saying.

In fact an attempt to deepen and expand economic and trade ties with Asia has been in the works for years, although the fallout over Ukraine and Crimea may provide a new impetus to speed up the existing policies, including ramping up energy exports to China and Pa-

page 8

reuters

Post-Olympic Sochi reuters

Anna Kuchma

Mar 10 Mar 20

in this issue

Can IPOs Survive Ukraine ?

Russia seeks to bolster ties to Asian economies, particularly China, as relationships with the United States and the European Union hit a postCold War low.

Feb 24

Saturday, April 5, 2014

Listings Russian retailers rethink their offerings while the government mulls privatization plans

Plans for Russian companies to list billions of dollars worth of shares on global exchanges have been thrown into question by the conflict over Ukraine.

Both state-owned and private companies are mulling plans to sell fresh equity to investors in 2014.

Russian Prime Minister Dmitry Medvedev said at the start of the year that the government hopes to raise more than $5 billion in 2014 selling stakes in state-held firms.

“We have rather serious plans to raise around 200 billion rubles ($5.5 billion) from privatizations this year and I hope the plans will be fulfilled,”Mr. Medvedev told a government meeting in February, only days before the crisis in Ukraine reached new heights.

Yet even before the dispute over Crimea began to impact Russian markets, Mr. Medvedev had sounded a note of caution.

“We should not drag it out,” he said. “But at the same time we should consider the economic circumstances in the world and in the country.”

Russian firms are still hoping to benefit from the global boom in initial public offerings even as relations with Europe and the U.S. — and the investment communities who reside there — have become deeply complicated.

Total IPO volume in Europe, Middle East and Africa hit a record in January as six deals raised $3.1 bil-

Feb 10

Moscow may see more of Wen Jiaboa as Russia focuses on Chinese trade

cific Rim countries. Russia has spent billions building the East Siberian-Pacific Ocean oil pipeline that now connects Russian crude fields to Asian energy consumers.

In March 2013, a strategy for reorienting Russian exports eastward continued on PAGE 6

Letter from the Publisher

After all the investment, can Sochi win over tourists? page 8

Jailbirds, artists and entertainers: The story of Moscow’s Alcatraz

Russia Beyond the Headlines Debuts New Logo, Unified Brand Eugene Abov RBTH

Dear Readers – This month your Russian Business Insight becomes Russia Beyond the Headlines as part of our strategy to create a single brand for our multilingual, multinational news organization.

Our new logo will be introduced this month in all our English-language products that already use the RBTH name as well as in Argentina, Belgium, France, Germany, Italy, Spain and Uruguay, where we will also debut the name Russia Beyond the Headlines. Previously, supplements and websites in these countries were published under a localized version of Russia Beyond the Headlines, translated into the local language.

After seven years, during which RBTH has expanded from three English-language supplements to 18 websites in 16 languages, and

26 print supplements in 23 countries, the time has come to unite our resources under a single brand.

The new logo for the project, this stylized“R” that will appear on all print supplements and websites, was designed by RBTH art director Andrei Shimarsky. It was a challenge to find an element that could be used in all products, regardless of language, especially considering that RBTH is published in languages ranging from Arabic to Japanese. However, it was important for us to create a single element that would identify each of our products as part of RBTH. Wherever we publish, wherever our audience is, whatever language they speak, our mission remains the same: to tell stories about Russia that fall outside the scope of the foreign press.

Our web address is also changing as part of this rebranding.You can now find us at rbth.com.

Additionally, the redesign of the print edition has involved a redesign of the masthead and a new editorial concept.

This new editorial concept will reflect our commitment not only to informing our readers about what is happening in Russia, but also to providing deep analysis of the political, social, cultural and economic life of the country, reflecting a wide range of views and showing another Russia, one that is hidden behind stereotypes.

As part of this new editorial concept, each issue of RBTH will have at its core a central theme that we will explore in depth. Some of the issues we will tackle in future months are Russia’s educational system, terrorism, and Russia’s demographic crisis.

We look forward to introducing you to this new format and, as always, we welcome your feedback.You can write to us at US@rbth.com or comment on Facebook at Facebook.com/ RussiaNow and on Twitter, @russiabeyond.

Eugene Abov, Publisher, Russia Beyond the Headlines

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Cryptocurrencies Russia is seeking to monitor and regulate bitcoin to prevent illegal transactions

• Russia’s richest man, Alisher Usmanov has sold his shares in Apple and Facebook and is focusing his foreign investments in China. Between 70 and 80% of the foreign investments by Mr. Usmanov’s asset management firm USM Advisors are now in China, according to USM head Ivan Sreshinsky, Bloomberg News reported.

• It has been estimated that Crimea will require $3-5 billion of investment to cover social benefits, the regional budget deficit and infrastructure expenses. According to Leonid Pilunsky, a deputy of the Supreme Council of Crimea, last year the region financed only 34% of its budget.

• The Central Bank of Russia continues to move ahead with regulation in the sector, revoking the licenses of three small banks in midMarch. Russky Zemelny Bank was accused of money laundering while S-Bank and Bank Stroikredit had failed to build the necessary reserves to cushion against “risky operations,” according to a statement from the central bank.

Central Bank Seeks To Rein In Bitcoin Earlier this year, Russia was reported to have become the latest country to ban bitcoin, but central bank officials say that its policy was misunderstood DAN POTOTSKY RBTH

ITAR-TASS

• Moscow fell to 73rd in recent rankings of global financial centers. The Global Financial Centers Index, a report compiled twice annually since 2007 by consulting company Z/Yen Group, rates the profile of 83 major financial centers on a scale of 0 to 1,000 based on questionnaires filled in by financial professionals. In the previous report, Moscow was ranked 69th.

• Russia will cut by half the salary required to obtain a highly qualified specialist’s visa in the IT sector in an attempt to jump-start the sector. Currently, a foreign national must show an income of 2 million rubles ($54,818) to qualify for the special visa. The new law will drop the amount to 1 million rubles ($27,285).

PHOTOXPRESS

• Tech holding company Mail.ru Group has boosted its stake in VKontakte to 52% following its purchase of Bullion Development Ltd., which owns 12% of the popular Russian social media site.

• A new commercial airport will be constructed in the Moscow suburbs on the site of the former Ramenskoye military airfield. It will be the city’s sixth. The airfield, which hosts the biennial Moscow Air Show, has the longest runway in Europe, at more than three miles. The airport is being developed to serve low-cost carriers and will have lower landing fees than the other Moscow airports.

The airport will continue to serve as a test site for new Russian air force jets.

• The UN Commission on the Limits of the Continental Shelf has unanimously upheld Russia’s application for rights to develop the continental shelf in the Sea of Okhotsk. The area, located off Russia’s Pacific coast between the Kamchatka Peninsula and the city of Vladivostok, is rich in minerals and natural resources.

• The “Arctic 30” are seeking damages from Russia for being unlawfully detained, as well as costs associated with defending their cases in Russia and bringing their case to the European Court of Human Rights. The group of Greenpeace activists and journalists was detained Sept. 18, 2013 after two members boarded a Russian oil platform in the Kara Sea. Their ship, the Arctic Sunrise, remains impounded in Murmansk.

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Russia is taking steps to monitor and regulate the use of bitcoin, the digital “cryptocurrency,” in order to limit the ability of criminals and terrorists to finance illegal behavior.

The Central Bank of Russia said in January that all transactions in bitcoin would be considered “suspicious,” in comments widely interpreted by analysts and other observers to mean that Russia was effectively banning the use of the currency. Officials later issued a clarifying statement to the effect that the use of bitcoin has in fact not been banned.

“The main goal [of the January meeting] was not an immediate ban on all operations related to cryptocurrencies; the main goal was to prepare and implement a set of measures to prevent the use of cryptocurrencies in illegal operations as well as to improve the regulatory framework to protect the rights of citizens and organizations using cryptocurrencies,” said the statement, which was signed by Igor Dmitriev, the director of monetary policy at the central bank.

The central bank is right to be cautious about bitcoin, said Maxim Petronevich, chief expert at Gazprombank’s Center for Economic Forecasting.“They’re trying to protect the financial system.

“The main complaint regarding bitcoin is that there is no backing from any central monetary authority, and they are underpinned only by user confidence that they can make purchases. However, the value is provided by the fact that it is very difficult to generate bitcoins.”

The ability to use the currency anonymously has already resulted in several scandals involving fraud and the sale of illegal goods on the Internet. Some economists even warn that bitcoin could be the next financial bubble.

On the other hand, bitcoin is an intriguing alternative to standard world currencies. Its low commis-

sion rate makes it very attractive to consumers. Many banks, including JP Morgan Chase, have expressed interest in using a variation of the bitcoin model for their own online payment systems.

Russia accounts for only a very small portion of global bitcoin turnover.

“In Russia, bitcoin is used more for savings rather than to pay for goods and services. Participants in the system who noted the potential growth rate of the virtual currency and invested in it are receiving a solid income today,” says Vladimir Ulyanov, research director at Zecurion.

DPA/VOSTOCK-PHOTO

02

Bitcoin is growing in Russia, despite warnings from the central bank.

Growth in Bitcoin Transactions Over Time

Who uses bitcoin?

Drivers for the Wheely car service began to accept bitcoin at the very end of January.

Marketing director Sergei Kalyuzhny says transactions totaled $1,000 (1-2 bitcoins) in the first week that the currency was used.

“To process these transactions, we use the services of American companies, which gives us the right to put ‘Pay by Bitcoin’ on our Web site,” says Mr. Kalyuzhny.

“We don’t have anonymous payments, so for now, until bitcoin is explicitly forbidden by the central bank, we see no reason to stop accepting the virtual currency.”

The Petrodvorets-based watchmaker Rocket uses a similar arrangement.“Initially, using bitcoin was an experiment for us. So far, 95% of virtual currency sales occur in the Western market,”says Jacques von Polje, the company’s manager and creative director.

A Russian bitcoin?

In October 2013, Russian programmer Alexander Borodich announced the creation of a Russian cryptocurrency, called wishcoin.

Borodich says a test batch of 5 million virtual wishcoins was “minted” in mid-October 2013 and circulated at a “symbolic exchange rate” of 20 wishcoins per ruble.

What will make the wishcoin stand out from other cryptocurrencies is that its code will not include the transaction history. With bitcoin, information about all previous transactions gets recorded in the code; as the number of trans-

actions (and the number of users) grows over time, increasingly greater processing capacities are required to handle the currency.

Mr. Borodich claims that his currency will be impossible to forge.

Wishcoin transactions will be supported by dedicated plastic cards and by phone applications.

“The trend persists, and the cryptocurrency market will continue to evolve,”an expert with USS Investments told RBTH.“There are currently around a dozen different cryptocurrencies in the world, and nothing stops Russia from getting one of its own. Such a currency, however, is unlikely to see any wide use outside the CIS countries. Consequently, it will pose no competition threat to bitcoin, nor will it affect the latter’s exchange rate.”

German Gref, head of Russian retail banking giant Sberbank, told journalists in December that his institution could theoretically launch a virtual currency similar to bitcoin in conjunction with the Yandex Money Internet payment system. Sberbank is currently considering this possibility.

Bitcoin Fights for Legitimacy Bitcoin, which was created in 2009, as open-source software, has faced an uphill battle in its fight to be accepted as legal tender.

Russia is far from alone in declaring the currency illegal. In China, financial institutions are prohibited from conducting virtual currency transactions.

Other countries are more accepting however.

In November 2013, the United States recognized bitcoin as legal tender and has begun the process of formulating tax guidelines for businesses that accept bitcoin.

In Germany, bitcoin is recognized as a unit of account, or “private money.”

Sales of bitcoin are subject to Value Added Tax and profits from operations with bitcoin are subject to income tax.

In Norway, virtual currency is a recognized stock exchange asset and subject to capital gains tax.

Investors Crackdown on payments to owners abroad could bring billions into the state treasury

Russia Targets Offshore Investors The Russian Finance Ministry will offer companies a choice: disclose their ultimate beneficiaries and maintain their zero tax rate, or pay tax at a higher rate KIRA EGOROVA RBTH

REUTERS

For each of you there is a Russia of your choice.

Under Russia’s current corporate tax structure, offshore beneficiaries of Russian companies are treated as de facto investors, and are eligible for tax relief on the sole strength of a tax residence certificate. However, the Russian Finance Ministry is submitting a new bill that, if passed, will force companies to disclose the identity of their investors in order to keep their taxfree status.

The aim of the initiative is to put an end to the long transit payment chains that make it difficult to track the actual owner of a company or its subsidiaries. Companies can choose to keep the beneficiaries a secret, but the cost of doing so is that the company will then be required to pay taxes at the same rate as a Russian company. “This is the principle we intend to introduce into our fiscal legislation,”said Russian Finance Minister Anton Siluanov, adding that taxation agreements with low-rax jurisdicitions would face extra scrutiny.

“Our objective as the Finance Ministry is to revise the current double taxation agreements with low-tax jurisdictions, which were signed several years ago,” Mr. Siluanov said. “We should establish

Shadow beneficiaries of Russian firms may have to come into the light.

IN FIGURES

0%

is how much offshore beneficiaries of Russian companies currently pay in Russian taxes.

20%

is how much of revenue from Russian exports is lost due to offshore beneficiaries, according to President Putin.

a preferential taxation regime with such low-tax jurisdictions, so that taxpayers would know that in order to be eligible for tax relief they have to declare their ultimate beneficiary to the tax authorities.”

Alexander Zakharov, a partner at Paragon Advice Group is keeping an eye on the legislation.“It is too early to discuss the effectiveness of the Finance Ministry’s proposal,”he said.“There is so far only a general understanding of what has to be done about tax evaders.”

The problem is that ultimate beneficiaries of Russian companies currently pay no taxes, according to Alexander Arshavsky, an associate professor in the stock market and

investment market department at the Higher School of Economics in Moscow. “The finance minister wants to restrict tax preferences to those companies that have the right to claim them. For example, a Russian company transfers money to a partner in Cyprus at a reduced tax rate. From there, the money is then transferred to a tax-free offshore area without any extra tax payments.”Such intricate payment schemes make it difficult to track the ultimate beneficiary, said Mr. Arshavsky.

Many of Russia’s double taxation agreements (including with Cyprus) do not allow middlemen to claim tax relief, but these measures do not work unless the ultimate beneficiary is known. This is why the Finance Ministry is moving to make investors disclose this information.This“deoffshorization” of the Russian economy is estimated to bring several billion dollars a year to the federal budget.

Mr. Arshavsky believes that the measures proposed by the Finance Ministry are part of a larger global trend in which more and more countries are introducing laws in line with the stringent financial regulations in place in the United States. Many of the world’s leading economies have already joined an Organization for Economic Cooperation and Development (OECD) strategy aimed at cracking down on tax evasion schemes and forcing businesses to disclose their ultimate beneficiaries.

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Oil As older fields in Western Siberia mature, Russia is reaching for reserves in more difficult places

Energy Firms Move to Tap Shale, Offshore Reserves Russia continues to set records in energy output. But bringing new fields online will get harder, just as oil and gas production from the U.S. ramps up

Russia’s proven oil and gas reserves as of the end of 2013.

03

News in brief • Russian search powerhouse Yandex has opened up another front in its war with Google.

The company has introduced a software package, Yandex.kit, for mobile phone manufacturers. Yandex.kit is remarkably similar to the Android operating system, on which it is based, with one major caveat – all the services usually provided by Google, such as browser, email and maps, are provided by the Yandex equivalent.

• The Ziferblat (Clockface) chain of cafés plans to open its first outlet in New York this year.

Chain founder Ivan Mitin is currently looking for space in Brooklyn’s Williamsburg neighborhood. Instead of charging for food and drinks, Ziferblat charges patrons based on the time they spend in the café. The New York venture will be the third Ziferblat abroad, following outlets in Kiev and London.

David Miller RBTH

Russian oil and gas companies are rushing to tap challenging new reserves in the Arctic and offshore in a bid to keep the country’s energy output churning at 2013’s record level.

Russia’s government has introduced tax incentives for oil firms to develop the country’s shale oil and gas deposits, which are the world’s largest according to some estimates.

The push to tap fresh deposits comes after decades of production in conventional oil fields in Russia’s traditional production base in Western Siberia.

Russia, the world’s biggest energy exporter in combined oil and gas, saw oil output hit a post-Soviet record of 10.5 million barrels a day in 2013, up 1.4% from 2012, according to statistics from the Russian Energy Ministry.

Yet the shale revolution in the United States is causing shockwaves throughout the energy world, including among top exporters like Russia and Saudi Arabia. New recovery techniques have unlocked vast quantities of energy in the U.S., raising output at a historic rate.

The increase in U.S. energy liquids output “has been nearly unparalleled in the history of world oil,” the New York-based energy consultancy PIRA said in a report.

“Only Saudi Arabia in 1970-1974 raised its production faster.”

PIRA has predicted that the U.S. will gain a widening lead over both Russia and Saudi Arabia in terms of total oil output until 2020, and maintain its lead past 2030.

Flattening output levels at home and increased competition from the U.S. have put pressure on Russian officials to unlock new reserves.

press photo

• The decision by a Moscow City Court to revoke the license of Russian information agency Rosbalt has been overturned by Russia’s Supreme Court. Natalya Cherkesova, head of the board of Rosbalt called the decision a sign to all independent media that it is possible to defend their position in the courts. “I really hope that the Supreme Court decision will be taken as a signal that the media should be treated legally, based on the interests of society, not officials,” Cherkesova said.

• Russian auto sales may drop as much as 6.5% in a worst-case scenario according to Alexei Rakhmanov, deputy minister of industry and trade.

Car sales have faltered in Russia as economic growth has slowed and the ruble has fallen against foreign currencies, pushing prices up.

80

in figures

10.5 mn

60

is how many barrels of oil Russia produced per day last year.

40

75 bn

20

90

0

Upstream Spending

Tapping more difficult reserves will require higher capital commitments, however.

Proven shale resources, by country as of the end of 2013 in billion barrels

Upstream spending by Russian and former-Soviet Union companies may rise by 11% in 2014 to about $60 billion, led by the oilfocused Russian majors Rosneft, Lukoil and Gazprom Neft, according to an industry report written

Flattening growth levels at home and increased competition from the U.S. have put pressure on Russia to unlock reserves. by analysts at Barclays.

“While all eyes will be on Rosneft and Exxon’s Arctic program, we note that there is an expected backlog of over 90 offshore Russian Arctic wells to be drilling by 2020. As a result, we expect meaningful exploration to move forward in the Russian Arctic regardless of this summer’s results due to the

• Russian officials warn that inflation may exceed targeted levels this year. The official government forecast inflation for 2014 was 4.5-5.5%. However Finance Minister Anton Siluanov said in late March that annual inflation may be 5-6% as a weaker ruble pushes up consumer prices.

barrels is the amount of Russia’s shale oil reserves, the largest in the world.

Arctic Shelf Reserves

Part of the solution, from the Russian perspective, is attracting U.S. expertise.

Russian oil major Rosneft has teamed up with U.S. partner ExxonMobil to tap offshore fields in Russian seas. The two firms are scheduled to begin drilling the first wells in the far-northern Kara Sea and in the Black Sea together this year.

Russian state-owned gas giant Gazprom also began producing oil from its offshore Arctic Prirazlomnoye field in December. Located in the far northern Pechora sea, 60 kilometers from dry land, the project employs an ice-resistant, superreinforced stationary platform weighing 506,000 tons. It is the first such stationary platform to ever be used on the Arctic Shelf.

“We have pioneered the Russian Arctic Shelf development,” Gazprom CEO Alexey Miller said.

• U.S. financial officials have contacted investment funds with Russian assets and advised them to inform clients about potential risk associated with the crisis in Ukraine. White House Spokesman Jay Carney has also advised against investing in Russian stocks exposed to potential risk from U.S. and EU sanctions.

strategic nature of the reserves for Russia,” the Barclays analysts wrote.“Investments associated with developing the Russian Arctic have been estimated to be up to $100 billion over the life of the projects.”

Big Shale

While the shale revolution started in the U.S., it may soon spread to Russia.

Russia has the largest shale oil reserves in the world at about 75 billion barrels of technically recoverable reserves, according to the U.S. Energy Information Administration.

So far much of the attention has been focused in the super-massive Bazhenov formation, which spreads across some 570 million acres in Western Siberia.

Exxon and Rosneft are working together in Bazhenov, too.

“We are not only looking at new geographical regions of operation

is the expected backlog of wells to be drilled in the Russian Arctic by 2020. reuters

but are also studying the potential of difficult-to-produce reserves in traditional oil-producing regions,” Rosneft CEO Igor Sechin said in a statement, referring to the company’s partnership with Exxon.

London-based oil major BP predicted in January that while the U.S. will continue to lead in shale oil production, shale development will advance significantly in both Russia and Latin America over the next two decades.

“While the government is eager to boost shale production, questions remain as to if the recent tax moves will be enough to boost activity as there are still concerns around infrastructure and equipment, expertise, and a lack of midsized independents,”Barclays said.

“However, considering the strategic importance of shale in Russia… we think further concessions will be made to entice additional investment,” the analysts wrote.

• Russian potash major Uralkali is seeking to make up with Belarus following last year’s “potash war” which resulted in a change of majority shareholders in Uralkali. Negotiations to form a new joint potash trader representing both Uralkali and Belarus’s Belaruskali are scheduled to begin next month, according to Russian daily Kommersant.

• Taxes will not increase in Russia over the next three years nor will planned budget expenditures be reduced, according to Russian Finance Minister Anton Siluanov. Speaking at the Russian Union of Industrialists and Entrepreneurs on March 20, SIluanov said that the government would adhere to the established budget through 2018 despite a decrease in tax revenue.

• The Russian Football Union is looking for $6.9 billion in investment through 2020 to develop the sport at the grass-roots level. About 80% of the figure is required for the construction of new playing fields. Russia already plans to spend $19 billion on preparations for the 2018 FIFA World Cup.

Energy More Russian oil and gas will be headed to Asia under new investment plans

Looking for a Light in the East In order to tap into growing markets in the Asia-Pacific region, particularly China, Russia’s oil major Rosneft is expanding production in Eastern Siberia Kira Egorova RBTH

Russia’s state-owned energy giant Rosneft has announced plans for additional investment in eastern Siberia’s oil fields, with the intention of increasing exports to Asia.

Sviatoslav Slavinsky, Rosneft vice president for economics and finance, said that the company will invest 3 trillion rubles ($83 billion) in developing a cluster of oil fields in the Krasnoyarsk Territory.

Slavinsky estimates that the investment will create 15,000 high-skilled jobs and generate about 8 trillion rubles ($220 billion) in revenue for the state treasury. He added that annual oil production at the Vankor cluster alone could reach 55 million tons by 2025. Current pro-

duction levels at the Vankor field are 21.4 million tons of oil and 6.55 billion cubic meters of natural gas.

Developing theVankor cluster is part of the oil giant’s strategic plans to ramp up production in eastern Siberia. Oil from this region is destined mainly for exports to Mongolia and the Asia Pacific region.

Russian oil companies have been eyeing the Asian markets with growing interest in recent years.

“Right now, Europe remains our key export customer,” said Andrei Neshchadin, a professor at the Institute of Experts at the Russian Union of Industrialists and Entrepreneurs.“But large investment in the Vankor cluster, where production will be destined almost solely for exports to China, will stimulate Asian exports.”

Rosneft is Russia’s largest exporter of crude to the Asian markets. In 2011, it began delivering 15 million tons of crude every year to the Chinese National Petroleum

Company via the Skovorodino spur of the Eastern Siberia-Pacific Ocean (ESPO) pipeline. By 2030, Rosneft will have exported 300 million tons via that route. A year ago, in March 2013, Rosneft and CNPC signed an agreement for an additional 365 million tons of oil to be supplied over the next 25 years.

The increase in Russian oil exports to Asia will come at the expense of exports to Europe.

“Prices in Southeast Asia are much higher than in Europe or the United States,”said Anatoly Dmitrievsky, head of the Oil and Gas Studies Institute at the Russian Academy of Sciences, explaining the change in policy. “This is due to the rapidly growing demand in such developing economies as India and China. These are fast-growing economies, where growth generates more demand for oil. It is therefore only natural for the Russian oil industry to show such great interest in the Asian markets.”

Neshchadin said that in light of China’s rapid economic growth, even the most conservative estimates indicate that the country will need to increase its energy imports from Russia in the long term. Additionally, the growth of shale production in the U.S. will likely cause a drop in demand for Russian oil in the West.

Exports to Europe Are Already Falling According to CDU TEK, a data information center about the Russian energy sector, Russian oil exports to non-CIS countries fell by 2.2% in 2013 to 206.9 million tons. Exports to Europe fell 6% to 170 million tons while at the same time, exports to Asia – primarily China – were up 15.6% to 37.1 million tons.

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what THE Data says

IPOs and privatization

What Are Russian Firms Offering?

This was supposed to be the year that Russian IPOs

The mainstay of Russia’s economy is the production of raw materials. Most IPOs by Russian companies since 2005 have been by firms operating in fields like energy, metals and mining, and related industries. Yet retailers are closing the gap.

Retailers hold out hope for 2014 Russian retailers still hope 2014 will mark their turn in the spotlight of international finance, but tensions over Ukraine cloud the picture Sam Skove

Special to RBTH

As Russia’s retail market grows, an increasing number of firms targeting Russian consumers have tapped capital markets to finance growth. The retail and consumer goods sector was expected to be the star of the 2014 offerings calendar, but tensions over Ukraine have raised questions about issuers’ viability on international markets.

Russian companies prefer to list in London. Some 55% of Russian IPOs since 2005 have been issued on the London Stock Exchange. Russian officials have been trying to promote the Moscow Exchange (formed in 2011 with the merger of the MICEX and RTS exchanges) as an attractive outlet for Russian firms as part of the drive to make Moscow an international financial center.

in figures

65%

is how much shares in Russian grocer Magnit grew in 2013. The firm, which listed on the London Stock Exchange in 2006 and issued an SPO in 2009, is the success story other retail firms like Lenta hoped to follow.

25%

is how much Detsky Mir, Russia’s most famous retailer, planned to offer in a mid-March IPO for an expected $500 million. The issue has been postponed, but the firm still hopes to grow its broad domestic consumer base.

Russian retailers looked set to lead the charge into equity capital markets in 2014 after Lenta, the country’s second-largest hypermarket retailer, sold almost $1 billion worth of shares in London and peers readied plans to follow suit.

That was before Ukraine.

Once the crisis erupted, Lenta’s shares took a hit and Russian firms started to wonder if 2014 would really be their year after all.

Although Russian economic growth has flagged and the country’s central bank has sought to tamp down inflation at the expense of economic growth, many observers have looked to retail as a bright spot in the economy.

Russia is set to become the ninthbiggest retail market in the world in real terms by the year 2020, the Euromonitor research group has predicted. Russia has already emerged as Europe’s largest retail market in several categories, from cars to cell phones to baby care products.

The year 2012“was a record year for new store launches with more than 3,000 new retail spaces of Russian grocery chains coming into operation,”the Euromonitor research group wrote.

With all that momentum, Russian retailers had been looking to list shares and use the proceeds to fund further expansion.

As the year began, expectations ran high for three main players: Lenta, Detsky Mir (the country’s largest children’s retailer) and the Russian division of Germany’s Metro AG. Of those, only Lenta managed to hit the market before the Crimea crisis erupted. The other two are now watching the market and waiting for their moment.

Lenta gets away

Lenta’s 77 hypermarkets cater to the sparsely populated regions outside Moscow while its 21 supermarkets operate primarily in the densely packed and pricey Moscow region. Lenta, one of Russia’s

fastest growing retail chains, had been valued between $4.09 billion and $4.95 billion based on evaluations between $9.5 and $11.5 per global depositary receipt.

Hypermarkets, a combination of department store and supermarket familiar to U.S. shoppers in the form of Walmart and Target, have been a success in the Russian regions due to low competition and cheap goods bought through its rewards program. Loyalty cards are used in 90% of all purchases at Lenta, with 4.8 million active card users.

The company’s Feb. 28 listing on the London Stock Exchange, however, came a day after armed men seized control of the Ukrainian region of Crimea, sparking an international crisis between Russia, Europe and the U.S. Lenta shares, which debuted at $10, dipped to $9.85 at the close of their first day, as doubts rose about the ability of future Russian retailers to follow suit in the near term.

company said in a statement. “In light of the recent political developments, this is currently not the case.”

Children’s World

In mid-March, Detsky Mir also postponed IPO plans indefinitely, Bloomberg News reported, citing unnamed people familiar with the matter.

The company has been considered a strong IPO prospect as the largest children goods retailer in Russia. In 2013 Detsky Mir’s revenue grew 28% to $1.13 billion.

The company, whose name translates into English as “Children’s World,”applied in February for permission to list outside of Russia.

However, even if the listings are postponed, Russian retailers can be comforted by falling back on their core business in Russia.

“We expect consumers to become more price sensitive and therefore

The Russian unit of Germany’s Metro AG, the fifth-biggest global retailer, planned to follow in Lenta’s footsteps. In January, the company announced it would list a share of its Russian Cash & Carry business in the first half of 2014 on the London Stock Exchange.

“We are convinced that this IPO will be an important step both for the business in Russia as well as for the Metro Group overall,”Franz Markus Haniel, Chairman of the Supervisory Board of Metro AG, said in a statement posted on the company’s Web site in January, before the Ukraine crisis worsened.

“A stock market listing is expected to give the Russian Cash & Carry business further opportunity to realize its growth potential.”

Metro’s Russian business has been robust, with 72 stores bringing in $5.09 billion in sales in 2013.

Money raised in the IPO would have gone towards expansion and to pay off debt.

By late March, the IPO was officially on ice.

“We continue to pursue our plans for an IPO of Metro Cash & Carry Russia, but as always stressed this would require appropriate conditions in the capital markets,” the

migrate to lower-end stores,” says Elizaveta Lebedeva, a consumer goods analysts at Moscow brokerage Aton.

“Food retailers have a rather low level of imports, and large food chains are able to buy goods directly abroad, bypassing the importers,” Ms. Lebedeva notes.

Magnit: A Russian Retail Trailblazer

Russian Metro

getty images/fotobank

interest in Initial public offerings by russian firms has been increasing in recent years across all sectors.

reclaimed the spotlight. What does the future hold?

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04

As Russian retailers gear up for IPOs, local grocer Magnit seems to be the example they aim to follow. Magnit, Russia’s largest grocery retailer, went public in 2006 and engineered a successful secondary offering in 2009.

By 2012, its total value on the London Stock Exchange exceeded $21 billion, with shares rising 65% in 2013 alone.

In January, Magnit CEO and principal shareholder Sergei Galitsky told investors that he expects sales revenue to grow 22%-24% this year, after net profit rose 38% to $1.1 billion, according to Interfax.

“We want to be a secure investment, a little bit like a bond,” Mr. Galitsky, who together with management owns 50% of Magnit, told the Reuters news agency in September.

The company’s motto, “Always Low Prices,” exemplifies its success in luring thrifty provincial Russian consumers away from more traditional open air markets, with almost two-thirds of stores located in towns with populations lower than 500,000.

Its high-tech automated ordering system and expansive logistic network of over 5,000 vehicles has also kept costs low in a business where margins are of the utmost importance.

Founded in 1994 in the southern grain town of Krasnodar, Magnit began as a wholesale chemical distributor before expanding into food retail in 1998.

Company founder Mr. Galitsky has long been seen as an owner focused on the long-term, involved in the details of the business and responsive to investors’ concerns.

In 2012 he was named best corporate manager by the Investor Protection Association, an international body focused on bringing better corporate governance to Russia. Mr. Galitsky, whose personal wealth is estimated at $10.3 billion, has also won praise for his work as a major supporter and president of FC Krasnodar, a major player in Russian soccer.

IPOs Russian economic policymakers, reeling from the crisis in Ukraine, are mulling privatization plans

Privatization: Speed Bump or Stop Sign?

Russia still hopes to rev up its privatization drive this year, but analysts say tensions with Western countries over Ukraine might kick the can farther down the road David Miller and Kira Egorova

© ria novosti

RBTH

When asked by a young journalist what would be most likely to blow his government off course, former British Prime Minister Harold Macmillan famously replied:“Events, dear boy, events.”

Or so the story goes. True or not, the phrase should have been resounding in the ears of Russia’s top economic policymakers as they watched the Crimean crisis bubble over and reviewed their plans to kick-start Russia’s privatization drive in 2014.

Russian officials have long been planning to transfer tens of billions of dollars of state assets into private hands, and as recently as last winter, hopes had been running high that 2014 would be a banner year for privatization sales.

“I think that privatization sales or IPOs of Russian state companies will be postponed at least until the end of the third quarter of 2014,” says Pavel Vasiliadi, Director of the Analytics and Risk Management Department at the UFS Investment Company in Moscow. “Because of events

Russian state telecom holding Rostelecom was supposed to go on sale this year.

in Ukraine, we’ll probably see fewer privatization deals this year than in 2013, when there were 156.”

No less than Prime Minister Dmitry Medvedev announced that the state hoped to sell over $5 billion worth of assets before the year was out, with much more to come in 2015 and 2016.

“The purpose of privatization should not be to raise money but to create market competition in sectors formerly owned by government,”says

Maksim Shein, head of the Investment Department at BKS Financial Group. “This is much more important. A bad market is not a convincing argument for postponing this step.

Privatization can contribute to improving the investment climate.”

Others said while Medvedev’s ambitious goal might not be achieved, it at least underscored the seriousness of the state plans.

“The goal to raise $5.5 billion dollars in privatizations would be prob-

lematic even without the events in Ukraine,” says Yuriy Simachev, deputy director of the interdepartmental Analytical Center in Moscow. But an inability to raise top dollar on the sales “shouldn’t become a hindrance to action under current market conditions.”

On paper, the current privatization plan sets lofty goals. The government expects that, by 2016, it will complete the process of exiting non-oil sector companies that are not related to resource monopolies and the defense industry.

The Russian government currently owns stakes in over 2,300 companies.

Of those, about 1,200 are entirely under government control. The rest have some private ownership already.

Mr. Ulyukayev also said the Central Bank of Russia might sell its stake in the Moscow Stock Exchange, and told a government meeting in January that the state could carry out a sale of 5% of Russian Railways, according to Interfax.

State alcoholic beverage company Rosspirtprom — which, yes, makes vodka — is set to be fully privatized by the end of 2016, according to the government’s plan.

Other assets to be sold include shares in Rusnano, the multi-billion dollar nanotechnology fund set up by the government to help stimulate the high-tech sector. Additional shares are also to be listed in Aeroflot, Russia’s largest airline and the legacy firm of the Soviet national carrier.

Assets on the block

Oil for sale

Among assets tagged for sale in 2014, Russian Economy Minister Alexei Ulyukayev has pointed to Sovkomflot, Russia’s largest maritime shipping company, which specializes in transporting oil and liquefied natural gas.

One of the biggest sales of the year might be in the telecoms sector. Russia might raise 150 billion rubles from selling a stake in Rostelecom, the country’s leading fixed line provider, said Olga Dergunova, head of the State Property Agency.

The state is eventually planning to widen investor access to the crown jewel of Russia’s oil industry, Rosneft.

Rosneft has emerged during the post-Soviet era from being a minor player to become the world’s biggest oil producer, responsible for four out of every 10 barrels of crude that Russia produces. Rosneft already accomplished a colossal $10.4 billion IPO in 2006.

This article is based in part on materials from Kommersant Dengi.

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Can Russian IPOs Survive Ukraine? continued from PAGE 1

Other big retailers are now eyeing the market carefully. Among those with plans to sell shares include the Russian Cash & Carry unit of German retailer Metro AG, as well as Detsky Mir, Russia’s biggest children’s retailer.

Share prices hit

Indexes on all segments of the Moscow Exchange have taken a beating in recent weeks, but investors remain hopeful.

Russian Technology Firms Seek Center Stage in Capital Markets analysts, according to Reuters. No immediate timeframe has been given by the company for listing shares domestically.

Rusnano

reuters

Search giant Yandex has had a successful run on the NASDAQ exchange since listing there in 2011.

Russian technology firms are playing an increasing role in the economy, making them an important new source of equity as more Russians take to the Web

Connections between players in the Runet

David miller rbth

While the lion’s share of Russian equity offerings over the years has come from firms involved in natural resources, Russian tech companies are demanding an ever-growing share of the limelight.

Despite Russia’s recent slowdown in economic expansion, Internet firms have stood out as a bright spot with above-average growth.

For example, takeYandex, which currently claims over 60% of the rapidly-expanding Russian search engine market compared with Google’s 26%.

Yandex, which trades on the Nasdaq stock exchange, pulled in $1.3 billion from investors in 2011 in the biggest IPO for a dotcom since Google listed in 2004.

Web advertising in Russia has been rising at a rate of over 30% per year, according to analyst estimates. The total size of Russia’s Internet market is likely to increase at an average of 15-20% per year through 2018, according to a study conducted by the Russian Association for Electronic Communications and the Higher School of Economics.

Russia’s telecommunications infrastructure is developing fast as an increasing number of Russians take to the Web. Meanwhile, Russian social networking sites like Vkontakte and Odnoklassniki are so well established in their home market they present Facebook with a serious challenge.

All this means Russian tech firms have been evolving into a rich source of fresh equity for capital markets in recent years, and are gearing up to sell more.

One of the most unique Russian tech firms scheduled to sell shares to the public within the next few years is Rusnano, the state-owned fund originally set up to help develop Russia’s high-tech sector.

Part of the firm’s mandate is to invest in tech startups in Russia and abroad. The company’s name derives from its focus on nanotechnology.

As of late 2013, the company had invested a total of about $5.6 billion into 100 ventures world-wide, in sectors including life sciences, microelectronics, clean technology, energy efficiency and advanced materials.

That figure includes about $3.3 billion invested inside Russia, and hundreds of millions in the U.S., U.K., China, Israel, Italy, and elsewhere. Seed money from Rusnano has been paired with agreements by the target companies to establish manufacturing or research operations in Russia.

In December, Rusnano said it would divide up its corporate structure into ownership and management bodies. As much as 20% of the management company may be sold to private investors by the end of 2014, and as much as 49% in 2015, according to a statement on the firm’s Web site.

Online payments

Two of Russia’s biggest Internet firms, now traded only abroad, are considering listing shares domestically for the first time: search giant Yandex and the sprawling Web company, Mail.ru.

Mail.ru began in 1998 as an email service — hence the name — but later evolved into a massive player in the Russian-language Internet.

Two of Russia’s biggest Internet firms, traded only abroad, are considering listing shares domestically for the first time.

According to comScore, the American Internet analytics company, sites owned by Mail.ru collectively had the largest single audience in Russia in 2013, reaching 85% of Russian Internet users on a daily basis.

Mail.ru also owns a significant stake in Facebook, 15% of Russian digital payment provider Qiwi and

40% of the Russian social network, Vkontakte.

In February the board of Mail. ru approved a plan to list shares in Russia, after the company reported that net profit jumped 36% in 2013 to 11.5 billion rubles.

Mail.ru originally raised about $900 million during its IPO in November 2010 on the London Stock Exchange.

Russian search provider Yandex said in February that full-year 2013 revenue had risen 37% to $1.2 billion, while adjusted net income rose 38% to $371 million.

Yandex also successfully placed $600 million of convertible bonds at 1.125% in December.

In 2013,Yandex overtook Microsoft’s Bing to become the world’s fourth most popular search engine, after Google, China’s Baidu and Yahoo, according to figures from comScore.

“Our board is generally supportive of a [Moscow] listing,” Greg Abovsky, Yandex’s vice president of investor relations, said in February during a conference call for

Among the most notable Russian IPOs last year were payment services provider Qiwi and software producer Luxoft.

Qiwi operates a network of terminals, kiosks and“digital wallets” across the country.

After debuting on the Nasdaq stock exchange in May 2013, Qiwi’s stock price more than tripled from $17 per American Depositary Receipt to as much as $59.24 last winter amid “buy” ratings by analysts and an expanding market for the company’s business.

Yet the shares took a hit when the Russian parliament introduced a draft bill limiting the amount individuals can transfer online without providing personal information to 1,000 rubles (about $30).

After retreating to the mid-$30s range, the stock recovered much of its lost territory, only to be sent back down to the same level in early March following the eruption of the Ukraine crisis.

Russian software producer Luxoft went public in June 2013 on the New York Stock Exchange, after being established in 2000. Created to focus on the growing market for offshore software services in the U.S. and Europe, the company has since grown to 5,900 employees in 18 countries with clients ranging from Boeing to Goldman Sachs to IBM and Avaya.

The conflict over Ukraine hit the share prices of Russian companies listed in Moscow, London and New York, and helped push the ruble down to record lows.

Yet a broad slump in emerging markets and sluggish economic growth had been weighing on Russian equity prices even before the crisis over Ukraine. Indeed, some investors had been arguing that low equity valuations in emerging markets were at a point where they were becoming attractive to investors searching for a bargain.

“If you look at the balance of trade that our clients are doing, they’re buying,”Gary Dugan, the chief investment officer in Asia and the Middle East for Coutts & Co., the wealth management group for Royal Bank of Scotland, had told Bloomberg News in February, shortly before the crisis erupted. “There’s been an appetite for Asia and for Russia after the selloff.”

Last year, Russia’s dollar-denominated RTS index dropped 5.6% year-on-year, mainly due to the impact of a weakening ruble, which lost 10.4% against the Central Bank of Rus-

A broad slump in emerging markets and sluggish economic growth had been weighing on Russian equity prices even before the crisis over Ukraine. sia’s basket of currencies, according to Chris Weafer, the CEO of Macro Advisory.

Russian shares were trading at a 25% discount to their emerging market peers as of the end of 2013.

As the year began, Russian stocks had the cheapest valuations among 21 emerging-market economies monitored by Bloomberg. Shares on the benchmark were trading at 4.5 times projected 12-month earnings compared to a multiple of 10.4 for the wider benchmark MSCI Emerging Markets Index.

Russian capital outflows have jumped 60% from last year following the Ukraine crisis, according to calculations by Goldman Sachs analysts, Reuters reported in mid-March. Goldman predicted total capital outflows would be $130 billion by the end of 2014.

Viewpoint

Political Instability Affecting Russia’s Investment Climate Ben Aris

Special to Rbth

The incursion into the Crimea was as much a shock to Russia’s business leaders as it was to the politicians in Brussels and Washington and is bound to hurt both domestic and foreign investment this year.

Increasing investment has become crucial to lifting Russia’s economic growth. Growth had been propped up by retail spending, but as 2013 came to an end, even this engine was starting to splutter, which makes investment even more important.

Russia attracted a whopping $94 billion of foreign direct investment (FDI) in 2013, making Russia the third largest recipient of FDI in the world according to a February ranking by the United Nations Conference on Trade and Development (UNCTAD), although a big chunk of that was part of the deal between British Petroleum and state-owned oil major Rosneft to acquire the Russian oil joint venture TNK-BP. FDI would have probably slowed considerably this year if the one-off of the TNK-BP deal is counted out, but now analysts are expecting it to fall even harder. As of the middle of March, several big deals near to closing were already looking shaky.

Swedish car producer Volvo said in March it was taking a second look at a proposed partnership with Russian state-owned railway equipment and tank maker Uralvagonzavod (UVZ) worth about $100 million to make modern armored cars, thanks to the situation in Ukraine.

“A significant decline in FDI – which brings not only money but also modern technology and managerial skills – would hit Russia’s longterm economic growth hard. And denying Russian banks and firms access to the U.S. (and possibly European) banking system – the harshest sanction applied to Iran – would have a devastating impact,”said economist Sergei Guriev.

Domestic fixed investment into the Russian economy has been hit, and IPOs will also be hurt. Last year a window of opportunity opened briefly and Russia saw several IPOs get away.

But now the IPO plans of several large companies are in doubt, and the timing for Russia’s economy is grim indeed.

Ben Aris is the editor-in-chief of Business New Europe.

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Money & Markets

Viewpoint

Exchange rates Russia’s currency reaches historic lows against the dollar and the euro

Ilya Balakirev

Special to RBTH

espite high oil prices, the market assessment of Russian oil companies is at an unprecedented low. Russian oil firms’ median price-to-equity ratio (a measure of value) for 2013 was a ridiculous 4.1. Their valuation according to another common metric (the EV/EBITDA ratio) for 2013 was 2.8. For their foreign counterparts, these figures are 2-3 times higher. How much this assessment may be justified is a question that still concerns investors.

The discount clearly has some substantive grounds. These include political risks, a higher tax burden, the depletion of the resource base, high capital intensity, a reluctance to share profits and non-transparent spending habits.

According to our estimates, depending on the specific companies, the current discount is about 50-70% due to fundamental factors – primarily lower dividends, non-transparent investment and tax risks.

The remaining discount is due to political factors and biases on behalf of the investment community, and could be offset in the medium term. As a result, in our opinion, Russian companies are currently undervalued on average 25-30%.

The tax burden on Russian oil companies really is one of the highest in the world. However, this difference is fully accounted for in the P/E multiplier, and the EV/EBITDA multiplier can be adjusted only for taxes on profits, which in Russia are not actually that high. Therefore, if taxes are the problem, then the discount must be due to fears of a further increase in the tax burden. However, in our opinion this is rather unlikely.

The market still believes Russian companies have a depleted resource base and high capital intensity, which is partly justified. But in recent years the situation has improved. Most public companies demonstrate positive production dynamics no worse than their foreign competitors. The peak of the investment cycle for the majority of Russian companies will be over in the next 2-3 years, after which the investment will be reduced significantly.

Nevertheless, in our opinion, spending levels are an important factor, especially in state-owned companies, where capital spending transparency is poor and companies often behave as if they have a goal of utilizing their entire free cash flow.

But many of the companies in the sector continue to maintain steady positive cash flow. Dividend payments at Russian companies are not tied to cash flow and do not formally depend on the amount of their capital expenditure.

Low dividend payouts are an important and obvious factor. Most Russian companies pay dividends regularly, remitting 15-30% of net income to shareholders. This is significantly less than companies from developed countries pay (on average 40-70%).

The difference in the dividend policy can therefore account for a significant difference in the multipliers to similar companies from developed countries.

However, many companies are increasing payments, including state companies. Therefore the discount should be reduced in the future.

The Western investor has a false stereotype that foreign companies will benefit more from the development of new fields in Russia than Russian firms.

At the moment, this view cannot be said to have been confirmed. All major joint projects in new fields are still being developed according to the following principle: the Russian company brings a license into the joint venture and gets a controlling share.

The foreign partner contributes money and technology, and often a share of their other projects in return. Therefore, despite the possibly lower tax burden, in fact the foreign companies bear the main financial costs and the key risks associated with the project in its initial phase. Any such partnership is therefore a value-adding default for Russian companies, while the economics of these projects for foreign firms is not always obvious.

Ilya Balakirev is a chief analyst at UFS Investment Company in Moscow.

Ruble Takes a Beating The ruble was struggling against major Western currencies even before the crisis in Ukraine. But while not so good for consumers, the slide will boost state coffers David miller and kira egorova rbth

Russia’s national currency has been pounded by the crisis in Ukraine, suffering its worst one-day decline in years in early March, even after it had already slipped to historic lows on the back of limp economic growth.

Roughly a year ago, at the start of 2013, the ruble traded at around 30 to the dollar. As of mid-March this year, the currency had slid closer to 37 rubles to the dollar.

Analysts said the currency may be stabilizing at current levels, after moves by the Russian central bank to shore up the ruble in March.

“The Сentral Bank of Russia is likely to be able to stop the ruble from falling further,” said Maksim Shein, head of the investment department at BKS Financial Group, though he added that panic-selling might push the currency lower in the near-term.

Unlike the ruble devaluation of 1998, when Russian oil companies booked large ruble profits by selling crude in dollars, new tax rules mean the state will collect much of the surplus oil profits this time.

Domestic firms that target the Russian shopper may also get a boost as their products become cheaper relative to imports.

“What happened to the ruble’s exchange rate at the start of the year was primarily connected with Russia’s macroeconomic parameters,” Russian Finance Minister Anton Siluanov told reporters after the G20 finance ministers and central bank governors’ meeting in Sydney, Australia, before the conflict with Ukraine erupted.

Russians are getting fewer dollars for their rubles at these exchange offices in Moscow.

Mr. Siluanov said that before the Ukraine crisis erupted, the issue was, primarily,“a slowdown in economic growth.”

The ruble is only partly freefloating. The currency is allowed

Many in the country fear a devaluation of the ruble will eat away at their savings and lead to price hikes on popular goods. to trade within a range against a dollar-euro basket set by the Central Bank of Russia. Russian policymakers aim to allow the ruble to float freely by 2015.

Russia’s central bank has taken unprecedented measures since the onset of the crisis in Ukraine, raising interest rates and spending over

$11 billion to support the ruble.

Yet a weakening currency could in fact be a boon for state coffers.

A lower ruble could boost Russia’s federal income by $28 billion this year, pushing the treasury into surplus, according to a report published by Moscow’s Higher School of Economics.

While pushing up prices for imports, the sliding currency is expected to ease pressure on a government that has had to contend with the prospect of spending cutbacks in coming years amid stagnant growth.

“The ongoing devaluation has greatly eased the position of the federal budget,” the report said.

“Unlike previous years, in January of this year we have seen a large surplus.”

A devaluation of the ruble lowers expenditure on domestic spend-

ing, such as pensions, in comparison to tax revenues generated from commodities priced on the world market, such as oil.

January’s federal budget saw a surplus of $13.1 billion, compared to a deficit of $2.3 billion in January last year, according to the Finance Ministry’s preliminary data.

Mr. Siluanov himself said the state budget might indeed move into surplus territory this year. The government posted a deficit of $9.2 billion in 2013.

However, many in the country fear a deterioration of the ruble will eat away at their savings and lead to price hikes. Mr. Siluanov has pledged the government will not seek to balance the budget by intentionally depreciating the ruble.

This article is based in part on materials from RIA Novosti.

Policy Russia’s central bank chief works to calm the markets amid the crisis in Ukraine

Central Bank Chief Fights To Defend Ruble Russia’s central bank moved to stabilize the ruble and calm market jitters as the crisis in Ukraine unfolded, in a test for relatively new bank chief Elvira Nabiullina

After Russia’s currency faced its single biggest one-day drop in years after the Ukraine crisis escalated in early March, the bank immediately switched to setting the parameters of exchange rate policy for the ruble daily, and increased the key one-week auction rate by 1.5 percentage points to 7%.

The new foreign exchange policy “was adopted to prevent the risks for financial stability by limiting the ruble exchange rate fluctuations,” the bank’s press service said in a statement. Hiking the interest rate was “aimed at preventing the risks for inflation and financial stability arising from the recent increase in financial market volatility.”

David Miller and Kira Egorova rbth

The Central Bank of Russia swung into overdrive in March, adjusting foreign exchange policy, hiking interest rates and spending over $11 billion to support the ruble in a bid to stop the currency’s fall.

Observers called the events a test for central bank chief, Elvira Nabiullina, who has been in the job for less than a year.

“In our view the [Russian central bank] very effectively responded to the panic tensions on the FXmarket stemming from uncertainty in Ukraine,”says Maria Pomelnikova, macroanalyst at Raiffeisenbank.

Stopping the panic

“At the outset of the Ukraine crisis, the central bank did what it had to do: it stopped the panic,”

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Russian Oil: Are Low Share Prices Justified by the Fundamentals?

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Elvira Nabiullina became head of Russia’s central bank in June 2013.

says Maksim Shein, head of the Investment Department at BKS Financial Group.

“If the need arises, the central bank may raise borrowing rates for banks,” Mr. Shein adds. “In other words, it could give less money to the banks so that they did not go onto foreign exchange markets.”

Bank officials don’t foresee lowering interest rates in the near future, the bank said in a statement on its Web site on March 14.

“The Bank of Russia’s priority is to contain the effect of exchange rate dynamics on inflation and to maintain financial stability,” the statement said. “Hence, the Bank of Russia does not intend to lower the key rate in the coming months.”

The ruble is allowed to trade

within a range against a dollareuro basket set by the central bank.

Russian policymakers plan to gradually allow the currency to float freely, with full implementation by 2015.

Inflation vs. growth

Under Ms. Nabiullina, the bank has focused on fighting inflation, although pressure has been mounting for a change in strategy towards a policy more supportive of economic growth.

The central bank has said Russian GDP growth in 2014 might be in the range of 1.5% to 1.8%.

Russian PresidentVladimir Putin himself has called on his top officials to look for ways to spur growth.

Economic Policy Turns Eastward?

Assessing the costs of Crimea rbth.com/34685

was announced at a cabinet meeting. Speaking at the Krasnoyarsk Economic Forum in February as the crisis in Ukraine intensified, former Minister for Development of the Far East Viktor Ishayev pushed the Asia-Pacific region as an alternative to Europe.“The ongoing systemic crisis in Europe is pushing Russia into more active cooperation with Asia-Pacific countries,” Mr. Ishayev said. “The Far East should become a key part of the integration processes [with Asian economies] and the face of Russia in the Asia-Pacific region, but that requires a radically new model for the economic and social development.”

Yet developing Russian resources in eastern Siberia and the Far East will require overcoming enormous hurdles, one of which is cost.

Prime Minister Dmitry Medvedev has given a figure of nearly $30 billion.“The amount is unprecedent-

itar-tass

continued from PAGE 1

Chinese companies, like carmaker ZX, could benefit from new strategy

ed and colossal, but will come from state financing, borrowed funds, and of course, private investments,” Mr. Medvedev said in Krasnoyarsk.

Professor Alexei Skopin, head of the Department of Regional Economy at the Higher School of Economics, thinks that it’s possible to attract investment from Asia-Pacific countries.

“The bulk of the investments will come from Japan (if we manage to reach an agreement over the Kurile Islands) and China,”Prof. Sko-

pin says.“China has already made it clear that it adheres to a neutral position with regard to the Russian-Ukrainian situation.”

Experts agree that the most effective format for attracting investment in the development of Siberia and the Russian Far East will be to create Territories of Advanced Development, including special economic zones, industrial parks and techno- and agro-parks. These territories would allow investors to set up new production facilities, including ones focused on exports with special preferential conditions.

Vladislav Inozemtsev, scientific director of the Center for Post-Industrial Studies, says that the government will need to make accessing the region easier for foreign investors.

“Investors should be given an opportunity to develop mineral deposits there, and to build and buy up oil and gas pipelines and other parts of the transport infrastructure. The economic goals should

override the political circumstances,” Inozemtsev said.

While reorientation of the economy to the East may be viable in the long term, trade with Asia cannot replace economic ties with the West in the near future.

Alexander Morozov, the chief economist for Russia and CIS for HBSC pointed out some of the difficulties in an interview with Russian business daily Vedomosti.

“Energy supplies cannot quickly be redirected,”Mr. Morozov said.

“There is a need to build expensive pipelines and terminals for liquefied natural gas.”

He added that entering the market will likely require offering buyers a significant discount.

Russia might have an easier time redirecting metals and chemical products eastwards, he said, given the lower infrastructural requirements for transport. “In the future, demand for raw materials will mainly come from South East Asia,” says Prof. Skopin.

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past and future in ukraine Fyodor Lukyanov

iorsh

L

Special to RBTH

ike 10 years ago, just after the Orange Revolution, we have witnessed a dramatic shift in power in Ukraine after the formerly stable political system collapsed. Unfortunately, this time around events were more tragic, with numerous casualties, bloodshed and mutual hatred.We saw hope and romanticism among the victors, who promise not to repeat past mistakes. None the less, independent commentators remain skeptical, fearing that events could further unravel.

Various factors led to the outbreak of violence in Kiev, including the failure of the Ukrainian political class which, after more than 20 years of independence, has yet to realize its responsibility to the country.

The tragedy should serve as a lesson for external players. All too often, Russia and the European Union have viewed Ukraine as an object of competition for geopolitical influence.

The principal conclusion to be drawn from the turmoil is that Ukraine should never have been forced to choose once and for all between Russia and the West. Ukraine’s heterogeneity creates a situation in which any attempt by the government to side with a particular foreign power leads to a sharp increase in internal tensions. Ukraine’s problems can only be addressed when its largest foreign partners work together. A zero sum game is destructive for a country sandwiched between two large powers.

The convulsions have demonstrated just how polarized Ukrainian society is. The interpretations of events in both Russia and Europe are dangerously black and white, and loaded with ideological clichés. They support the extremist forces on both sides — the extreme nationalists of western Ukraine and the revanchists in the east. A period of stabilization is needed to reduce the risks. The issue that will soon be at the top of the agenda is the revision of Viktor Yanukovich’s foreign-policy legacy. At the core of that legacy are Ukraine’s nonaligned status and the agreement on deployment of Russia’s Black Sea Fleet in Sevastopol until 2042. The new regime’s desire to eject the fleet as well as to raise once again the issue of Ukraine’s NATO membership can only provoke Moscow and rekindle geopolitical rivalry.

AfterYanukovich’s departure, politicians in Kiev

immediately returned to the issue of the association agreement with the EU, which had triggered the revolution in the first place. But the problems that led to the failure in November did not vanish with the change of government in Kiev. Ukraine’s long term economic success is possible only if it is able to maintain opportunities in the Russian and European markets. At some point, tripartite consultations and the coordination of interests are needed to make this happen. PresidentVladimir Putin proposed such a course of action last fall, but the EU wasn’t interested. If last year’s scenario is replayed, the new Ukrainian regime will long face challenges from Russian obstruction.

An attempt by the most militant of the victors to “punish” their opponents, particularly in the

east and the south, is another threat. The West is trying to ignore Ukraine’s ultranationalists, who worship the nationalists of the past. Some of those active in the Maidan have the following items on their agenda: the definition of “antinational forces,” a ban on ideologies associated with the “accursed past,” and a requirement to swear loyalty not even to the new government, but to a new system of symbols.

Such a practice could stoke up major tensions between different parts of the country and further provoke Russia.

This new page in Ukraine’s history may be similar in content to what happened in Eastern Europe following the demise of the Soviet Union.

However, given the size, complexity and specificity of the country, all the pressing problems

Russian Stocks Are Hurting, But Hope Remains James Beadle

the moscow times

R

ussian assets have been falling. From the beginning of the year to mid-March, the ruble dropped 10% against the dollar, and the value of stocks listed on Russia’s flagship MICEX exchange dropped 11%. Part of this trend reflects an issue with global capital flow. In January, for example, global emerging market equities lost nearly 7%.

But recent events in Ukraine drowned out the medium-term dynamic, and selling dramatically accelerated. Investors holding rubles and Russian shares today face difficult decisions: sell at a loss, or hold on in hope of a recovery?

Russia started the year with natural headwinds caused by the relative improvement of economics in developed markets, especially the U.S. Back in January, Russia investors faced tactical decisions - sell short-term and reallocate to developed markets or hold on, capturing healthy yields with an eye to the point when developed world growth would again stimulate emerging economies.

With Russia hosting the Winter Olympics, drawing interest and tourists from all corners of the planet, the decision to sell Russian assets was far from obvious. How quickly the story changes! The MICEX was universally viewed as cheap, a top pick among its peers for many strategists this year. But as of this writing in mid-March, the Russian equity market had fallen another 7%, underscoring that whatever the valuation when you buy equities, downside risk is always there.

Buy and hope has always been a risky strategy in the world of equities, prone as they are to sharper falls than rallies. Where possible, it is better to sit in cash and, in the words of Warren Buffet: “Buy when others are fearful, sell when they are greedy.” With such a strategy, wily investors bought Russian assets just after the crisis began at a substantial discount. If the panic reoccurs, such investors will move in again, deploying more capital and gradually building positions with superior risk-reward characteristics.

For those that did not keep their powder dry, the decision is more complex. Is this the beginning of a rout, a last chance to salvage some value before the market enters a death plunge?

Or is the worst over? Is it now better to wait it out, and hope to recover some value?

Investing is without question the most stimu-

lating and infuriating of economic challenges.

We are so often damned if we do and damned if we don’t. Perhaps this manifestation of Murphy’s Law is a good starting point. Given your economic position, which is a worse psychological outcome? Sitting in the market and risking a further substantial set back as prices fall further?

Or taking the hit today and accepting the losses?

Another approach that has helped many in the past is the simple “can I sleep?” test. Never hold a portfolio that is causing chronic stress and disrupting your regular life. It is better to lock in the losses, even if it means starting fresh.

For those still uncertain, the decision path involves an assessment of several factors. What price you originally paid is not one of them. A rational assessment of your options demands that you forget about how much you have earned or lost, and focus exclusively on the current and future dynamics of prices.

The first question, then, is whether Russian assets are cheap, fairly priced or expensive. Most analysts agreed they were cheap at the begin-

As a basic rule invasion and occupation are bad for a country’s economic outloook and asset prices. If the crisis should escalate, expect prices to suffer. ning of the year. What has changed since then?

The economy has disappointed, and the Central Bank has raised interest rates by one and a half percentage points. Needless to say, this is a bad combination. Any high school economics student will tell you that a weaker economy would prefer a lower interest rate. The concern is what impact it has on valuation. For highly indebted companies and those companies that depend on people using debt, the impact is obvious: future business has been hurt.

The weaker ruble has the same impact on companies that depend on imported goods. Conversely, exporters now earn more rubles for their dollar-based sales. The dollar’s reserve currency status benefits Russian exporters at times like this. Some equities will lose from the current situation. Others will gain. Start now, by rebalancing your exposure to hold more exporting businesses. It is worth remembering that the combination of higher oil prices and a weaker ruble has saved the Russian economy before.

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Most notably in 1999, after the national debt default, accompanied as it was by a massive devaluation.

The next question is whether these gains and losses are reflected in the price changes that we have observed in recent times. The market is down across the board for the simple reason that investors hate uncertainty, and there is little more uncertain than a nation’s army crossing its neighbor’s border without the support of the global community. Prices are not only down for those stocks that now see a less certain future, but also for those that can expect profitable circumstances. Commodity prices are largely unaffected by events in Ukraine, so Russian equities are looking cheaper since the beginning of the crisis.

Finally, there is the most challenging factor to consider: what happens next? Perhaps Russian assets are cheap today, but will the next events in the crisis further weaken their prospects? As a basic rule, invasion, occupation and military activity lacking international support are bad for a country’s economic outlook and asset prices. If the crisis should escalate further, expect prices to suffer.

At the same time, Russia had a lot more work to do this year to lure investment and stimulate growth. That path now looks closed. Even if the Ukrainian crisis eventually fades from view, Russia’s best-case outlook is less positive than it was a month ago. Anyone thinking about buying Russian shares for a sharp rebound would better wait for another bout of panic selling.

Nobody has a crystal ball, yet an accurate reading of future events is essential to successful investing in a time like this. As such, everyone must ultimately decide for themselves what to do with their Russian investments - buy, sell or hold.

Ukraine is too big to fail, and the scale of this crisis is enormous. The potential for economic and human pain is great.Yes, there is always downside risk. Exactly because the worst possible outcomes do not bear consideration, there is hope that cooler heads will prevail.

My view is that prices might continue to decline. Holders of Russian equities should rebalance quickly toward exporting companies.They should be ready to make painful decisions.

Russian equities will be hamstrung whatever the outcome, but they have the potential to rise from these depressed levels.

James Beadle is an independent investment adviser who has been managing Russian money for 12 years.

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that faced the post-communist states will be expressed in a more vivid form.

We’ve heard many times since 1989 that the Cold War is over. But time after time, events have shown that the inertia of confrontation and rivalry has not disappeared, and that old instincts are very much alive.

Ukraine represents a turning point, beyond which there are two possibilities. Either Russia, the U.S. and the European powers work together to untie the knots of European history, one of which is Ukraine. Or a new Cold War begins in Europe, again symbolized by a divided state.

Fyodor Lukyanov is chairman of the Council for Foreign and Defense Policies and editor-in-chief of the journal Russia in Global Affairs.

exclusively at russia-direct.org Russian Soft Power Still Has Some Hard Edges The concept of soft power is increasingly relevant today with the use of the Internet to wage “information wars.” Given soft power’s potential, the idea of changing Russia’s image abroad is becoming increasingly popular among politicians and diplomats. Yet it remains a very delicate tool that creates both opportunities and risks.

April Monthly Memo: Eurasian Integration This year is a crucial one for Eurasian integration. As of Jan. 1, 2015, the Eurasian Economic Union is set to come into existence on the basis of the Customs Union and the common economic space of Russia, Belarus and Kazakhstan.

What does the future of the organization look like without the participation of Ukraine?

Quarterly Report: Megatons to Megawatts This Quarterly explores the origins of a unique program in the history of nuclear disarmament and nuclear energy – the Megatons to Megawatts program, also known as the Highly Enriched Uranium (HEU) Agreement.

What are the prospects for using this experience and expertise in future Russian-U.S. nuclear cooperation projects?

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Sports It might not be in the Olympics any time soon, but an event that combines chess and boxing seems tailor-made for Russia Krasnoyarsk native Nikolai Sazhin (left) won a new world title in a championship match in Moscow last fall.

REUTERS

Chessboxers Combine The Board and the Ring The crowds at last year’s Chessboxing World Championships in Moscow helped confirm the organizers’ view that Russians are the ideal audience for the new sport, which requires both brains and brawn YAROSLAV KULEMIN

MOSKOVSKIE NOVOSTI

A new sport has emerged that combines the brawn needed for boxing with the brains needed for chess.

First you fight. Then you play some chess.

Then you fight again. Then you play another round of chess.While not a Russian sport by origin, this novel form of competition known as “chessboxing” is beginning to take root in a country that has long been known for taking chess more seriously than other places.

“Boxing and chess are in the Russian blood,” says Iepe Rubingh, the Dutch artist who founded the World Chessboxing Organization in Berlin in 2003. “You have a lot of champions in chess and in the ring.”

The idea to combine chess with boxing has even deeper roots than that, however. Matches were organized for five years in London in the 1970s, and the sport was the subject of a 1992 graphic novel.

claims that those who succeed are among the strongest and most intelligent people on the planet, able to keep themselves oriented under the most difficult circumstances. Russia, he said, is a natural fit for chessboxing.

Russians are responding to the sport. Large crowds turned out for the November 2013 Chessboxing World Championships in Moscow.

Today, all chessboxing participants are ama-

Under Rubingh’s supervision, however, chessboxing has begun to blossom.Chessboxing matches take place in a ring and consist of 11 rounds – six four-minute rounds of chess and five three-minute rounds of boxing. Matches begin with a chess round, followed by a boxing round. Rounds of chess and boxing alternate until the end of the match. There is a oneminute break between each round, during which competitors cool off and change gear. On the board, the rules of “speed chess” are observed, and each competitor has a total of 12 minutes for all his chess moves. The players’ chess time is measured with a chess clock.

If a competitor contemplates the next move too long, the referee issues him a warning. Referees also keep track of the moves on the board to make sure pieces don’t go astray, that the rules of chess are followed and that the clock doesn’t get jammed.

Participants say the fast-paced style of play is the key to the sport. After an intense round of boxing, the challenge is to retain enough composure to focus on the chessboard. This makes it analogous to another sport popular in Russia – biathlon, which tests both athletic fitness and focus.

Rubingh, who himself participates in the sport,

Participants say that the fastpaced style of play is what makes the sport so interesting. After an intense round of boxing, it’s a challenge to focus on chess. teurs. Competitors are paid no more than $3,000 plus travel expenses. But Rubingh hopes that the sport will one day be able to support professionals.

Tickets to chessboxing matches in Russia range from 1,500-18,000 rubles ($50-$300), so Rubingh thinks there is the potential for matches to bring in enough revenue. He also hopes that the sport might find a sponsor.

Russia’s dominant chessboxing player today

is 220 pound Nikolai Sazhin from the Siberian city of Krasnoyarsk, who holds the heavyweight title. Outside the ring, Sazhin is a realtor.

The “Knight from Krasnoyarsk,” as he is known, became interested in chess as a child, and started training with a punching bag at the age of 14. When he learned about the appearance of a hybrid sport that combined these two interests, he applied to the International Federation of Chessboxing and asked the officials to consider his candidacy in the light heavyweight category as a rival to Frank Stoldt, a policeman from Germany, who was the titleholder at the time.

Chessboxing participants must be both experienced boxers and hold at least a class A level ranking in chess. In 2008, Sazhin defeated Stoldt at a match in Berlin. Sazhin was 19 at the time. Sazhin lost the title a year later to 17-year-old Leo “Granit” Kraft.

After taking a few years off, Sazhin returned to the ring in 2011, this time as a heavyweight.

Last fall in Moscow, Sazhin regained his title in a match against Italian Gianluca Sirchi, 41, a doctor whose image as an Italian Mafioso was at odds with his quiet personality.

Sirchi was a tough opponent, however, capitulating only in the ninth round.

After the fight, Sazhin said that from the outset he had decided to concentrate on chess, since he did not feel ready to vanquish his opponent with his fists.

At the end of the match, the announcers read the words of Russian poet Sergei Yesenin over the loudspeaker: “Again they drink here, fight and cry.”

A documentary about the sport, “Chessboxing: A King’s Discipline” is expected to debut later this year.

Travel Even with the cachet of the 2014 Winter Games, Russia’s Black Sea coast struggles to appeal to international travelers

Sochi Resorts Face Challenges Capitalizing On Olympic Legacy YEKATERINA KRAVTSOVA THE MOSCOW TIMES

As the most expensive Winter Olympics in history fade into memory, the Kremlin hopes that the ski resorts of Krasnaya Polyana will live on as a lasting legacy. But unpredictable weather patterns and visa worries threaten to tarnish the development of the area.

Efforts to develop the slopes of Krasnaya Polyana were spearheaded as early as 1986, though construction only got under way in the 2000s after Vladimir Putin won the presidency.

The Russian government has expressed hope that the Olympics would bolster the visibility of the ski resorts and draw tourists.

Various obstacles have prevented the resorts from taking off right away, including the unstable weather conditions symptomatic of Sochi’s location in a subtropical climate zone, the

region’s remoteness from other major travel hubs, and the need for international travelers to obtain Russian visas.

Speaking of his plans to keep all Olympic facilities in working order, Krasnodar Governor Alexander Tkachyov anticipated that the legacy of the Games would bring in profits of 10 billion to 15 billion rubles ($257 million-$400 milllion) annually. “Many facilities have been built as commercial ventures. Construction costs must be paid off, and the facilities must bring profit to investors,”Tkachyov said in February.

So far, however, lofty goals for the region’s ski slopes have remained largely unrealized.

Even Rosa Khutor — owned by billionaireVladimir Potanin and the largest among Krasnaya Polyana’s four resorts — has been operating at a loss since it opened in 2010. Rosa Khutor’s capacity to artificially manufacture snow allows for fresh snow up to six months a year.

Weather conditions aside, many foreign tourists interviewed during the Olympic Games cited visa and travel concerns as among their pri-

IN FIGURES

KIRILL UMRIKHIN

The ski resort area of Krasnaya Polyana ranks high with Russian tourists, but still remains an unknown quantity for foreigners

The Rosa Khutor ski resort can produce fresh snow up to six months a year.

mary concerns with regional tourism, noting that European and North American ski resorts were generally more accessible. Russian tourists, on the other hand, strongly favored the area’s slopes. Olga Favarizova, a senior executive with Travel.ru, said Krasnaya Polyana was easily the most popular ski resort among Russian vacationers because of its accessibility, low prices, and proximity to Sochi’s Black Sea coast.

47 miles is the total length of the ski trails at the Rosa Khutor resort in Krasnaya Polyana

$86 mn

was spent to construct skiiing and snowboarding facilities at Rosa Khutor ahead of the Olympics.

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