Panel, Fireside Chat
Russia: A Business Opportunity Wrapped in a Mystery?
Milken InstituteAlex Kolor, Stephen Hellman, Sean Glodek, Jim Gansinger, Michael Kuchment, Dima Kovacharovskyi
- Credit Suisse and investors view the current Russian market as a "two steps forward, one step back" environment requiring patience, where historical downturns present optimal entry opportunities with "tremendous growth potential."
- Specific asset valuations are highlighted as attractive, including Sberbank trading at "just over one times book value" and Lenta, which grew 25 to 30 percent annually and is expected to double in size within three years.
- The public market IPO environment is forecast to remain shut down for the foreseeable future, while the Russian Direct Investment Fund (RDIF) anticipates announcing numerous large transactions and sustained foreign interest from the Middle East, China, and Asia throughout the remainder of the year.
- Long-term optimism is coupled with short-term volatility; RDIF remains bullish despite expected "ups and downs" in the public market, while investors are advised to expect pricing adjustments and flexible terms that will persist for the rest of the year.
- Operational risks for companies like Subway Russia include a correlation between economic softness and business performance, with a projected decline in sales beginning in the fourth quarter of 2012 and continuing through 2014.
- The retail sector faces a growth slowdown estimated at 2 percent for the current year, down from 6 percent previously, prompting retailers to adopt aggressive promotions, adjust product matrices for reduced purchasing power, and secure financing from suppliers due to Central Bank interest rate hikes.
- HOF projects becoming the second-largest player in Russia after IKEA by opening nine stores in the next 12 months, while international retailers may accelerate expansion to secure market share using lease discounts of up to 20 percent.
- Strategic adaptations include a focus on e-commerce to mitigate the lack of physical trade space, a potential "pivot to Asia" due to sanctions, and Ernst & Young analysts predicting Russia could become the largest consumer market in Europe and fourth in the world by 2020.
- Geopolitical instability in Ukraine is expected to persist until constitutional processes and elections occur, dragging on for some period of time, though an "all out invasion" is considered unlikely.
- RDIF commits to enforcing full suites of minority protection rights for foreign investors and anticipates a positive trend in corporate governance, with "bad actors" expected to be removed over time.