The best-laid plans of Russia's biggest corporations are no match for the machinations of U.S. executives and the toll they are taking on the world economy.
Unlike most of the past decade, Russian companies are not suffering from problems of their own making; this time it is the "infectious greed" gripping American business culture, as U.S. Federal Reserve Chairman Alan Greenspan put it, that is to blame.
Just as Russia's top companies are finally beginning to embrace the practices of their Western counterparts --introducing corporate governance charters, electing independent directors and revealing beneficial owners -- the international exchanges on which they hope to list have plunged to levels not seen in years, led by the months-long string of corporate fraud scandals in the United States.
That is why few analysts believed LUKoil president Vagit Alekperov when he said earlier this week that the government would offer 6 percent of its stake in the oil giant on the London Stock Exchange on July 31.
Projected proceeds from the sale are not what they were three months ago, and government coffers may be squeezed even further if officials decide not to issue a sovereign Eurobond this year or next. The government has yet to announce its decision.
The federal budget, however, is not the only victim: Officials at Tyumen Oil Co., or TNK, say it is "unlikely" they will be able to place $500 million worth of Eurobonds, which were delayed due to an auditing mistake, before fall. The majority shareholders at Sibneft and Yukos, Russia's two fastest-growing oil companies, will probably postpone floating more stock, analysts said.
"I would be surprised to see a Russian issue at this time," said Niclas Sundstrom, Citigroup's chief Russia analyst. "Russian assets, though, do
remain significantly undervalued. Their prices would have been much higher had it not been for this global volatility."
Many emerging-market investors are nervous about Brazil, where a strong showing by an opposition candidate in the polls has inspired a sell-off of stocks, bonds and the Brazilian currency ahead of October's presidential election. Russia has been caught in the contagion despite a strong economy.
Why do problems in Brazil affect Russia? A common explanation involves the decisions made by managers of emerging-markets funds. If Brazilian stocks tank, as they have during the last several months, many managers are reluctant to crystallize that loss by selling Brazilian assets. Instead, they will look to sell something where they can show a profit. With its rising stock market, Russia is a logical choice.
And it shows. The Russian Trading System's index has fallen 12 percent since it hit a high of 425.43 on May 20.
"It's extremely difficult to issue into this market," said Philip Poole, the chief economist for Eastern Europe at ING Barings.
Poole said that large dealers, most of whom aren't willing to take on more risk, are looking to keep assets that can't be sold quickly off their books. The trading volumes for corporate debt are much lower than those for Russian sovereign bonds, putting Russian companies at a disadvantage at a time when investors are re-examining the balance between risk and yield.
"That's why it's difficult for Russian corporations to place paper," Poole said. "The appetite for risk is small. Liquidity is poor. Investors want liquid assets."
Despite this prevailing pessimism about the short term, executives at Russian companies remained upbeat about Russia's ability to defy Western markets. Since the fall of the Soviet Union, many Russian entrepreneurs have chosen to emulate the Western model in their business practices. But Western capitalism has revealed its own flaws through a series of recent corporate scandals, in some ways failing those Russian companies who chose to embrace it.
Consumer goods company Wimm-Bill-Dann was able to get in before the markets dropped. In February, the stock closed at $22.60 on its first day of trading on the New York Stock Exchange. Since then, however, the share price has taken a beating, falling 17 percent.
Although many companies are being forced to defer their Eurobonds, initial public offerings and secondary offerings, they have already benefited from the process, Sundstrom said.
"These roadshows give the companies a great opportunity to explain their story to investors," he said. "That shouldn't be underestimated. Those measures act as convenient platforms for some of these companies to advertise internationally."
Alan Bigman, TNK's head of corporate finance, agreed, saying the two-year process leading up to the Eurobond helped open up a company that was once closed to investors. The oil company was about to place a five-year Eurobond in late May when auditing firm PricewaterhouseCoopers realized at the last minute it had made a mistake, forcing TNK to call off the placement.
While the stillborn Eurobond was unfortunate, "it was and is still optional for us," Bigman said. TNK had wanted to use the Eurobond receipts to refinance short-term debt. The interest rate on such a bond has risen since May, and in many cases, issuing one right now doesn't make much sense. It would also cost TNK tens of millions of dollars more than it would have in May.
"In order for the Eurobond to make sense, it would have to be competitive in price with the other financing we already have," Bigman said.
During the past few days, Sibneft's stock has been surging on rumors that its core shareholders would soon sell off a 6 percent to 7 percent stake. In May, these shareholders sold off 1.26 percent of the company in the first of several sales that are to decrease the majority stake to less than 75 percent during the next two to three years.
Those plans haven't changed, said a Sibneft official who requested anonymity.
"We never tried to put a precise time frame on the sales," the official said.
Yukos is also on track, said company CFO Bruce Misamore. Before the market downturn, analysts had speculated that a full-fledged listing for the company on either the New York or London exchange could happen as soon as this fall. Misamore declined to comment, citing U.S. securities regulations, but noted that Yukos' charter sets mid-2003 as the deadline.
On Monday, Alekperov bucked the trend when he told reporters in Volgograd that a roadshow preceding the float is to begin at the end of next week. His announcement, however, sparked the ire of government officials, who told business daily Vedomosti that "not one self-respecting investor would sell shares in these conditions."
At some point in the market freefall, analysts say savvy investors will realize that Russia -- while it has its own corporate governance problems -- isn't directly related to the lack of confidence plaguing the United States.
"At some point the tide always turns," Poole said. "We just haven't reached that point yet."