Magazine

Rubles Across The Sea


A "surprise bid." That's the way much of the world press described the decision by Russian national airline Aeroflot to join in the pursuit of Italian carrier Alitalia. Europeans were also surprised last September when Moscow-based Vneshtorgbank spent $1 billion for a 5% stake in European aerospace concern EADS. The same goes for the $2.3 billion cash buyout last November of Oregon Steel Mills Inc. by Russian steelmaker Evraz—the country's largest overseas deal yet.

Get used to the surprises: There's a new breed of corporate dealmakers hailing from the east. Russian companies last year spent $13 billion on overseas acquisitions, up from $1 billion in 2002, according to market tracker Dealogic. Including spending on existing ventures, the Russian Central Bank says foreign direct investment from Russia last year totaled $18 billion, five times the level in 2002.

Russian companies can afford to splurge. The country is awash in cash from exports of oil, gas, and metals, which helped boost its current-account surplus to $94 billion last year. That is flowing into all corners of the economy, so even companies far removed from the energy sector have plenty of spending money. "It's hardly surprising that companies are looking for opportunities abroad," says Roland Nash, head of research at Moscow investment bank Renaissance Capital.

Russian money, though, doesn't always get a warm welcome. Gas giant Gazprom (OGZPY) sparked a media furor in Britain last year when it said it might bid for Centrica PLC, Britain's No. 1 gas supplier. Russian companies lost international deals worth $50 billion in 2006, in part because of political attitudes, Foreign Minister Sergei Lavrov told a meeting of business leaders in Moscow in February. As a result, Gazprom and others have hired Western public-relations consultants to polish their image.

Despite such obstacles, there's little doubt the Russian acquisition trend will intensify. Many big Russian companies see expansion into international markets as a necessary step in their development. Energy and metals groups want to move beyond raw materials into higher-profit areas such as refining and manufacturing. Steelmaker Evraz, controlled by tycoons Roman Abramovich and Alexander Abramov, is rumored to be considering a bid for Ipsco Inc. (IPS), a pipemaker in Illinois. (Evraz had no comment.) Russia's telecommunications companies are on the prowl, too. Altimo, a holding company that owns mobile-phone operator VimpelCom, has taken out a $1.5 billion loan to fund acquisitions in India, Indonesia, and Vietnam. "The saturation of the market means we are looking beyond Russia's borders," says Altimo Vice-President Kirill Babaev. These days, any such deal should come as no surprise.

By Jason Bush


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