Russian corporations are hoping to borrow from leading sovereign wealth funds

Russian corporations are looking to leading sovereign wealth funds abroad for cash in the wake of the global liquidity squeeze. In the estimation of JP Morgan, assets managed by sovereign funds amount to half of all international reserves, and they exceed the combined worth of all private and hedge funds. Russian industrial companies, banks and management companies are showing interest in these funds, analysts say.

Managing a total worth of between $3 trillion and $3.7 trillion, sovereign wealth funds are large investors, JP Morgan said in its quarterly bulletin for depositary receipts. About one-third of the amount is managed by the Abu Dhabi Investment Authority (ADIA), which controls an estimated $1 trillion.

The worth of sovereign funds is expected to reach $9.3 trillion in 2012, according to Bernhard Eschweiler, the head of JP Morgan's Central Bank Group. It is these funds, he says, that are bound to play a vital role in financial markets in the medium term, including on the M&A market and markets for primary and secondary assets.

Russia’s cash-strapped corporations are already showing interest in the world’s leading sovereign funds. For example, Singapore’s national fund, GIC, has long been investing in the assets of Russian companies, including those focusing on real estate, says Elena Khisamova, the head of the stock market department at VTB Capital. At the beginning of this year, GIC paid $233 million for a 25 percent stake in PIK Group’s Yaroslavsky construction project in the Moscow region.

“We also expect Middle East sovereign wealth funds to show an interest in Russian assets soon. Russia could attract them in terms of risk diversification,” she reckons. The food industry, the financial sector and infrastructure are thought to be the most attractive, according to Khisamova.

National wealth funds are particularly appealing to Russian industrial companies and banks, which need cash to refinance their investment programs, says Andrei Movchan, CEO of Renaissance Investment Management. “Our company is also eyeing sovereign funds, especially the ADIA of the United Arab Emirates. But they want to wait until the global situation clears up,” he explained.

Oleg Zhelezko, managing partner at Da Vinci Capital, says his company has been in talks with a number of sovereign wealth funds over the past year, including some in the Middle East. “In principle, they are interested in our proposals, but they are very slow in decision-making,” he told RBC Daily. “We are offering them the chance to invest $50 million to $1 billion in our private equity funds, and expect positive decisions next year.” Middle East funds are particularly interested in Russia’s infrastructure projects, banks, and insurance companies, as well as the food industry and electricity, according to Zhelezko.

In this situation, it is imperative to understand the investment standards used by sovereign funds and their expectation of investment returns, concludes Salavat Khalilov, General Director of Uralsib-Capital Management.