Red Exile isn't dead - he's just been distracted...

So 'real life' has intervened in the last few weeks in the shape of punishing work schedule; quite a lot of travel; a friend (and her 46kg dog) temporarily moving in and - which has been very stressy - the search for new offices in Moscow.

of course there comes a point, blog-wise, where after a longish absence it almost becomes intimidating to do the 'here's what I've been doing' catch-up post. I have got over this, however, by just dumping highlights from my facebook account. So here we go (with more shockingly bad photography from my handheld PDA), the recent past:

Yesterday

Red Exile is spending another public holiday in the office; surprised how humid it is outside, which is early in the season.
1:43pm
May 1
I was in Prague on business
Red Exile says: "If I should die think only this of me"... I like Shiraz with my chocolate course.
12:25am
April 30

Red Exile is watching the night twinkle on the Danube; a glass of bubbles to hand; a violin being played in the background.
10:40pm

Red Exile says "OK, so there is some football match coming up in Moscow? No, I don't have tickets and I gather the street price is edging towards Euros 1,000" - crazy! Since 'Chelski' has now won a place in this match, I am told the price is now Euros 4,500 for non-VIP tickets.
3:34pm

Red Exile does not have a PhD in applied sciences and therefore is struggling to work the shower in his hotel bedroom. Which was the Four Seasons - which is superb - and it's restaurant, Allegro, quite unbelievably good (and the holder of Prague's first and only Michelin star)
9:09am
Red Exile I have a table with a view; a pigeon breast; a 1/2 bottle of Côte Rotie: I love life, Prague & everything…
10:53pm

Red Exile is now over a bumpy flight - and normal, smiley service is resumed. We thank you for your patience in this temporary service difficulty.
9:39pm

Red Exile I have *never* thought of the Czechs as other than opportunists and wasters and, 30 minutes in, 4 yrs l8r, I see I was right! I am inclined to be in a very bad mood after landing - partly angry at myself for having been so scared 'up there', which is silly, and partly (justifiably) because Czech immigration, clearing flights in from China and Russia, didn't open the EU Citizens line; until people like me pointed out how crazy it was that we'd have to queue with all the non-EU citizens being admitted with visas. Also, the taxi system sucks.
8:18pm

Red Exile says the plane is what? Late?!? Arrgh!
5:24pm

Red Exile Has now had Aeroflot baked goods and a drink so calmer, checked in and now only to ponder age of plane about to fly...
4:30pm

Red Exile says my life is *so stressful* it is no wonder I have high blood pressure and the heart of an 80 yr old. *Made plane just on time*.
4:16pm

Red Exile hopes everyone enjoys Thursday's neo-cold war parade - cos rehearsals for it have screwed Moscow traffic even more than usual & I am l8 4 plane. The parade is 9th May actually. That didn't make the traffic less sucky.
3:02pm

Red Exile notes that one of his two female house guests is on heat. The 46kg, 4-legged one. Words cannot express... They're moving on Monday. When my mother arrives... I don't get my apartment to myself for another two weeks...
10:19am
April 28

Red Exile is off to a business lunch in brilliant sunshine.
12:00pm

Red Exile added a new photo to New offices - bought 'off-plan': what can go wrong? OK, so the building is still a 'work in progress' in a completely gutted, exterior cladding yet to be junked and re-done and completely needs rewiring and plumbing kind-of-way. But the developer *promises* me it will be ready for entry June 1st. This is good: our current lease expires 31st May.
11:46am

Red Exile Madama Butterfly / Stanislavski etc: tonight Irina Arkad'eva was *a goddess*. Act 2 finale a weepy *triumph*!
10:15pm

Red Exile is @ v. gd performance of Madama Butterfly, fuelling up before original 2hr version of Act2.
8:08pm

Red Exile is at the opera, Madama Butterfly, eyeing chandeliers warily... see April 18th for the last comment to make sense.
6:37pm

Red Exile has discovered of himself that the pathology of his fear of flying is fear of heights. He discovered this in the glass lift of Moscow's uber-elitny Lotte Plaza.
5:30pm

Red Exile Apropos his new office space, a mantra: elitny. Designerny. Loftny. *Not Pafosny*. Pafosny? Think Paris Hilton, Donatella Versace, Las Vegas and anything by Dolce & Gabbana. yes, that's right 'gay' (in the sense US highschoolers use the term) and achingly vulgar.
2:24pm

Red Exile has signed an office lease!! Designer space; central & official. Yay!

7:30pm


Red Exile is so-near-and-yet-so-far. Do we have a lease deal or not?!?!
3:42pm


Red Exile was feeling wildly exuberant; but is now back under control to face the day's trials.
9:34am
April 24

Red Exile is an idiot! Left ballet ticket @home! So sulking shopped at Tsum & now @Cafe Bar-boy... which is what one of the girls I know Christened café des artistes - the name just stuck somehow

7:46pm

Red Exile is off to the ballet tonight. German State Rhine company. Stravinsky. Rites of Spring. A dose of sanity and love in my fraught life.
5:18pm

Red Exile "To the FSB senior officer whose convoy cut me up today but then whose car was pranged by his own follow vehicle not breaking fast enough: hah! Tosser LOL". This was really too funny to watch. Made my morning actually...
10:34am
April 23

Red Exile actually dares hope there *might* be a glimmer of hope. On the property side of things...
11:11pm

Red Exile has had, in truth, a $*#@ing shite day; and sometimes feels all the burden is on him as (some) just swish about... no doubt his default inner cheeriness will be back o/night. I was stressed, just leaving the office, over-worked and miserable. It happens...
9:29pm

Red Exile just came up with a strategy "find a 30-something woman, make her pretty and let's get her to cry on television" and is concerned that he doesn't feel cheap. It was a good strategy. And I am not cheap... 400 Euros an hour baby!
12:04pm
April 22

I was in Warsaw -I am not hugely fond of Warsaw...
Red Exile has too much work to do and no time to do it.
11:22pm

Red Exile has turned down the chance to eat escalope of crocodile. No kidding - it's available at the Intercontinental Hotel Tower's Mexican restaurant (don't ask!). The public space is crappy in this hotel, but the rooms are great and the view always good (well as good as a view over Warsaw can ever be).
2:58pm


Red Exile says: "well *hello!* Aeroflot you sexy thang!". They're flying brand-new A320-200s into CEE. Eat me, BA!
9:41pm

Red Exile knows he has lived in Russia too long: he finds the baked goods in the Aeroflot business lounge quite irresistibly alluring.
5:31pm

Red Exile setting of for the traditional traffic jam to Sheremetyevo airport, to fly Aeroflot to Warsaw. Ah the glamour of it all...
2:54pm

Red Exile has narrowly missed *death* at the ballet. An 8-cm diameter crystal fell from the great central chandelier and missed my head by inches before smashing on ground in 100s pieces. Felt cold draft of death did we. This really happened and the lump of crystal missed my head by less than 30 cms
8:06pm

Red Exile is off to the Stanislaski-Nemirovich-Danchenko tonight 2 them dance Romeo & Juliet.
5:26pm
April 18

Red Exile wonders if the 'rock song' whose chorus is "are you off your meds?: is Placebo. He laughs & luvs it. It is and I downloaded it from iTunes.
11:40pm

Red Exile is off to dinner with a mate from 'the small island'...as I now refer to the Britain
7:03pm

Red Exile has just used his best BBC voice to voice-over a TNK-BP corporate video. This is the second time I have done this (just to help them out for a favour - because it is crazy expensive for them to have it done in London and any old Brit RP voice will do - and because, in more weighty and feesome matters, they are also a client)
10:43am
April 15

I was travelling in Ukraine
Red Exile sees this new overnight train comes with anti-terrorism advice. In the event security forces are going to storm your Chechen terrorists "run-like-f*ck in other direction" seems to be the ambivalent advice. On the new trains there is a poster by the loos with safety advice. This include in cute little pictures what to do if security forces are storming your high-jacked train. And, yes, run in the opposite direction is the helpful guidance they proffer...
6:38am

Red Exile is witnessing drama @ border; 2 men arrested & dragged off train by Ukrainian troops. Unpaid parking tickets? Very exciting and the full-on paramilitary performance...
12:44am
April 14

Red Exile and his friend, Johnny Walker, are at the Russian border - for processing. LOL
11:50pm

Red Exile has had his day ruined - 'new' landlord informs him he has been gazumped on new space. So back to Square one and now 5 weeks to Moscow office is homeless... This was a low moment
7:32pm


Red Exile is having a very good day commercially and meteorologically: it is a gorgeous sunny day in Kyiv; the sky is almost ridiculously blue.
2:13pm


Red Exile now has a very deep and abiding love of Ukraine; its tragic and compelling history - the more you get to know it the less like Russia it is.

You learn a lot about Ukraine in the long drive between Kyiv and Lviv and back - abandoned villages and the wrecks of old collective farms testifying to the waste of Collectivised farming, it's failure and - actually - the enormous post-Soviet decline in Ukrainian agricultural output. Land reform is desperately needed to modernise and rejuvenate Ukrainian agriculture.

At the same time, as you drive past vast, pompous - but now sadly forlorn - Soviet-era memorials to WWII (more to bludgeon home a message of loyalty to the Ukrainians than a message of celebration) you realise how awful it must have been to be Ukrainian and part of the USSR. Wondering around Lviv today it is almost impossible to imagine that this bright, smiley, European city was once Soviet. It is totally unlike anything in Russia.
1:02am
April 13

Red Exile is about to have a hearty lunch of Turkey liver; veal, sour cream & dumplings & all trimmings. It is not cuisine minceur, but do eat at café Amadeus.
1:45pm
April 12

Red Exile is enjoying his birthday in Lviv, in which the whole history of Middle Europe can be seen. The ebb and flow of empires; the heterogeneous sweep of its European architecture; but still defiantly European (Renaissance, Baroque, Neo-classical, Art Nouveau...)
8:28pm
April 11


Red Exile is enjoying cafe society in Lviv; which is charming. Drinking champagne, sitting outside at the Vienna Café where people-watching is great fun
11:30pm

Red Exile is leaving lunchtime for the 5hr roadtrip to Lviv. The guy driving asks "do you want 'fast' or 'safe'?" - what the heck: fast! LOL.
12:30pm
April 10

Red Exile is having a fascinating day in Kyiv.
6:10pm

Red Exile s at the UKR border post, on the train, watching a beautiful sunrise. He is now though hungry & *very* thirsty!
6:29am
April 9

Red Exile Has just realized that as he is on tne slow-overnight 'express' - 13hrs - inexplicably it has neither restaurant nor bar. Nightmare!! This is the second time I have done this! memo-to-self: only Train #1 (Moscow-Kyiv) and Train #2 (Kyiv Moscow) have buffet cars. The others *don't*
9:54pm

Red Exile en route to Kyiv & then Lviv.
8:40pm

Red Exile is somewhere between despair (back to office property square 1) and elation (deal done). Only in Moscow do we live by these 2 emotional gears and no others. That last sentence, BTW, is probably the truest thing I have ever written about life in Moscow.
12:20pm
April 8

Red Exile did have to smile as he was cut up this morning by a rickety old Lada with *diplomatic plates*.
10:04am
April 7

Red Exile has had just the most sublime & wonderful night at the ballet; even if his body won't fly dream a soul can. Sometimes good performances make my purple-prose-restraint short-circuit.
10:26pm

Red Exile wonders what you say to a week that is pretty-much ruined before it has begun... hello? Property-related - a great development I was hoping to take was snaffled up - even though I had agreed terms with the developer - by a Russian bank.
10:15am
April 6

Red Exile woke up this morning dreaming about the future of capitalism. Last night he tried to dream about Tuscany. Oh well...
5:30pm
April 4

Red Exile is back to the drawing board: 8 weeks and counting to find new offices - or else it is hot desking in my front room! Another potential site fell-through (because this one was pretty far from a metro station and, in any case, I just learned that this particular station is about to close for a year's remont; which ruled the property out completely.
5:45pm
April 3

So there you have it. Normal service will now hopefully be resumed...

Final Day (III) of the Ukrainian Investment Summit, London. Taking stock

Wednesday was the third and final day of the Ukrainian investment summit in London: and Adam Smith Conferences did an excellent job overall. This was the most interesting conference I had attended in years.

The session I will highlight today - and the topic, really, on everyone lips for the last three days: Spotlight on the growth in Ukrainian IPOs.

Some useful statistics from Ernst & Young’s Michael Lynch-Bell and Oleksandra Dubovyk:

- About 80 Ukrainian companies will seek IPOs between 2008 and 2012, says E&Y
- About 20% of these will be financials and about 38% will come from retail and the consumer-facing sector
- Of expected IPOs, about 23% prefer the Warsaw Sock Exchange – Exile says is the right choice for smaller-larger and larger-medium-sized firms, much cleverer than AIM which Exile loathes – and about 11%+ will go to Frankfurt. Overall, though, about 66% will chose London (and 45% overall, will go to AIM). Exile would gently opine that AIM is what *the advisers* want you to choose, because they - and their cost-base, are based in London and need London-based fees, but on a IPO+5 years basis, Exile thinks vendors and CEOs will look back and wish they had chosen Warsaw; IMHO.

Actually, if there is one theme yours truly detected this week, it is the slightest disconnect between the surge of advisors into Kyiv, and the true underlying fundamental health of the new issues market.

Now, says Exile, from a cost, secondary market liquidity and practical POV, London may not be right for loads of CEE and Eurasian firms, especially when you start to compare Warsaw or Frankfurt, inter alia, to AIM.

Elsewhere yesterday, Andrey Pivovarsky gave a very interesting presentation – and overall I think Dragon Capital really impressed at this conference: very bright, very eager, professional and – actually - nice guys. Pivovarsky showed stats that the January and February new equity bookbuilding had been – as I think we all suspected – pretty ghastly. But he remains confident across the whole of 2008.

Nonetheless, while underlining that firms undergoing IPO this quarter raised much less – or the same at much lower valuations / a bigger slice of equity – than they initially planned for; certain themes are emerging to make an IPO a success. Now, I have to say, these are not rocket science and, if anything, show that some rational thinking has come to the emerging markets equity scene; but they are worth repeating even so:

- Investors will shun new issues where the free-float is too small (e.g. even below 3o%)
- High growth plays preferred over merely ‘domestic market sector stalwarts’ (PS: some of the Ukrainian financial-industrials groups will find themselves being penalized over their commodity-price vulnerable staples, says I, and should perhaps talk more about the wizzier parts of their portfolios).
- *Transparency* is everything. Dodgy history; less than stellar corporate governance structure or arrogant vendor-oligarch as CEO-God – forget it. You might have got such an IPO away even 9 months ago. In today’s still somewhat shell-shocked market; you may not.

Then Pivovarsky said something for which – football-player-stylee – I wanted to run on the pitch and hug him – the glory days of the last two years were over, he said, “and those who can, might be better to wait” a year or two, for the best equity valuations.

As he pointed out: investors want a ‘guaranteed’ (sic) 30% annual rate of return on new Ukrainian issues; given that there are now, globally, bond products out there – with arguably much less risk – offering 20% annual return.

One speech particularly caught my interest. Although densely argued, Clive Cook, from the London corporate governance team at Baker & Mackenzie, trotted through the difference between the obligations of firms listing on AIM, versus the main market.

Although AIM toughened up the rules applicable to AIM market-listed companies, and their NOMADs, it still strikes me that, if I were an institutional investor, I would always want a risk discount on an AIM-quoted company compared, for instance, to one quoted on Frankfurt.

PS: at one point, he argued that the London market(s) had the advantage because of the inclusion it gave you in the FTSE indices. Um…not so much. GDRs are not included. FTSE International was, for eons, a client of mine. It is a teeny-tiny technical point, but for firms like Ferrexpo (which, you may recall I pointed out issued Ords in London, and not GDRs), they get a liquidity boost, which *does* benefit share price, from being main market companies. Being part of, as I think Ferrexpo now is, the FTSE350, means that index tracker funds, set to that index, *have* to own the stock. As I said, it is a teeny-tiny point but, over five+ years, it *does* positively enhance share price performance.

Day 2: Blogging the Ukrainian Investment Summit, London

As is typical of these sorts of multi-day conferences, there was a 50% reduction in the delegate audience on day two, from day 1. That is not necessarily a bad thing: for these sort of things day one is boosted by government officials’ hangers-on and an ephemera of media. So the day II audience is more focused and less …um… star-fucky.

Yesterday (Tuesday, Day II) was banker day and the highlight session for yours-truly was the session on Ukraine and the Capital Markets; able chaired by Brian Best, of Dragon Capital, who gamely opened by saying: “Actually, the market sell-off around the world pretty much bypassed Ukraine; one of the few occasions the market’s lack of liquidity worked in our favour”.

The ebullient Sergiy Kulpinsky, equity strategist from Alfa Capital Ukraine, pointed out that only 6% of the shares of quoted Ukrainian companies are actually ‘free-float’; which is staggeringly small and reminds us that Ukrainian share prices (says Exile) are probably at the top of the market, even now.

Ukraine's PFTS index rose 135% in 2007; so don’t go hunting bargains in the Kyiv secondary market but, as it happens, there are some new issues coming through the next 2-3 years which, if not priced too greedily, are going to be interesting in the long term. That, of course, is the attraction of a market like Ukraine: long-term strong growth. But it is currently expensive to buy into.

Kulpinskiy – who is a very good speaker, BTW, a rarity at these events – went on with a nice analogy about ‘the good, the bad and the ugly’ and the Ukrainian Stock Market, the PFTS:

“the good is the market and the expertise of the brokers there" [OK…um…nice sell mate] "the bad are the fundamentals of the market…inflation, soaring household debt and the fact private consumption is overheating.” [Spot on says I. Ukraine should have a wonderful next five years but it has got to sort out its inflation problem or else the pendulum could easily switch the other way]; and the ugly? “The politics: and the political risk discount international investors want on Ukrainian new issues”.

Nick Koemtzopoulos from Credit Suisse – whose speech was a curate’s egg - but the second half was way too low-brow for the expert audience he was addressing – enlightened us that the ‘emerging markets’ (the BRIC nations and the satellite economies that orbit around them) accounted for 33% of new equity issues, globally, last year. That’s more than Western Europe. But it is a tough market out there:

New equity issues globally:

2005 on 2004 up 190%
2006 on 2005 up 216% - a handful of mega-issues, like the giant Rosneft IPO out of Russia and China’s ICBC account for a big chunk
2007 on 2006 up 66%
Q12008 on Q12007 down 97% - in terms of market sentiment, a huge amount rides on how the Visa IPO goes later this month.

However, in Ukraine, 40% - forty percent! – of stock market new issues in 2007 were in real estate and construction. That’s a huge skewing of the market to one sector. Real estate and construction, of course, are highly leveraged plays on expected future economic confidence. Without continued confidence, those stocks can sink like a stone.

That said, what has stalled other global markets is the fall-out from the global credit crunch last year. Well for Ukraine, much more than Russia, the global credit crisis has so far been something that happened ‘somewhere else’. The Ukrainian market hasn’t been so affected by a lack of confidence in the banking sector.

Here the historically, relatively undeveloped banking capital market has had the unexpected benefit of protecting local market sentiment. This is because, due to country risk, Ukrainian banks have pretty much only been able to tap the bond markets for 1-year notes (rather than the 10-year, convertible bonds etc., issued by 1st world banks).

Now, on the one hand this has meant that many Ukrainian banks have to refinance, in 2008’s tighter markets, money they only raised in 2007. On the other hand, such tight borrowing conditions placed a limit on Ukrainian banks ability to leverage up - according to Dmitri Sredin from Troika Dialog’s primary debt team, 2008 refinancing risk for Ukrainian banks is low, he says, in 2008. In fact, only 2.8% of bank capital needs refinancing this year.

Exile says: that’s way lower than Russia – and even more so compared to poor old Kazakhstan whose banking sector is a mess – and this is important. 2008 should see a smooth banking sector in Ukraine and this, of all things, should help to underpin market confidence about quality new issues in Ukraine.

Statistic of the day:

In 2003 the corporate debt market (corporate bonds issued and new syndicated loans granted), globally, was worth $2.4 trillion in new deals done.

By 2007, this had ballooned to over $7.5 trillion (factoid courtesy Nicolas Lipovsky at Calyon bank).

Having more than trebled in five years, that’s not ‘strong global growth’, that is a huge debt bubble. Last autumn’s credit crunch therefore is something of a correction we really all ought to have seen coming and expected. The fact we all didn’t tell you how crap capitalists are when greed gets in the way of judgment. I calculate that as a CAGR of almost 26%; way outstripping nominal, annual global GDP growth.

PS: $6.7 billion of that debt growth, in 2007, was for Ukraine – $3 bn of it for banks – compared to $11.7 bn in Kazakhstan; sadly, for Kazakhstan, also mostly for banks.

Real Economy Stat of the day #1:

Ukraine is already the 7th largest new car market in the whole of Europe.

The top three are Germany, Italy and, at number three, Russia. This is a good reminder that you shouldn’t view the RUK markets (new buzz phrase: Russia, Ukraine, Kazakhstan) as emerging markets: they have pretty much already emerged. It is now all about market share.

Real Economy stat of the day #2:

Ukrainian real GDP growth in 2007 was about 7.5% - about the same as Russia’s – but inflation outstripped even Russia’s worsening record: 16.6% inflation in 2007 and is expected to be 17% +.

Exile - This, BTW, reminds us of yesterday’s macro-economic advice, from Anders Aslund, at the conference. Import inflation has to be sterilized ASAP through a re-valuation of the Ukrainian Hryvna against the US Dollar.

Blogging the Ukrainian Investment Summit, London

Monday through Wednesday inclusive is the 4th Ukrainian Investment Summit, organized by Adam Smith Conferences. It is a star-studded cast and, relative to many of the conferences I schlep to, more thought-provoking. It is a very well-supported conference, although the audience is only about 10% the size of that at the Russian Economic Forum in its halcyon days (which tells you a lot about the relative sizes of the investment markets).

The first speaker, Monday, was Richard Spring, the British, opposition Conservative MP, who is President of the British Ukrainian Society. I like Dickie: he is elegant company over a tumbler of whiskey. He is a charming old cove – very bright but likes to pretend otherwise – and made much of how “across both sides of the House of Commons – don’t worry about so-called Enlargement Fatigue – we will support Ukraine’s membership of the European Union” (pause for cheer which… um… didn’t come).

Of course, it is easy to support something not remotely likely soon to happen. Dickie Spring is likely to be gaga or even pushing up the daisies before Ukraine has any meaningful chance of accession. In terms of acquis communautaire it must be even ten years behind Turkey. So, you know, don’t hold your breath…

The opening session’s government speakers – three ministers no less – was a remarkable insight into how the Soviet-style of long speeches that rattle off statistics still is the preferred modus operandi of the post-Soviet politician. They were gruesomely dull to sit through.

Across the morning, the star speakers were from Ferrexpo, which had such a superb debut on the London Stock Exchange last year. Konstantin Zhevago is the acceptable face of oligarchy: the man is also a visionary and his commitment to professional management – his imported CEO, Michael Oppenheimer, spoke later in the day – transparency and solid corporate governance has been rewarded by a 160% rise in the share price since last year’s IPO.

Some notes from my speaker program (I do this at conferences like I do at the opera and ballet – but without the opera glasses):

- Konstantin Zhevago – everything that has been beneficial that has been achieved in the Ukrainian economy has been in spite of, not because of Ukrainian governments, he said.

- Dr Anders Aslund (Peterson Institute for International Economics, Washington DC – and a well-known Cold War-economic analyst, notably well-funded in the USA – winks – and sometime economic advisor to Ukraine itself): “Ukraine must break the link to the US$ in order to control inflation. The Government shouldn’t talk about it, it should just do it: and, as a first step, peg the Hryvna to a basket of currencies weighted towards the Euro”

Exile opines: he’s right and Ukraine needs to revalue its currency to sterilize import-related inflation. I think it could now find a natural level 15-20% above where it is now against the USD, IMHO. It is a tricky issue though. Although nominally – indeed constitutionally, independent, the oligarchs have the National Bank of Ukraine by the balls, and don’t want a stronger Hryvnia which will take the steam out of the export growth of their heavy industries. Equally, a ‘basket of currencies’ reflecting Hryvna reality means a chunk of Russian rubles: monetary-nerd, President Yushchenko, would hate that. So it won’t happen just yet: the politics isn’t right, unless Yush’ thinks the Hryvna can jump straight to a free-float (which will be an econometric shock he will be afraid to risk).

Ilya Arkhipov, System Capital Management – sadly (I say sadly because I have a really good mate who works for SCM, who’ll read this, and will not be amused, but…) wins the raspberry award for worst speech. Although it was interesting for us to get a walk-around the lesser-known parts of Mr Akhmetov’s mighty empire, it would have been nice if he had addressed the issue (“Showing the experience of leading…investors”). Speakers from my region always ignore the issue and force-feed you an investor presentation; quite counter-productively so.

The foreign investor experience:

I thought this was a noteworthy bit. The two biggest foreign investors in Ukraine are Telenor (asset revaluation rather than hard cash) and ArcelorMittal (hard cash). Both have had an uneven experience, although rising asset values in the case of the former; and strong profits in the case of the latter, mean they will stick it out.

The speakers were:

- Ole Bjorn Sjulstad – very senior at Telenor; staggeringly bad speaker (who desperately needs help to be able to give an effective speech).

- Narendra Chaudhary – very, very senior at ArcelorMittal (and one of Lakshmi Mittal’s most trusted lieutenants BTW). I was, BTW, quietly appalled at the bluntly racist comments – in the audience murmur around me – while he was speaking. I was even more appalled that these insults were being whispered in English, as well as Russian.

Both these companies complain about the lousy rule of law in Ukraine, huge uncertainty over ownership rights, corporate governance and, of course, bent judges. The Mittal part of ArcelorMittal bought Kryvorizhstal, the giant, 46,000-employee steel mill, at auction (it having been seized by La Orangina, after the Revolution, from Renat Akhmetov, now one of the king-makers of Ukrainian political and economic life). Since then Kryvorizhstal has been plagued by union problems and last year, says Chaudhary, suffered 457 government agency investigations and enquiries: thus showing that Mr Akhmetov’s reach is modest compared even to his grasp.

Both being subject to poorly written and corruptly administered law, these two companies are *the* textbook examples about investment in Ukraine: “you should make good money, but it is the most risky place you’ll likely ever invest in and the one whose business environment is perhaps the least trustworthy”. I am slack-jawed at the (especially European) firms which blunder in there (“Ukraine is a democracy, it is more European. It is therefore less risky than Russia”) – completely talking out of their arses.

If these two firms united in delivering their message of optimism, hedged with criticism – and delivered it just a tad more effectively – even Ukraine’s notoriously self-obsessed and naval-gazing political elite might, you know, finally wake up and do something about it…

PS: Stefan Wagstyl, Eastern Europe editor of the FT, is a nice man who writes well and insightfully: he is hopeless, however, at chairing a panel session or acting as moderator of a conference. Memo to all conference organizers: stop using him! There is a skill to chairing a conference panel session effectively: he hasn’t got it.

PPS: Because Ferrexpo is actually a UK PLC which, via a Swiss vehicle, owns its Ukrainian assets (and therefore issued Ordinary Shares on the London Stock Market not, as is usually the case for CIS firms, GDRs), it is actually just a hair’s breath away from being elevated to the FTSE100, so great has its share price run been.

Now, if that happens the Kremlin sure will sulk: Russian firms issue GDRs, not Ords, in London so cannot be part of the FTSE100 (silly rule BTW). I met with one Russian mega-firm last week which wasn’t being very subtle about the fact that the Kremlin wants them to list *anywhere* other than London, even if just to piss on the British.

“They’re stealing the gas, Nancy, they’re *stealing the gas*”

Gazprom is spending a shed-load on some well-connected PRs right now. Friend-of-Dmitry-Peskov, the US PR firm, Ketchum, runs a global program. Now Ketchum is a well-known consumer PR firm in the USA, but something of an also-ran (IMHO) in the rest of the world (and has, BTW, the most irritating *cutesy* web-vid intro on its website, the "greeters", ugh, which appears to assume the readers, the potential clients, are morons). It was lucky to get this, because this is a big, complicated mandate for a largely consumer PR firm, but its long-standing, Russian partner, Michael Maslov, has solid Kremlin connections.

...and breathes in... But through its Omnicom parent, Ketchum has some partners with clout, like the respected Gavin Anderson, the financial spin doctors. The point is, while I like and admire Michael (we alternate to buy each other dinner), what are all these *global* people doing for their fees?

Get the job done guys and, if you can’t get it done (perhaps because – and I know the score and how this works in Russia – the client was obliged to hire you, on instructions, but now ignores you), then quit the mandate. Big fees or no big fees, in the long run you suffer, or your reputation does, if all you do is bank the cash and merely spectate as a client’s global reputation collapses. But what do I know, maybe they’re actually slaving away and a client fight-back is about to materialize. If so, news cycle, guys, news cycle: are you acquainted with them?

What I do know is that I have worked for a company once described as “the most hated company ever to launch an IPO”, and we did stuff. It worked.

Anyway, my 'outburst' comes as the liberal, anti-Russian media in the UK delivers an astonishingly one-sided reportage of the Gazprom-Ukraine dispute (examples here and here).

The western media isn’t telling you that, quite aside from a payment track-record that makes a sub-prime mortgage holder a good bet, Ukraine is *stealing the gas*, siphoning it off, as it transits Ukraine into Western Europe. Where does Naftogaz Ukrainy let it go to? Well let’s just say that the corporate profits of some Ukrainian oligarchs' heavy-industrial businesses are looking surprisingly robust in the face of fuel cost rises over the last two years…

But the key thing is this, the ‘free press’ of the West just doesn’t like the idea that ‘democratic’ Ukraine (“they won Eurovision, they had a revolution, they can do no wrong”) could be anything other than on the side of the angels. The western, liberal media is so bound up in its hate (and I don't think that word is too strong) and suspicion of Russia, it will (and does) self-edit to bring you the story that always puts Russia in a bad light.

- Ukraine stealing gas? Ignore – our readers/viewers need only know that Ukraine is ‘free’ and is ‘pro-western’
- Russia reacts by reducing the flow by the amount it steals? Boo Russia!

This email conversation, yesterday, with a new political friend in the UK sets this in context (I hope):


From: New political friend in the UK
To: Red Exile

…[…]… Also, I saw that the new President of Russia has cut off gas supplies to the Ukraine. What is life like out there when these sorts of things happen?

From Red Exile
To: New political friend in the UK

“Re: Ukraine – LOL. GAZP didn’t cut them off; just reduced the supply by the amount that Ukraine is illegally skimming it off and siphoning to some dodgy industrial clients on the side. Really, the UKR gas company uses the fact that it transits most of Europe’s gas to hide what Naftogaz Ukrainy, the gaz monopoly, steals. This brokers’ note [it is an extract from one issued yesterday by Renaissance Capital – Exile] explains more:

“Event: Ukraine's dispute with Russia over gas supplies took a turn for the worse on Monday (3 Mar) as Gazprom cut supplies 25%, or around 30 mcm/day, in response to non payment by Ukrainian counterparties. NAK Naftogaz Ukrainy later claimed the actual reduction was 35% (46 mcm/day) though Gazprom has not confirmed this. To put the cut in perspective, Interfax reported that Ukrainian consumption was running at around 150-156 mcm/day last week.

“The Financial Times's Web site reported NAK as claiming it has enough gas in storage after a mild winter to withstand such constraints for a month. Even if this claim is exaggerated, it appears that yesterday's developments are a measured increase in pressure by Gazprom, rather than an outright attempt to force the issue to a crisis. The haggling over gas imports and the division of the spoils from the Ukrainian supply market could go on for some time still. Although we continue to believe that Gazprom chairman Dmitry Medvedev will not want his moment of victory in the presidential elections spoiled by this dispute, it is clear that Gazprom has no intention of surrendering out of deference to the political calendar.

“We are concerned by NAK's claim of a larger supply cut than Gazprom has admitted to. Only one figure can be correct, and NAK's record exposes it to the suspicion that it is preparing to resume illicit siphoning, which would seriously damage the aspirations toward integration with Europe that the government is voicing more and more loudly.”

From: New political friend in the UK
To: Red Exile

… […]…It's really bad news if the UK press is reporting this in such an anti-Russian way. I was also surprised by Gordon Brown's response that the new Russian President will be 'judged by his actions' - hardly warm words for an incoming world leader (who happens to be pretty friendly with Iran!)...


Well, yes, indeed.

The title of this post was inspired by this, wonderful West Wing moment:



PS: Just loving the news that Hilary did so well in yesterday’s Primaries: you go girl!

Declaration: the more I see of Obama, the more I think he is too proud, too-pretty-speech-no-substance and just not the person the rest of the world needs to have in the White House right now.

Viewpoint: McCain beats Obama; but only Clinton can beat McCain

Another reason to remain cheerful about Russia

Yesterday a colleague emailed me:

“[the client’s] CEO was shot (but not killed) last week, so the [deal] is a bit postponed :( ”

(I think adding the emoticon is a nice finishing touch, don’t you?)

This one line email gave me a bit of a boost as:

- The guy lived, right?
- It has been ages since a client of mine has been shot; years in fact, which illustrates that the so-called Wild, Wild East is becoming a normal business environment just like everywhere else (oh yes! Brittle smile… )

In fact, this email came from our Kyiv office, which is an even more important reason to be cheerful for Russians therefore. No nasty shootings with our Russian clients, oh no! But in touchy-feely, oh-so-democratic Ukraine? Um… business-by-bullet is still occasionally an issue there.

Probably there is no more eloquent testimony to President Putin’s success in bringing order and safety to Russia than the fall in the numbers of (intentional) corporate killings. And when it happens, it’s screamed from the front pages and everyone is very shocked. Actually I bet business-by-bullet is more common in the USA than here…

PS: the actual story of who shot the client and how, is… er… very funny, but there is no way I can repeat it here. Just suffice it to say long-liquid-lunches and an Uzi-semi don’t mix: as ‘props’, to make a point in a post-lunch debate, they are more ruinous than rhetorical.

Actually, come to think of it, our ‘track record’ is pretty good here. Racking my brains I don’t think we’ve lost anyone ‘on-the-job’/client-wise due to corporate hits; excluding, a tad before my time, an incident in Georgia.

There, I think, the client CFO was murdered and we instigated, for our people, a ‘crash-evac’ (as one past employer of mine called them); or fast extraction. You know the drill: beefy body-guards, armour-plated fast cars, private plane… Damn! Very cool…

Well, at least that is how a previous employer conceptualized the process. Not sure about my current one though (bus timetable and overnight train to Finland is perhaps more likely if trouble came my way… and I would have to buy the bus ticket).

Other than "shots fired!" (a shoot-out by my chauffered-Merc) in Kazakhstan, in the 1990s’ aluminium wars – advice that day to me from then British Ambassador: “We cannot guarantee your safety and we recommend you leave the country. Today please, if you can.” - and lock-down / petrol bombs in Haiti, my life has actually been rather sadly suburban.

Although there was the anonymous delivery of a ‘black silk mourning’ tie to my office on my arrival – just weeks after I shafted a well-known Russian oil company on a big deal in Turkey – and a petrol-bombing in my elitny street, one summer’s night. But, hey, that happens everywhere, right?

Favourite word of the day? ДЕМШИЗА – Demshiza; a nice mélange of democrat and schizophrenic. It’s what United Russia-types call the pro-Kasparov loons. Seemingly, with cause.