Russia to Resume State Asset Sales to Bolster Budget

By Hans Nichols and Alex Nicholson

Sept. 22 (Bloomberg) -- Russia will resume asset sales as the government struggles with its first budget deficit in a decade, First Deputy Prime Minister Igor Shuvalov said.

The government has about 5,500 enterprises that can be converted into joint stock companies and sold starting as early as this year, Shuvalov said in an interview with Bloomberg Television in Washington. Russia may also sell part of its stakes in companies that are already publicly traded, including OAO Rosneft, the country’s biggest oil producer, he said.

“Now is the time that we can return” to privatization, Shuvalov said after talks with U.S. Treasury Secretary Timothy Geithner and Lawrence Summers, director of the White House National Economic Council, late yesterday. “When it was very good, the market, we were collecting money for our reserves and we didn’t talk much about privatization. It was almost dead.”

The world’s largest energy exporter is struggling to meet spending commitments and contain its budget gap after the price of crude oil, the country’s main export earner, plunged by more than $100 a barrel in the second half of last year. The price of crude is now about $70 a barrel. The public deficit, the first since 1999, may reach 8.9 percent of gross domestic product, or about 3.4 trillion rubles ($112 billion) this year, the Finance Ministry said on Aug. 18.

Shuvalov, 42, said the government may start its new wave of selloffs this year, offering as much as 20 percent of OAO Sovcomflot, the shipper that merged with smaller rival OAO Novoship in 2007. The bulk of remaining sales will probably commence in the second half of 2010, with seaports, river ports and airports that need “huge amounts of investment,” he said.

Oil Licenses

Russia’s last major asset sale was in 2007, when VTB Group, the country’s second-largest bank, raised $8 billion in the biggest initial public offering of the year. Rosneft’s IPO a year earlier raised $10.6 billion.

Shuvalov said the government also plans to raise money by auctioning off licenses for untapped deposits of oil, natural gas and metals. “We have good assets,” he said.

Russia’s economy shrank a record 10.9 percent in the second quarter as industry floundered and companies struggled with slumping demand for the their products at home and abroad. Overdue bank loans reached 5.5 percent of total lending in July, compared with 5 percent a month earlier, according to the central bank. Overdue corporate loans jumped to 5.3 percent in July from 4.8 percent in June.

Banking Crisis?

“In spring, when the decline curve was very deep, we thought that the portfolio of bad debts will be enormous,” Shuvalov said. Now bad corporate debt accounts for no more than 5 percent of the total, compared with some analysts’ forecasts for a 10 percent delinquency rate by autumn, he said.

“Possibly we will face another phase of banking crisis,” Shuvalov said. “Its possible and we have prepared ourselves, but it’s not happening. Now there is no problem.”

To contact the reporters on this story: To contact the reporter on this story: Hans Nichols in Washington at Hnichols2@bloomberg.net; Alex Nicholson in Moscow at anicholson6@bloomberg.net.