Last week the Commission on Foreign Investment met for the third time this year and approved seven major deals. At the meeting, PM Putin noted that “foreign investment in our national economy was $21 billion in the first six months of 2010.”
The deals approved at the meeting included:
- Coca-Cola Purchase of Nidan – as I noted earlier, Coca-Cola was forced to seek Commission approval for its 100% acquisition of Russian juice-maker Nidan because Nidan holds several licenses related to bacteriological research. This deal marks the first U.S. company to [publicly] run the strategic industries gauntlet and is one of the first [public] deals to involve a company engaged in arguably non-strategic work (i.e., consumer goods). Thus, this is a positive note for the implementation of the Strategic Sectors Law and for prospective U.S. investors into “strategic” Russian companies.
- Danone Purchase of Unimilk – Danone’s 5-7 year investment of approximately $500 million will merge its current CIS operations with those of Unimilk, one of the largest dairy producers in the Russian market. The resulting dairy Goliath will account for 21% of the market and generate annual sales of approximately $2 billion (Russians love their dairy products).
- Kinross Gold Corp. Buys Two Gold/Silver Mines in Chukotka – Canadian mining giant Kinross will acquire 100% of Aurelius Holdings Ltd., which in turn owns Severnoe Zoloto Company and Regionruda. This will provide Kinross ownership over the Dvoinoe and Vodorasdelnoe mines in Chukotka, which are 90 miles north of the Kupol gold/silver deposit currently under development by Kinross. The deal is valued at $365 million.
- Fraport AG Acquires Pulkovo Airport in St. Pete – Fraport AG, the owner/operator of Frankfurt Airport will become the proud new owner of the Pulkovo Airport in St. Petersburg. This falls within a broader multilateral project to modernize the Pulkovo airport, with $491 million in investment from the International Finance Corporation and European Bank for Reconstruction and Development. Last year, Fraport signed a public-private-partnership agreement for the development, reconstruction, and operation of Pulkovo. Total investment into the airport is expected to reach $1.6 billion through 2013.
- Bulgarians Buy Kazan Airport – the Bulgarian Aviation Group’s purchase of Kazan airport was also approved. Not much info on this deal is available right now. I would point out that Kazan is one of the most investment-friendly regions in Russia.
- Ukraine Gets Russian Uranium Enrichment – this is one deal that Putin highlighted in his opening remarks. Putin said that Russia is “ready to sell 10% to our Ukrainian partners.”
- Barinov Buys Some Avtokran and Gazprom-Kran – Russian businessman Oleg Barinov purchased shares in OAO “Avtokran” and ZAO “Gazprom-Kran,” both of which are important for the defense and civil engineering industries. The acquisitions were subject to the Strategic Sectors Law because [surprise!] Barinov made the purchases through one of his offshore companies.
Last week I also received the newest proposed amendments to the Strategic Sectors Law, courtesy of the Legal Committee at the Association of European Businesses in Russia. AEB’s Legal Committee has really been on the front lines of the Strategic Sectors Law since the beginning, and has worked to ensure that the law is adopted and implemented in a more investment-friendly way. These latest amendments come direct from the Federal Anti-Monopoly Service (FAS), but negotiations over the final draft are ongoing. The last I heard, we should expect to see a bill submitted to the Duma in September-October of this year. The proposed amendments are written in reference to the existing law (i.e., not as an entirely new law), so it may be helpful to refer to the law – in Russian and English. Here are my non-exhaustive comments on the FAS amendments:
- Most important change – limits the application of the law to foreign investors that belong to a “group of companies,” and not to any “group of companies” to which a foreign investor happens to belong. This is intended to resolve the overbroad interpretation of the law that I discussed here.
- Article 5, Part 2 – the change adds a de minimis exception metric to the law. Specifically, a foreign investor cannot be said to have “control” over a strategic enterprise if it controls 20% or less of the total voting shares of the strategic enterprise. The FAS notes state that this proposal “requires further discussion.”
- Article 6, Part 4 – proposed change would exempt activities involving radiological materials of the “4th category of potential radiological danger.” This is intended to exempt businesses using medical equipment with radioactive substances (e.g., x-rays) from coverage under the law.
- Several of the other additions are simply references to natural monopolies. Since natural monopolies were included in the original bill, this is more of a cosmetic rather than substantive change. Also, many of the changes involve similarly superficial changes to reflect some of the substantive changes proposed.
As always, we end our discussion with some words from Vladmir Vladimirovich:
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- Fraport Consortium Takes Over St. Petersburg’s Airport – Schulte: Further Milestone in Fraport’s International Business (prnewswire.com)
- Kinross buys two Russian firms for US$365-million (financialpost.com)
- Russia approves Danone-Unimilk, Coca Cola-Nidan deals (reuters.com)
- Danone Teams Up With Dairy Firm in Russia (dealbook.blogs.nytimes.com)
- Russia’s new foreign policy puts business first (reuters.com)
- UPDATE 2-Russia to open $29 bln asset sales to foreigners (reuters.com)