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Russian Revolution

Another Russian revolution breaks out

A good week in getting the attractive fundamentals of investing in Russia across internationally. Last Saturday Katherine Hille and Henry Foy, from the Financial Times’s Moscow bureau, published a seven-page feature in the weekend magazine titled ‘The Next Russian Revolution.’ A hundred years on from a very different revolution, this was a fascinating read on how technology is transforming the Russian economy. It was gratifying to work with the Financial Times on this as it highlighted a number of our clients being in the vanguard of this transformation.

The feature was a great scene setter for two of our long-standing clients to hold their annual Capital Market Days in London over the following week, TMK and Severstal. With Russia returning to growth and two major listings so far this year including our client Polyus, international investor interest is definitely returning to pre-crisis levels. Both events were well attended with lengthy and vibrant Q&A sessions demonstrating an eagerness to get to grips with two compelling investment opportunities. Indeed, another Hudson Sandler client, The Russian Direct Investment Fund, has recently highlighted that Foreign Direct Investment (“FDI”) has returned to pre-crisis levels, with their team playing a major role helping to make this happen.

TMK, one of the world’s leading producers of tubular products for the oil and gas industry, were first on Monday. Led by Chairman Dmitry Pumpyanskiy, the top management team set out their up-dated strategic goals underpinned by renewed momentum in their US business and growing drilling activity in Russia. Severstal, a leading vertically integrated steel and steel-related mining company, saw new CEO Alexander Shevelev lead their top team which was joined by senior NED Sakari Tamminen. Severstal was more bullish than last year about the industry environment highlighting capacity reductions in China and growth in steel consumption across all major markets.

But a major theme in both was how they are delivering major jumps in growth and efficiency through big-data-led efficiency. TMK highlighted how TMK trade customers in Russia can quickly and easily place an order from any of their plants, track them, calculate the delivery cost and obtain all the required documentation. Severstal is also investing heavily in its e-commerce capabilities. By 2018 they estimate that all customers will be using their online store which will help drive a six-fold increase in sales volumes via their e-market place. Indeed, Severstal unveiled ambitious plans to deliver an additional $350 million to its 2018 EBITDA through operational enhancements, innovation and digitalisation.

Investors have long appreciated the attractive macro fundamentals of investing in Russia including a strong resource base, educated workforce and a large and dynamic economy. Jeff Immelt, Chairman and CEO of General Electric, recently said: “GE is proud to collaborate with Russia, one of the world’s biggest economy, and help continue efforts to modernize its industrial infrastructure.” But it is Russian corporates such as TMK and Severstal that are driving this modernisation. Already world leaders in their respective industries, both are going to re-enforce their competitive advantage through innovation. That was the key take away many of the investors volunteered as they left both CMDs.

Andrew Hayes, Managing Partner

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