Bargains to be had from cash-strapped companies in CIS

Arabian Gulf investors can capitalise on opportunities in cash-strapped markets in the Commonwealth of Independent States (CIS) by providing “politically unengaged capital”, according to the head of a Russian private equity fund.

Ruslan Alikhanov, the president of Argo Investment Company, told the CIS Global Business Forum in Dubai that there are “significant opportunities” for those with cash to invest in the region, most notably through the acquisition of distressed assets.

“It depends on the sector, but there are opportunities in special situations,” said Mr Alikhanov. “The economy is cashed out. There’s not enough liquidity. So you can actually see a lot of companies that are in distress that are available for sale.”

The CIS was created after the Soviet Union’s collapse in 1991, but has never become a solid political or economic union. Indeed, Russia has had disputes with several member states including Georgia and Ukraine, which have shown the CIS to be little more than an “intellectual edifice”, according to Mr Alikhanov. “After the conflicts we have witnessed … the CIS becomes more of a phantom. It does not exist,” he said. “The opportunities for the GCC countries are quite significant in this regard because the GCC countries can bring politically unengaged capital, which essentially we would hope comes with no strings attached. That’s something the CIS needs.”

He warned that potential investors need to do their homework and pay careful attention to the region’s political climate as well as its business landscape.

Jean-Marc Peterschmitt, the chief operating officer for banking for the European Bank for Reconstruction and Development (EBRD), said that CIS “is a strategic region that needs to be in the mind of every global investor going forward”, he said, pointing to the fact that as a bloc it has 280 million inhabitants and a GDP of US$2 trillion.

The EBRD was set up in 1991 to assist the transition of CIS states from communism to market economies, which Mr Peterschmitt said has been largely successful, and has provided good returns for the bank through the funding of successful projects. However, he conceded that states need to be “more balanced and global” in terms of their economic fut­ures.

“We think it is a region that retains good potential.” he said. “It’s all about opening the economy to other sectors – attracting investors with the technology, know-how and experience that investors from around the globe, including the Gulf, can bring.”

Mr Alikhanov said that the ­areas in which he saw the greatest potential for investment were hospitality, real estate, transport and in trading – not­ably soft commodities, such as grains.

“We’re much more sceptical about something that is capital-intensive and takes a much longer time to complete. With the rate that Russian businessmen are burning cash, they will be bankrupt before they can build new business models.”

He said that CIS states were facing perhaps their greatest period of economic uncertainty since they came into existence in 1991.

“A lot of key business decisions are made at times of business discontinuity. We should not make any mistake, what we are seeing in the CIS now is a major discontinuity at the same scale or similar to what happened in 1991. So to a certain extent, it’s either now or maybe again in 25 years.”

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