Global Finance (May 2005)

75 Pages·2005·4.379 MB·English

REGIONAL REPORT: SOFTWARE HELPS COUNTRY REPORT:
CENTRAL & EASTERN COMPANIES TRIM COST CYPRUS SETS SIGHTS
EUROPE OF COMPLIANCE ON EURO ENTRY
PAGE 14 PAGE 20 PAGE22
2 0 0 5 W O R L D ’ S B E S T E M E R G I N G M A R K E T B A N K S
MAY 2005
PAGE 8
RREEAADDYY FFOORR TTHHEE
BBIIGG TTHHAAWW
Investing in Russia is only for the brave. But
when the country’s frosty investment climate
warms up, it will, yet again, be the place to be.

CONTENTS
MAY 2005 | VOL.19 NO.5
COVER STORY COVER STORY
REGULARS
BY MARK LEHANE
8 Russia: Only For The Brave
The stakes are high,and so are the 2 Dear Reader
risks.So why are multinationals
A letter from the editor.
still buying into the Russia story?
4 Newsmakers
FEATURES US treasury secretary John Snow says the
14 Regional Report: Central ENTRY STRATEGY time has come for China to float the yuan;
BY JONATHAN and Belgian finance minister Didier
and Eastern Europe
GREGSON
Reynders offers the country’s difficult-to-
Prospective future entrants to the
collect tax receivables as an investment
EU have been watching with
product.
interest the progress of the 10
countries that joined the union a
5 Milestones
year ago.
Lehman Brothers beefs up its presence in
20 Financial Software: SOFTWARE SOLUTIONS: the burgeoning hedge-fund industry; and
BY ADAM ROMBEL London asserts its position as the listing
Compliance
location of choice for Russian and Kazakh
Companies are finding that
companies.
software can help them rein in the
high costs and disruption caused
17 Emerging Markets Roundup
by complying with new
regulations. The latest news from China, India, Russia
and Brazil.
22 Country Report: Cyprus COUNTRY REPORT:
CYPRUS
As its economy continues to grow, 19 EM Investor
BY LAURENCE NEVILLE
Cyprus is hoping to take Key information for investors in emerging
advantage of its strategic position
markets.
between Europe and the
burgeoning markets of the Middle
65 Focus: Corporate Debt
East and Africa.
As General Motors and Ford Motor flirt
with high-yield status, some investors find
24 The World’s Best Emerging AWARDS: WORLD’S
BEST EMERGING the returns attractive.
Market Banks, 2005
MARKET BANKS
Our 12th annual survey of the BLAYU GROERNDCOEN N PELVAILTLTE,, 68 Foreign Exchange
world’s best emerging market
PAULA L. GREEN AND Analysts say outlook could worsen for
banks honors those banks that SANTIAGO FITTIPALDI
dollar as current-account deficit becomes
consistently provide excellent
ingrained.
service and security in often-
tumultuous markets.
70 Global Equity/DRs
60 Roundtable: Treasury and ROUNDTABLE: Companies issuing global depositary
TREASURY AND CASH receipts prepare for the EU’s new
Cash Management
MANAGEMENT
prospectus rules.
We brought together some of the
industry’s leading players to discuss
71 Mergers & Acquisitions
recent developments in the cash
management industry.Joseph Once fierce competitors, private equity
Giarraputo moderated the firms are working together to pursue
discussion. bigger targets.
2005 MAY 1
DEAR READER
MAY 2005 | VOL.19 NO.5
Putin’s Dangerous Game
W
hat a difference two years can make.As we find out in
RCEUEEGNRIOTORPNAE2A L0 L & 0R E5E AP SOW TR OE T R:RPANLGE D14’S SCOBOOF FMECTSPOWATMAN PRIELEEIMSA HENTERCRLIEPGMS ICNPOAGGSE T 20MACCORYONPUK ERNEUUTTRSRO YSB EERANTENTSPR KOSYRSI GT H: TPASGE22 our cover story this month (see page 8),the currently
EDITOR IN CHIEF AND CHAIRMAN: PAOLO PANERAI
frosty investment climate in Russia is showing no signs
MAY 2005 PUBLISHER AND PRESIDENT:JOSEPH D. GIARRAPUTO
of warming up any time soon.President Putin’s Kremlin is
becoming,if anything,more interventionist,prompting foreign and
EDITOR:DAN KEELER
domestic companies alike to review their plans for investing in
RREEAADDYY FFOORR TTHHEEPAGE 8 Russia’s markets. CONTRIBUTING WRITERS:
BBIIGG TTHHAAWW GORDON W. PLATT, JR., JONATHAN GREGSON, ADAM ROMBEL
All this is a far cry from spring two years ago,when this PAULA L. GREEN, AARON CHAZE, THOMAS CLOUSE,
KIM ISKYAN, LAURENCE NEVILLE, SANTIAGO FITTIPALDI
Iwnhveens ttinhge icno uRnutsrsyi’as ifsr oosntyly infovre stthmee bnrta cvlei.m Bautet magazine was confident that Russia had become—finally—a “safe”
warms up, it will, yet again, be the place to be.
place to do business.Back then,the country was eagerly PRODUCTION MANAGEMENT (MILAN):GIULIANO CASTAGNETO
anticipating a flood of new foreign investment,prompted by a ART DIRECTION:ER CREATIVITY/ENRICO REDAELLI,
CLARA CIOCCHINI
conviction that Putin’s government had succeeded in creating a
COPY EDITOR: TINA ARIDAS
fair,transparent business environment.
Then came the so-called Yukos affair,which marked the start of
VICE PRESIDENTS, SALES:SEBASTIAN CAZEIRO,
the country’s slide down a long,slippery slope.What looked LEWIS GALATI, PETER RIORDAN, THOMAS GEORGIADES,
GRAEME McQUEEN, SALES DIRECTOR, EUROPE AND ASIA,
initially like an isolated,politically inspired tussle now appears to be
RICHARD SCHOLTZ, SALES MANAGER, EUROPE
part of a much bigger plan to bring much of Russia’s business
MKT’G COORD, SPECIAL PROJECTS/EVENTS:
world back under,or at least close to,state control.Putin is said to NATASHA TRAJKOVA
have assured investors that he has no plans to revisit privatizations PUBLISHING ASSOCIATE:
LAURA GALLETTI
that took place more than three years ago,but for many nervous
MANAGING DIRECTOR, OPERATIONS:
investors that provides little comfort. CHRISTOPHER GIARRAPUTO
The Russian president may have perfectly good reasons for his ACCOUNTING MANAGER:YAWO GBEGNEDJI
apparent crackdown on big business,but the impact of his hard-line ADVERTISING OFFICES
LONDON 44-207-583-7588
approach could hardly be clearer.During 2004,the year that
NEW YORK 1-212-447-7900
optimistic Russia-watchers had predicted would see the return to RIO DE JANEIRO 55-21-2274-3099
Russia of large amounts of flight capital,official statistics show that ADVERTISING REPRESENTATIVES: Bulgaria: Elka Koleva, Adia Advertising
Agency. China: Mary Yao, Media Gateway International Ltd. Germany: Erhardt
money was leaving the country at an average rate of more than $21
Eisenacher, Eisenacher Media. Hong Kong, Malaysia, Singapore:Godfrey Wu,
million per day. MHI Limited. India:Faredoon Kuka, Ronny Mistry Assoc. Pvt Ltd. Indonesia:
Rita Jayadi, PT Mediarep. Israel:Asa Talbar, Talbar Media. Japan:Shigeru
That money—almost $8 billion in 2004—has to go somewhere. Kobayashi, JAC Media. Mexico & Costa Rica:Xavier Romero Goytortua.
Pakistan:Imran Ahmad, Pace. Philippines:Abdel Teodoro. Russia/CIS Baltic
In a world where emerging markets investors are often spoilt for
States:Arkady Komarov. South Korea:Heinz Kim, Heinz Communications Inc.
choice and where capital flows can be capricious,Russia’s leader is Taiwan:Keith Lee, Advance Media Services Ltd. Thailand:Nartnittha
Jirarayapong, N.J. International Media Company, Ltd. Turkey:Lemi Tanca
playing a dangerous game.
GLOBAL FINANCE MEDIA INC
Until next month, CHAIRMAN: P. PANERAI
VICE CHAIRMAN:A. BASODAN
DIRECTORS:G. CAPOLINO, J. GIARRAPUTO,
A.MATTEI, I. MAJEED, V. TERRENGHI
SECRETARY:L. PANERAI
FOUNDING EDITOR:CARLG.BURGEN
May 2005, Volume 19, Number 5. Global Finance (ISSN 0896-4181/USPS 006-578) is
Dan Keeler published monthly except a combined July/August issue in July by Global Finance
Media Inc, 411 Fifth Avenue, New York, NY 10016. Telephone: [phone]. Fax: 1-212-
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INTERNATIONAL R
2 MAY 2005

G
NEWSMAKERS GLOBAL F FINANCE
AROUND THE WORLD
US
BELGIUM
SNOW SAYS THE TIME GOVERNMENT TO SECURITIZE
UNCOLLECTED TAX DEBT
HAS COME FOR CHINA
TO FLOAT YUAN
Belgium has discov-
US treasury secretary John exchange rate,introducing ered a new asset
Snow appears to be foreign exchange market class for securitiza-
tion: the govern-
losing patience with products and strengthening
ment’s uncollected
China’s foot-dragging on banks and bank supervision,”
tax debt. Finance
moving to a flexible currency Snow said.“It’s time to take
minister Didier Reyn-
system.For years now,China the next step and move
ders says it is feasi-
has argued that its toward more currency
ble for Belgium to
undeveloped financial system flexibility,”he said. offer the country’s
was too weak to sustain the Canadian finance minister difficult-to-collect
potential shock of a free- Ralph Goodale reinforced tax receivables as an
floating currency,but Snow is Snow’s remarks by saying that investment product
having none of it.Following a “China should understand on the financial mar-
meeting of Group of Seven that there’s a freight train kets on a regular ba-
sis to help meet its
finance ministers in coming”in the form of US
fiscal goals.
Washington last month,Snow and EU trade restrictions.
The government
told a press conference that Analysts doubt,however,
has hired NautaDu-
Beijing had made enough that China will revalue or
Didier Reynders:Aiming to trim deficit tilh, a Netherlands-
progress in preparing for the float its currency in response
based international
move and that now is the to foreign pressure.Further law firm, to assist with the first securitization of its out-
time to act. capital-account liberalization standing unpaid taxes. JPMorgan Chase was appointed as fi-
“China has taken numerous is an essential precursor to a nancial adviser on the trial project, with the placement of
steps over the last few years, revaluation of the yuan,says securities scheduled for later this year.
including preparing for Mike Newton,global head of Reynders says the first securitization will raise about
greater flexibility in its emerging market foreign $340 million and will require that an additional $52 million
be invested to improve the government’s ability to collect
exchange strategy at HSBC in
the debt. In addition to taking on the risk of not being able
New York.“We think that the
to collect the taxes due, the investor must be willing to in-
US administration wants to be
vest in strengthening the tax authority.
seen to be pressuring China
This will be the first time that securitization of tax debts
for domestic reasons but does
has been tried in Belgium. Portugal used a similar procedure
not want to create political to collect about 15% of its outstanding unpaid tax revenues
tensions that might in 2003. The Portuguese program followed an earlier securi-
undermine cooperation over tization of social security claims by Italy.
security issues or progress on The Belgian government plans to use the net proceeds
intellectual property rights,” from the securitizations of unpaid taxes, and from a cam-
Newton says. paign to stamp out tax fraud, to enable it to ease the tax
burden on working people. The government aims to main-
“Furthermore,with China
tain a balanced budget this year as required by the Stabili-
and Japan trading barbs over
ty and Growth Pact. Belgium is slowly reducing its debt
issues that stem from a time
ratio, which currently stands at a still-high 96% of gross
when China was under
domestic product.
occupation,the idea that the
The government’s long-range budget program seeks to re-
PRC will think this is a good duce the fiscal deficit and secure future financing for the so-
moment to give in to foreign cial security and welfare systems in the face of an aging
pressure on the currency is population.
ludicrous,”he says. —GP
John Snow:Laying down the law
—Gordon Platt
4 MAY 2005
G
MILESTONES GLOBAL F FINANCE
TAKING NOTE
UNITED STATES
LEHMAN BEEFS UP PRESENCE
IN HEDGE FUND INDUSTRY
Why are investment banks HedgeFund.net database pouring money into hedge funds to get into and out of
buying into hedge funds? To owned by Channel Capital.A funds,the industry is being positions quickly.
paraphrase bank robber leading bond-index provider, stretched and needs help in Lehman,which has long
Willie Sutton,“Because that’s Lehman says the addition of meeting the fast-growing been known for its fixed-
where the money is.” hedge fund benchmarks will demand.The investment income capabilities,also will
Lehman Brothers last month provide investors with new bankers,meanwhile,need to gain the opportunity to
paid an undisclosed sum for a performance measures for find outlets for their talented continue its expansion into
20% stake in Ospraie,a this quickly growing market traders,who might otherwise equity trading. —GP
hedge fund that manages segment. jump ship and start funds of
about $2 billion and invests With its Ospraie holding, their own.
in basic industries and Lehman will have access to In order to attract the
commodities. new investment opportunities business of hedge funds,
Lehman is no stranger to started by the hedge fund. which now manage $1
the hedge fund business.It For its part,Ospraie will gain trillion in assets,Wall Street
already held 20% of GLG better access to Lehman’s firms have invested heavily in
Partners,a British hedge fund prime-brokerage business, the technology needed to
in which it was seeking to which lends money to hedge interact efficiently with a
increase its stake.In January funds to leverage their wide range of markets.They
Lehman announced plans to investments. need the volume to support
launch a series of hedge fund With pension funds and their clearing and technology
RRiicchhaarrdd FFuulldd,, LLeehhmmaann’’ss CCEEOO
indexes based on the other institutional investors services that enable hedge
CIS
RUSSIAN AND KAZAKH COMPANIES HEED LONDON’S CALL
Companies are attracted by good demand for initial public offer-
London-bound:The city’s appeal is growing
ings in London, as well as lower compliance costs than in the US, says
Mark Jarvis, managing partner for client service and accounts at
Ernst & Young, a global audit and consulting firm that employs 1,880
people in its 13 offices in the CIS countries. And, of course, London is
much closer geographically than New York or Toronto, he says.
“It is clear that the LSE will remain the key exchange for CIS com-
panies in the next few years,” Jarvis says. “For 2005 this is already
an easy guess, considering that [Russia-based mobile-phone con-
glomerate] Sistema received over $1.3 billion in its LSE placement
this year,” he says.
According to the LSE, its members traded $64 billion of Russian
stocks in 2004, a 76% increase from 2003. “A typical London place-
ment for the region is a company registered in the UK, holding stakes
in two or three CIS oil or metals-mining projects and co-managed by
Russian and other CIS-based companies overwhelmingly select the reputable Western directors,” says Vladimir Merkushev, research di-
London Stock Exchange as the favorite foreign destination for rais- rector for the CIS at Ernst & Young.
ing equity capital, according to a study by Ernst & Young. The LSE While energy and mining will remain important, the study says
and its growth market, known as the Alternative Investment Market, consumer and financial companies will increasingly list CIS-regis-
or AIM, accounted for two-thirds of all equity placements and 41% of tered companies in the next few years. Banks last year replaced
the cash raised by CIS companies in the three years ended last De- energy companies as the major borrowers on the eurobond mar-
cember, the study says. ket in the CIS. —GP
2005 MAY 5
T H E B A N K O F N E W Y O R K
S P O N S O R E D S T A T E M E N T
The Bank of New Yor k ’s EEMEA
Con fer en c e Draws Rec or d Atten d a n c e
Not far from the ancient Via Maris, a route used for thousands
of years by traders and travelers, EEMEA issuers met to discuss
trade of a more modern sort.
With the Red Sea to the south and the intensive setting. “The EEMEA region is
Mount Sinai mountain range to the geographically large and diverse and issuers from
north,Sharm el-Sheikh,at the southern tip of Poland,for instance,do not often have the
the Sinai peninsula in Egypt,was the setting for opportunity to speak to and learn from issuers in
The Bank of NewYork’s seventh annual South Africa”said Moro.
international debt and equity conference for
Emerging Europe,Middle East and Africa Corporate Governance and Regulation
(EEMEA) issuers.This year’s conference drew a The US Sarbanes-OxleyAct of 2002 has had
record 165 attendees from 22 countries,among significant ramifications for DR issuers and their
them 20 current American and global depositary advisers,and there seemed to be no question
receipt (DR) issuers among attendees at
and more than two the conference that
dozen international satisfying the Act’s
debt issuers. requirements has
What they heard cost foreign issuers
from the Bank of in the US
NewYork’sAnthony considerable time
Moro,vice president and money—most
and head of DR of it due to
marketing,had to compliance with
make them happy. Section 404 of the
EEMEA has 347 Act.Section 404
DR issues from was designed to
more than 275 companies in 25 countries.These ensure that a company’s internal control
companies have a total market capitalization of processes are up to standard.
$1.8 trillion, and their DR market capitalization Ho wever ,ma n y issuers who commented on
is over $58 billion.Moro reported that 2004 was the subject thought the benefits of listing in the
a great year for DR issuers:The Bank of New US wer e,for var ious rea s o n s , wor th the costs of
York’s Emerging Market ADR index increased complying with Section 404.Ac c o r ding to
by 18.1%,double the return on the S&P 500 Thomas Marti n , a director at
index.The 2004 return on the MSCI Emerging P ri c ewat e r h o u s e C o o p e r s in South A f ri c a ,“ B e t t e r
Europe and Middle East Index was even in t e r nal controls lead to better informa t i o n ,
stronger at 35.8%. which can lead to quicker and better decision
The two- d a y Conference was struc t u r ed to help ma k i n g . ”Da vid Haddon general counsel and
the reg io n ’ s leading companies focus on improvi n g se c r et a r y of South Af ri c a ’s Randgold Resource s ,
their investor relations efforts and corpo r a t e sa i d . “ The vast majority of the gold bulls are in
go ver nance proc e d u r es while making themselves No r thA me r ic a , and that means Randgold mus t
mo r e attractive to international inves t o r s. be listed there.”Nik Jhangia n i , CFO of At h e n s -
The Conference’s format allowed participants based Coca-Cola HBC,s a i d ,“ We needed to
the opportunity to learn from each other and a dr ive our visibility within the beverage sector,as
select group of advisors in an informal but we just wer e not being approp r iately val u e d , an d
6 M AY 20 0 5
T H E B A N K O F N E W Y O R K
S P O N S O R E D S T A T E M E N T
all of our peer the latest round of oil-price increases.And the
group was listed in outlook is for more of the same.The Bank of
the US.This has to NewYork’s Simon Derrick,head of the bank’s
date been extrem e l y currency research group,said,“Over the course
su c c e s s f u l . In of the next decade,if India and China continue
ad d i t i o n , our listing their growth,you
en a b led us to access could expect
the US debt capital energy prices to
ma r k ets at more remain relatively
at t r a c t i ve funding high and large
ra t e s . ” sums of capital to
However,many Camille Abousleiman of continue to flow
potential US Dewey Ballantine into the Middle
issuers are still East.”
wary,and their advisers are telling them their The DIFX says
caution is well founded.Camille Abousleiman,a it will provide an
London partner at Dewey Ballantine,said, exchange built to
Nik Jhangiani of CCHBC
“Because of the personal liabilities of the CEO international
and the CFO under Sarbanes Oxley,we would standards where
recommend US listings for foreign companies this pool can be accessed directly.
only in limited circumstances,where such Issuers at the conference were enthusiastic yet
foreign companies have implemented the somewhat prudent about the new exchange.
necessary internal control systems and Randgold’s Haddon said,“I think that DIFX's
procedures and where there is a compelling plan is exciting,as it will hopefully provide
market reason to be listed in the United States.” companies with access to another substantial
But PWC’s Martin source of investment capital.”Jhangiani of
said it would be CCHBC said,“While we believe that the
short-sighted to DIFX's plan to launch an international exchange
avoid the US to is extremely positive,we would probably not
dodge Sarbanes- consider a listing today as we are currently listed
Oxley because in Athens,London,
“within three to NewYork and
five years there Sydney.However,
could be a we could always
corporate reconsider.”And,
governance said Ibrahim Adel,
mandate in Europe investor relations
Ibrahim Abdel of MTC
that was similar in manager of
many ways to Kuwait’s MTC
Sarbanes Oxley—but hopefully takes into Group,“I find the
consideration the experience of the US Act.” DIFX story to be
very intriguing
Simon Derrick of The
A huge pool of capital and a Bank of New Yor k and potentially
new exchange to tap it. compelling.I
Fadi Ghosaini,managing director and head of would recommend that MTC take a very close
business development for the new Dubai look at a listing there,but I have to see the final
International Financial Exchange (DIFX), documentation regarding the project.I am
presented many participants with their first look impressed by many of the projects undertaken in
at the new exchange.For years,money has been Dubai.They are gaining a reputation as a
flowing to the Gulf States to pay for destination that delivers on promises,and that is
hydrocarbons.The flow has become a gusher in very important.”
2005 MAY 7
COVER STORY
RUSSIA BY MARK LEHANE
ONLY FOR
THE BRAVE
The stakes are high, and so are the risks. So why are
multinationals still buying into the Russia story?
T
he weather outside was sunny; to the decree passed a week before by of falling production in key oil fields as
the mood inside anything but. the Duma state parliament, which de- equipment begins to wear out.
More than 1,000 businessmen, clared a foreign takeover a threat to the The tax bill slapped on TNK-BP is
politicos and financiers had gathered in country’s national security. particularly worrying:The joint venture
early April in the shadow of London’s Siemens shrugged off its disappoint- was widely viewed as a template for for-
Westminster Abbey for their annual get- ment,but there was little hiding the dis- eign participation in the Russian econo-
together on the state of the Russian may among the delegates at the Lon- my and was explicitly rubber stamped by
economy.In recent years,the talk at the don Forum when news filtered through the Kremlin.Robert Dudley,TNK-BP’s
Russia Economic Forum increasingly that Anglo-Russian joint venture TNK- CEO, said his company’s experience
has centered on the opportunities for BP had been hit with a claim for $1 bil- would be “a test of whether Russia could
making money out of Russia’s booming lion in back taxes. integrate with the world economy.”
markets.This year,it was worries about For some time now it has been clear As Global Finance went to press, BP
a return to centralization that were top that the Kremlin’s approach to Russian CEO John Browne was flying to
of the agenda. economic life was a balancing act be- Moscow to talk to President Vladimir
Little wonder:The Yukos affair is near- tween conservatives and liberals; last Putin.That’s not the only bridge-build-
ing its end, with major shareholder month’s event seemed clearly to indicate ing Putin has been doing with the busi-
Mikhail Khodorkovsky likely to face a that conservatives were in the ascendant. ness world. In March he met leading
long stretch in prison and his company Putin’s maverick economic adviser businessmen, reportedly telling them
effectively renationalized.A recent decree Andrei Illarionov described the new or- the government would not revisit pri-
made it clear that only majority Russian- thodoxy as “an interventionist model,” vatizations that happened more than
owned companies would be allowed to characterized by “extremely incompe- three years ago.That put in the clear
bid for key oil fields. tent intervention in economic life by most of the Yeltsin-era loans-for-shares
April brought more bad news for state officials.” deals that created Russia’s present-day
would-be investors in Russia.The gov- That new mood has taken its toll,in oligarch class.
ernment’s anti-cartel body blocked a bid the form of a falling investment rate and Economics minister German Gref
by Siemens of Germany for a 73.5% capital outflows.In 2004 some $7.8 bil- points to the privatization of telco
stake in turbine-maker Siloviye lion left the country,according to official Svyazinvest as evidence that his liberal
Mashiny.The agency said the move statistics.Industries that should be boom- reform program still has legs.Even the
would give Siemens too tight a grip ing are suffering from underinvestment, rather messy merger between state gas
over the turbine market;others pointed say analysts.Most worrying are clear signs monopoly Gazprom and Rosneft can be
8 MAY 2005