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RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #0340/01 0391345
ZNR UUUUU ZZH
R 081345Z FEB 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6477
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 MOSCOW 000340 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS, EEB/IFD 
STATE PASS TO USTR 
TREASURY FOR TORGERSON 
COMMERCE FOR EDWARDS 
NSC FOR WARLICK 
 
 
E.O. 12958: N/A 
TAGS: EINV ETRD RS
 
SUBJECT: Russian Companies: Emerging Global Players 
 
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Summary 
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¶1.  (SBU) Russian companies are increasingly going "global" -- 
expanding rapidly overseas through acquisitions and investments. 
Russian companies, flush with cash, are joining their Indian and 
Chinese counterparts as a new breed of multinationals.  Oil and gas 
companies are the most active but metals and telecommunications 
firms are becoming more involved abroad as well.  The focus is no 
longer just in the CIS and Europe, but also increasingly in Asia, 
Africa, and to a lesser extent even in North America.  These firm's 
motivations include the need to acquire greater technical know-how, 
to expand their profit base, and to take advantage of opportunities 
for quick returns.  Presidential-hopeful Dmitry Medvedev and other 
Russian political leaders, no longer concerned about capital flight, 
have expressed support for continued foreign investment by Russian 
firms.  End Summary 
 
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An Emerging New Player in the Global Marketplace 
--------------------------------------------- --- 
 
¶2.  (U) Russian companies are increasing their participation in the 
global economy.  They are rapidly expanding overseas investment. 
According to the Russian State Statistics Office (RosStat), Russia's 
foreign direct investment (FDI) abroad for the first nine months of 
2007 exceeded $28 billion.  This compares to $14 billion for the 
whole of 2006.  UNCTAD'S World Investment Report shows that the 
stock of Russian FDI grew nearly eightfold since 2002, increasing 
from a starting point of $20 billion to $157 billion in 2007.  Among 
emerging markets, which now account for around 14% of FDI, Russia is 
one of the three biggest investors along with China and Brazil. 
 
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Energy and more 
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¶3.  (U) The most significant Russian investors abroad are Gazprom 
and Lukoil.  Gazprom has been aggressively buying up assets in 
Europe and the former Soviet states and has recently expanded its 
efforts to include Africa.  Lukoil's international presence includes 
projects in the Middle East, Africa, and Latin America.  Other 
Russian energy firms, such as TNK-BP and Rosneft are also active 
abroad, especially in the former Soviet states. 
 
¶4.  (U) However, while energy firms are still the big players, other 
industries are increasing their foreign activities.  According to a 
recent study from the Skolkovo Moscow School of Management in 
December 2007, 47% of the overseas assets of the top 25 Russian 
non-financial multinationals are from non-energy sectors: 25% from 
metals and mining and 22% from transport/shipping, 
telecommunications, and retail.  The biggest metals investors were 
Evraz, Severstal, Norilsk Nickel, and Rusal.  The largest 
telecommunications investors are Vimpelcom and Sistema. 
 
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No longer just CIS and Europe 
----------------------------- 
 
¶5.  (U) As to be expected based on geographic and historic ties, 
over 60% of the foreign affiliates of Russia's multinationals are 
concentrated in Europe and the CIS.  However, investments in Africa, 
Asia and North America are growing. 
 
¶6.  (U) In Africa, four Russian mining companies: Norilsk Nickel, 
Rusal, Russia's diamond monopoly Alrosa, and Renova, have invested 
more than $5 billion in the past three years.  This February, Rusal 
joined with China Power Investment Corp to build a bauxite and 
alumina complex in Guinea, where Rusal already owns a mining firm, a 
refinery, and a bauxite deposit.  Rusal bought a majority share in 
Alscon (Aluminum Smelter Company of Nigeria) last year and its 
smelter will start operations this month.  Renova is active in South 
African manganese via the joint venture United Manganese of Kalahari 
(UMK). 
 
¶7.  (U) In Asia, telecommunications investments predominate.  In 
September 2007, a Russian telecom company, Vimpelcom, announced 
plans for a global system for mobile communications based in 
Vietnam, possibly investing up to $1 billion over the new few years. 
 Vimpelcom is controlled by another Russian firm Altimo (itself part 
 
MOSCOW 00000340  002 OF 002 
 
 
of the Alfa Group), which in August 2007 acquired 90% of the 
Cambodian mobile operator Sotelco.  Sistema gained a foothold in 
India's fast-growing telecom market by investing $520 million in its 
Indian subsidiary Shyam Telelink in 2008, and plans an additional $7 
billion in network infrastructure. 
 
¶8.  (U) Russian FDI in the United States for the first nine months 
of 2007 was around $750 million (RosStat figure), a 30% increase 
over 2006.  The top 25 Russian multinationals now have 9% of their 
affiliates in the United States and Canada.  Much of Russia's 
outward FDI into the United States has been through merger and 
acquisitions in 2006-2007, including the purchase by Russia's 
biggest steelmaker, Evraz Group, of three US-based companies in 
2006-2008: Stratcor, Claymont Steel Holdings, and Oregon Steel 
Mills.  Another Russian steel producer, Severstal, purchased Rouge 
Industries three years ago.  In Canada, Norilsk Nickel bought 
LionOre last year. 
 
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Motivations 
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¶9.  (SBU) The principal motivation is, of course, profits.  The 
ruble's appreciation vis-`-vis major currencies -- 19% against the 
dollar in a 12-month period, 4% against the Euro -- has given the 
large Russian companies spare cash to invest overseas and the chance 
to acquire profitable foreign companies at a discount.  Russian 
companies are also eager to take advantage of "get-rich-quick" 
opportunities.  Alexander Bulygin, Rusal CEO, said that the past two 
years were of particular importance for Rusal, which achieved 
"significant production and financial" results by acquiring 
strategic assets abroad. 
 
¶10.  (SBU) In addition, Russian companies are facing an increasingly 
saturated domestic market and need to expand abroad to maintain and 
increase profits.  A telecoms analyst at J'son & Partners noted that 
although the domestic telecom market brought in $20 billion in 
revenue in 2007, growth was the result of old clients acquiring new 
handsets rather than the firms acquiring new clients.  In that 
regard, Alexander Goncharuk, Sistema's president and CEO, recently 
called India one of the most attractive telecommunications markets, 
and one with a high growth potential.  Sistema plans to build a 
national telecommunications network in India. 
 
¶11.  (U) A third motivation is to acquire needed technical expertise 
through overseas acquisitions.  For instance, the Evraz Group 
recently acquired Oregon Steel and Claymont Steel and is using the 
expertise acquired in these deals to press forward with its strategy 
of turning itself from a Russian into a global steel producer.  At 
the same time, they are using Russian capital to revitalize the U.S. 
steel plants they acquired. 
 
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Support From Above 
------------------ 
 
¶12.  (SBU) Russian expansion overseas is still a relatively new 
phenomenon, and until recently, few Russian politicians identified 
it as a priority.  That seems to be changing.  Speaking before the 
all-Russia Forum of Industrialists and Entrepreneurs on January 31, 
First Deputy Prime Minister and presidential hopeful Dimitry 
Medvedev expressed support for Russian companies investing abroad. 
Previously the government had been neutral regarding Russian 
investment abroad, analysts at Skolkovo Research Center in Moscow 
told us. Officials were concerned about capital flight and until 
2006, when capital controls were lifted, Russia was a net exporter 
of capital. 
 
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Comment 
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¶13.  (SBU) Despite global aspirations, few, if any, Russian 
companies are expected to be market leaders any time soon.  However, 
as long as the ruble stays strong vis-`-vis major currencies, and 
Russian companies remain relatively cash-rich, Russian foreign 
investment will continue.  End Comment. 
 
BURNS