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Russia is of the largest producers of crude and natural gas on the planet giving credability to Senator John McCain's 2014 comment about the country being a gas station. A look at Russia's companies on the Forbes Global 2000 list shows that's only partially true, because it's also a big mining operation.
The only new Russian company added to the list this year was gold miner Polyus Gold, majority owned by the man some call the Russian Great Gatsby, Suleiman Kerimov, a billionaire.
Russia's biggest companies are all either banks or extraction companies of some kind — usually oil and gas. Gazprom is Russia's biggest, ranked as the 43rd largest company in the world, down from #40 in 2017.
At least half of Russia's top companies, including Sberbank, is sanctioned or are facing increase tariffs for steel and aluminum exported to the United States. Billionaire Oleg Deripaska is one of Russia's double-whammy victims of Washington's ire. He has individual sanctions against him, and his aluminum company United Rusal is both sanctioned and hit with new tariffs. Rusal was the 961st largest company in the world last year, rising from the 1,255th spot in 2016. This year, it's #1,098.
He is not the only one. Rosneft CEO Igor Sechin, known as Darth Vader in the local press, is both on the individual sanctions list at the Treasury Department, and his company has faced sectoral sanctions since 2014. Certain business dealings are off-limits for Americans with Rosneft. ExxonMobil had to scrap a $720 million joint venture with Rosneft to drill for hydrocarbons in Russia's frigid Arctic Sea. Last year, Rosneft was the 82nd largest corporation in the world, falling from 75th place in 2016. This year has Rosneft is #73.
So wait a minute here. Last year Russia had 25 companies on the list; 26 if you include Rusal which is registered in Cyprus. This year sees Russia with one more addition in the gold miner. Moreover, five of the biggest, most well-known of the Russian sanctioned companies — Gazprom, Rosneft, Lukoil, Sberbank and VTB Bank — have all seen their numbers rise.
For the oil and gas companies, this has a lot to do with rising commodity prices and global growth. Their biggest consumers outside of Russia are the Europeans, and Europe is buying more Russian gas.
For banks, lower interest rates and a growing domestic market in sectors led mainly by another commodity — agriculture — is helping. Not to mention the fact that the central bank has spent much of the last two years shutting down mid-sized and even some larger private banks like Otkritie Bank. Otkritie is 99.9% owned by the Russian central bank.
The only non-financial, non-commodity companies that constitute Russia's biggest are supermarket chain Magnit, defense contractor United Aircraft Corporation, airline Aeroflot and chemicals company Uralkali. Two power utility companies are on the list.
Oddly enough, the only one of the four that has not slipped in their rankings is United Aircraft Corporation, #1,822 on the list this year versus #1,829 in 2017.
The sanctioned entities have done better. Yes, Russia is a figment of our wildest imaginations.
It is a tough nut to crack. Many of Russia's most successful firms opt to register as corporate entities overseas. Yandex, Russia's biggest tech company, is registered in The Netherlands. Payments systems operator Qiwi is registered in Cyprus. Kaspersky Lab, another brand named Russian firm that once toyed with the idea of going public like Yandex and Qiwi, is registered in London. None of them are make the top 2000 list.
"I think private sector Russia has weathered the sanctions well and some have used those sanctions to improve profitability and market share at home," says Mike Reynal, a long-time Russia and emerging markets investor with Sophus Capital in Des Moines. "But state-owned Russia continues to struggle," he says.
The Forbes Global 2000 list doesn't show that. Russia's Darth Vader is winning. Rosneft shares are up 28% in the 12 months ending May 31. Sberbank shares are up 40.5% over the same period in rubles. The strong dollar accounts for around 10% of that as the ruble has weakened since May 2017.
Russia is still new to this game. They have only begun reforming their economy in the early 1990s. It was the Wild East. It still is. And Vladimir Putin is still the Sheriff in town.
Everyone is waiting for reforms, a big word economists like to toss around, often void of any real meaning. What reforms do Russian companies, and their investors, need most? Reynal says Russia needs to fix its judiciary system and "reinstante confidence in the rule of law."
"The core building blocks of an attractive economy are the rule of law, freedom to act commercially, and equal treatment for investors of all sizes," he says. "Unfortunately, none of those three are fully present in Russia today."
Source: Forbes
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