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. Last Updated: 07/27/2016

EBRD Seeking Big Role In Privatization Effort

The European Bank for Reconstruction and Development plans to take a major stake in some newly privatized Russian companies.


Ronald M. Freeman, first vice president for merchant banking, said Tuesday that the bank is preparing to spend up to $200 million investing in stock issues of former state enterprises.


No such issues, in which privatized Russian companies would offer stock to raise money, have taken place yet, but Freeman said he expects them soon.


Such share issues are a logical outgrowth of the privatization process, since no new capital is raised when Russians exchange their 10, 000-ruble vouchers for stock in state enterprises.


The EBRD would target the program at small- to medium-sized companies of 200 to 1, 000 workers, who are not covered by other assistance measures. Small companies would be served by a soon-to-be established small business fund, and large companies could receive direct loans or make their own deals with foreign investors.


"What they need in the early years is equity", Freeman said, referring to the medium-sized companies.


Freeman said the EBRD was considering buying into an issue of the Bolshevik Biscuit Factory, the first large government-owned enterprise to go on the auction block. The company hopes to raise money to upgrade its production line.


Freeman suggested the EBRD could take as much as a 25 to 30 percent stake in such companies.


The investment will likely take the form of a mutual fund, in which the EBRD and other international financial institutions could participate.


Lou Naumovski, the EBRD's Moscow representative, said the bank hopes its initial investment would attract hundreds of millions more dollars from other institutions. The fund could also serve as an incentive for companies to privatize, offering an equity infusion to companies that leave state control. Since the fund would have a substantial stake, its members would gain seats on the boards of newly privatized companies and help push them towards restructuring.


"It would allow us to exert influence but not control", Naumovski said.


The EBRD was set up two years ago by Western and former Communist states to help the countries of Eastern Europe and the former Soviet Union develop market-based economies.