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. Last Updated: 07/27/2016

Small Cash Auctions Make Big Money

Small cash auctions are quietly attracting millions of dollars to Russian enterprises despite the fact that the government has yet to launch its official cash privatization program, state officials said Wednesday.


Shares in some of the country's most sought-after companies, including oil enterprises, are going to the highest bidder at special auctions held by local property funds to cover privatization expenses, said Igor Golovanov, auction manager at the Moscow branch of Russian Federal Property Fund.


At an auction last week, for example, 0.78 percent of the stock in oil giant Noyabrskneftegaz sold for 48,000 rubles ($20.50) per share, exceeding the stock's current market value of 42,000 rubles, Golovanov said. At the auction price, the total value of the tiny stake amounted to more than $10.5 million.


Shares of oil firms Saratovneftegaz and Sakhalinmorneftegaz, as well as auto maker UAZ, have also sold at prices that significantly exceeded market rates, according to Golovanov.


"Investors are not sleeping any more," he said. "Many paid three and even five times the initial price to get those shares."


Under voucher privatization, the first stage of Russia's privatization program, enterprises are allowed to sell up to 3 percent of their stock for cash to cover expenses incurred during the privatization process.


While voucher sell-offs were being held, such stakes seemed petty and did not attract many investors, who preferred to concentrate on the main auctions and acquire larger shares in enterprises.


But a recent boom in the share prices of privatized enterprises on Russia's fledgling stock market has turned some of the shares offered at the special auctions into hot stock worth millions of dollars.


Golovanov said that small stakes in another 25 firms would be auctioned off before the end of the year, though he would give neither company names nor dates.


Until the scheduled October launch of the second stage of privatization and its promised massive sell-off of state assets for cash, the only other significant source of new shares is investment tenders, which started during voucher privatization.


The Russian Federal Property Fund, which runs most investment tenders, announced in its latest bulletin that contests for shares in a dozen privatized enterprises will be held in September and October.


These will include competitions for an 18-percent stake in the Nakhodka Port in the Far East and a 19.7-percent share of the Kandalaksha Aluminum Works in northern Russia. Bids for both are being accepted through Sept. 30.


Igor Frolov, an expert at the State Property Committee, said the tenders were scheduled a long time ago according to companies' privatization plans and are designed to raise money to help firms restructure.


"The process has nothing to do with the second stage of the privatization program," Frolov said. "The government is selling part of its share to raise money for cash-strapped firms."