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. Last Updated: 07/27/2016

Struggling Companies Lose Out on Stock Boom

While equities in Russia's privatized companies are skyrocketing on the stock markets, cash-strapped firms are failing to benefit from the boom in their stocks and are planning further share issues to raise capital, company officials said Thursday.


"Our shares are growing in value, but we do not feel it and investment is not coming in," said Mikhail Rozenberg, securities director at the St. Petersburg Telephone Co., a city telephone company whose shares have shot up to 30,000 rubles from just 6,000 rubles in April.


Rozenberg said his company is trying to discover the identities of its new shareholders to prepare for when the government sells some of its stake in the firm for cash. He said his company is also planning a new share issue, which is subject to governmental approval.


"We're trying to spot serious investors so that we can work with them in the near future," Rozenberg said.


During the first phase of privatization, stocks in companies were sold for vouchers that had been distributed free to every Russian citizen to create a class of shareholders. Outside investors subsequently snapped up shares on Russia's fledgling stock markets at bargain basement prices.


Deputy Prime Minister Anatoly Chubais, Russia's privatization chief, said this week that foreign investment in the shares of privatized companies had increased to around $500 million a month from next to nothing last year. He said that United Energy Systems alone attracts some $50 to $100 million each month.


Shares in Russia's oil, telecommunications and metallurgy companies have become a hot property over the last two months, with the market value of some equities doubling or even tripling within a week.


But the chief beneficiaries of the boom have been stock-market dealers rather than the companies themselves. Vera Redko, securities and privatization director at the Russian electricity monopoly United Energy Systems, said that while she was pleased the company's shares have nearly tripled in value to 60,000 rubles ($26.60) since earlier this year, their higher market price did not earn the company any extra money.


Consequently, Redko said, her company is planning a second share issue in the near future to attract the funds needed for restructuring and the introduction of new technology.


Redko said the government may soon sell up to 10 percent of its stake in the electricity producer. She said she knew who would invest in the company at the auction, but declined to specify.


Chubais named foreign firms like CS First Boston, Morgan Grenfell and Salomon Brothers as the largest investors in Russian equities.


"We have a queue of potential investors who are expecting our cash auction or another share issue," Redko said.