Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Siemens Takes Look at Sovereign Wealth Fund

Europe's biggest engineering company, Siemens, said Thursday it was seeking investment from a Russian sovereign fund as it looks for greater access to the country, where huge infrastructure projects are planned.

Siemens is in talks with Russia as part of its plan to attract investment from sovereign wealth funds worldwide, its spokesmen said.

"We are broadening our investor base and therefore ... these state-owned funds are welcome to invest," Constantin Birnstiel, senior vice president for media relations, said by telephone from Munich on Thursday.

Russia has been putting aside its windfall revenues from oil and gas exports into two funds, but only one of them, the National Welfare Fund, is empowered to make corporate investments.

As of Aug. 1, the welfare fund held $32.7 billion and its sister fund, the Reserve Fund, held $129.7 billion.

"The talks with the sovereign funds are not about strategic stakes, but just about minor [stakes] of up to 5 percent," a source in Siemens said Thursday, declining to be identified because of the sensitivity of the issue.

In trading Thursday, a 5 percent stake in Siemens was worth 3.4 billion euros ($5 billion).

"For Siemens, the deal with Russia would give [not only] a stable investor, but also a better access to the Russian market, where many infrastructure projects are planned for the next few years," company spokesman Marc Langendorf said.

"We want more opportunities for the future, and it is easier if you are known to the government of the country, as many infrastructure projects are led by the state," Langendorf said. "We have been working in Russia for more than 150 years, and we want to continue being active on the country's market."

A Finance Ministry spokesman said he had no information about talks with Siemens but confirmed the government's interest in investing into companies like Siemens. "We are planning to invest in Western companies," a spokesman said on condition of anonymity in line with the ministry's policy. "But the mechanisms of investment are still being worked out."

Siemens is also talking to funds in Saudi Arabia, United Arab Emirates, China and Norway, Langendorf said.

Siemens chief financial officer Joe Kaeser said in an interview with The Financial Times published Thursday that the German industrial giant was in talks with several sovereign funds, including Russia's and those in the Persian Gulf.

"Those regions have proven to be very efficient with their capital, and that is something we in Siemens could benefit from," Kaeser said in the interview.

Siemens' shares on the Frankfurt stock exchange have lost 32 percent of their value this year.

It would make financial sense for the government to invest in Siemens for a period of at least five years, said Alexander Morozov, HSBC's chief economist in Moscow. In the shorter term "it would be safer to invest in more conservative financial instruments such as deposits and bonds, which are less influenced by the global financial crisis," Morozov said.

In Russia, Siemens already works on engineering projects with behemoths such as Gazprom, Rosneft, power utility Mosenergo and carmaker AvtoVAZ. It also owns 25.4 percent, a blocking stake, in Power Machines, the country's leading turbine producer.

Siemens' attempt to buy a majority stake in Power Machines in 2005 triggered concerns in the Russian government about foreign investment in strategic sectors, and prompted the Kremlin to develop clear rules on the issue. After much debate within the government and the country's security agencies, a law restricting foreign investment in such sectors -- and requiring foreign investors to apply for government approval in such cases -- came into taking effect in May.

In 2005, the Federal Anti-Monopoly Service blocked the Power Machines deal, saying that would restrict competition and put a foreign company in control of a major Russian defense contractor. Siemens' invitation to foreign sovereign funds, if they take single-digit stakes, appears in compliance with a bill that the German government approved last week to block certain investments from non-European Union countries. Under that bill, non-EU investors seeking to buy more than 25 percent of a German company would have to apply for government approval.