#6150
[Second Issue of the Day]
#6
Subject: HA: 6149-Bloomberg/Browder
From: "Richard J. Thomas" <62401@62.fesco.ru>
Date: Fri, 22 Mar 2002
In response to "Hermitage’s Browder Says Being An Activist Investor Pays in Russia By Pete Gallo, Editor March 20, 2002" in JRL 6149 and as the former head of research for a Western investment company that was active on the Russian share market from the early 1990s until 1998-9, I feel "due diligence"-bound to say to those who might be swept up in the next wave - BEWARE!
Undervalued assets. Reforms and equity rallies. Bullish hedge funds whose managers warn that if volatility isn't your thing/gig/cup of tea, you "probably shouldn't be involved." Possible gold rushes. "Absurd" P/E ratios. Putin batting nine for nine. (In the dark days after August 1998, we used to talk about "bottom fishing" - anything to hook 'em in!)
Where have I seen, heard and read this all before? And even... used it on clients - potential clients looking in and "poor suckers" (actually shrewd types, for the most part, with a bit of "give-it-a-shot" money to burn) who actually put their cash on the barrel head?
If you're going to sink money into Russian corporate equity you should do it only indirectly and in a way that gives you a clear and reliable exit. With your pants and shirt intact. And recourse, real recourse. (In Russia? Don't make me laugh.) Not on the basis of sweet words from the mouths of those who hope to make money from your entry and your "buyer did not beware sufficiently - goes with the territory - upbeat on asset plays" exit. Fighting about repatriation of profits, minority shareholders' rights, transparency of financial statements, questionable redistribution of corporate property, etc, etc. ... Not things I'd want to waste any more time on.
Be very careful about what exactly it is your broker/consultant/advisor is selling you when you invest in Russia. One of your problems will be - you will know some but far from all of the questions that should be asked.
Seats on the boards of directors? I've represented foreign shareholders on the boards of many companies and I know firsthand and that this generally guarantees you, the investor hoping to reap "astonishing" capital gains on the difference between "real and current market" value of shares, little more than pain and suffering. Pain and suffering and significant financial loss. And only modest influence over corporate governance, even if you own an outright majority of shares. A few lucky folks have indeed escaped with super-profits - they're the ones the brokers/investment companies go on about in their marketing materials - but most foreign investors in Russia just get screwed. (Ask Kenneth Dart.) Not their $500,000+ pa advisors. They don't get screwed. They draw salaries and collect their bonuses. If the money doesn't matter to you, why are you an investor?
Think about it, and decide. Investors, it is often said, have short memories. This, if true, is foolish, at best. If you really want to make a go of it, roll up your sleeves and get involved directly. Either as a trader whose work ends at the moment his stuff crosses the border into Russian territory (the Russian partner having transferred the agreed-upon portion of the contract price in advance to your account), or as a venture partner who has a reliable presence on the ground here every day Otherwise, turn your back to the cutter and ask to be fleeced.
Best regards, Richard Thomas Far Eastern Shipping Company Vladivostok
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