Russia remains the destination for smart investors
Given the wave of negativity concerning Russia’s economy of late, few who follow financial news closely could have failed to notice that the past week has seen two significant deals in pharmaceuticals, a sector in which VIYM has a strong interest. Both deals, I would suggest, highlight the wisdom of going ‘I know not whither’ in Russian investments.
First we learned of US healthcare giant Abbott Laboratories’ plans to acquire Russian drug maker Veropharm for up to $495 million, a move which will give Abbott a manufacturing base in the country for the first time in several decades of operations there. Aside from being by far the largest M&A in Russia this year, and one of the biggest outside oil & gas to date, the deal highlights Abbott’s sharpness in recognising the industrial strength of areas beyond Moscow and St Petersburg: Veropharm’s manufacturing sites include the cities of Pokrov, Belgorod and Voronezh, places few outside Russia will have heard of.
And then, just when we thought that might be the only major non-fossil fuels deal Russia would see all year, like London buses, another came along – and in the same industry. As reported by Vedomosti, US firm Eli Lilly has struck an agreement with Russia’s R-Pharm to localise production of its insulin products at the company’s plant in Kostroma, with one of the American company’s directors citing Russia as a key market. Although known to fans of late-Soviet rock from the title of Akvarium’s hit Kostroma mon amour (a song which also eulogises Pokrov!), the location of R-Pharm’s manufacturing base once again highlights the importance of industrial regions which only those ‘in the know’ will recognise.
Of course, it will come as no surprise to readers of this blog that this confirms what I have been saying throughout the recent ‘crisis’, that smart investors should continue to look to Russia, even if they have to be even smarter by looking for opportunities in distant regions and in non-politicised, established yet innovative sectors of the Russian economy. A recent report by the Financial Times confirmed the ongoing promise of investment in Russia, noting that stocks have risen 33% since mid-March, much the same rate of growth witnessed by Veropharm shares following news of the Abbott deal.
VIYM has long recognised Russian pharma and medical services as one of the most robust, dynamic and lively growth areas both in terms of inward and outward investment, something we demonstrated with our capital injection into the Moscow-based chain of medical clinics Family Doctor back in January. The fact that our own investment was soon followed by another major pharma contract, namely R-Pharm’s acquisition of one of German company Pfizer’s Bavarian tablet and capsule plants (a €100-150 million deal expected to be closed by autumn), and now these two deals, certainly suggests we are making the right choices.
Apprehension amongst analysts, which was amplified by the international media, has meant FDI and PE in Russia have been subdued in recent months. Yet these latest deals suggest an encouraging revival in international recognition that Russia isn’t off-limits to business.