[CREDIT MARKETS] DERIPASKA INTERVIEW

A very useful and interesting interview of Rusal CEO Oleg Deripaska; he is "unusually frank about Russia's ills" (*). Mr. Deripaska sees three key problems in Russia: 1) the judiciary; 2) corruption; 3) interest rates and the cost of capital. Rusal was saved in extremis by the Kremlin in 2009, as huge debts taken on to buy a 25% stake in Norilsk Nickel ($10.8bn today) became unsustainable given the decline in aluminium prices. A new deal brokered —again— by the Kremlin will allow Rusal to obtain $835m in dividends from Norilsk (28% owned by Vladimir Potanin).

On the judiciary: the Russian FSB security service is now twice as big as the Soviet KGB, which undermines confidence. On corruption: "There is not enough prison capacity to fight corruption". On the cost of capital: "It is a topical issue. Some businessmen have blamed the economic slowdown on the Russian Central Bank's strict monetary policy. Mr Putin himself has expressed concern at the 'troubling rise in interest rates' to a level significantly above the inflation rate". Deripaska: "Russia will not get any benefit out of the World Trade Organisation membership unless we pay attention to these issues — the cost of capital and interest rates".

And he adds: "Small businesses struggle to obtain credit: loans are typically for three years at 15 per cent interest". In order to get a loan of $10m or more, businesspeople from Siberia need to travel to Moscow. The Russian banking system is too concentrated, as 72 per cent of credit is issued by only five banks, most of them state-owned. Ladies and gentlemen: there you have it — a dysfunctional judiciary, high levels of corruption, and a very high cost of capital. But don't expect Mr. Deripaska to connect the dots any time soon.
 
(*) Guy Chazan: "Deripaska hits out at Russia's big banks", Financial Times, 18 de marzo de 2013.
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