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Silver lining in Russia

The global liquidity crisis is actually a positive development for private equity activity in Russia, say half of 65 private equity houses that are engaged in investments in Russia, according to a recent survey by business advisory firm Deloitte.

The Deloitte report concludes: “With the list of postponed IPOs increasing, public company valuations at two-year lows and extremely difficult debt markets, private equity is emerging as the preferred financing solution for ambitious Russian companies.”

Stefan Rutter, head of corporate finance advisory for Deloitte CIS, sad that even though only 28% of survey respondents expected market activity to increase over the next six months (compared with 82% in 2007), 2008 and 2009 might turn out to be the best vintage years for private equity in Russia for those that buy wisely.

“It is clearly a buyer’s market, with funds that have just raised capital being in the driving seat,” Rutter said.

Vitalij Farafonov, a member of Deloitte’s Moscow corporate finance advisory team, said that currently companies were really only left with two sources of funding, either private equity or a strategic investor.

However, Farafonov warned: “The scarcity of capital could also have a negative impact on private equity in the future by slowing the economy and therefore slowing the performance of their portfolio companies.

“This is especially true for consumer-driven industries which remain the most popular home for private equity money [47% of respondents to the survey expect to focus on opportunities in consumer-driven sectors].”