World Economy

RDIF Funneling Asian, Mideast Money Into Russia

RDIF Funneling Asian, Mideast Money Into RussiaRDIF Funneling Asian, Mideast Money Into Russia

The Russian Direct Investment Fund (RDIF) is still attracting significant interest from investors in the Middle East and Asia despite sanctions putting off investment from the West, its chief executive said.

Many Western firms have been paring back their activities in Russia after sanctions imposed by the United States and Europe over Moscow’s role in the Ukraine crisis – with the sanctions having a wider negative impact on Russia’s economic outlook, Reuters reported.

“Obviously, geopolitics has delayed some of the investment decisions by some of the US investors,” Kirill Dmitriev told Reuters on the sidelines of a sovereign wealth conference in Qatar.

“But we do see significant interest from Middle Eastern investors, from China and other Asian investors, who say, given the situation, can we in the long term make attractive investments in Russia and the answer, we believe, is yes.”

Dmitriev pointed to the relatively low value which Russian firms were trading at – many at a price-to-earnings (PE) ratio of around five times – and the efficiencies which could be made in many businesses to boost earnings.

  Direct Investment

The $10 billion Russian Direct Investment Fund is funneling more Chinese and Middle Eastern money into Russia’s ailing economy, partly compensating for a decline in Western-led activity in the face of geopolitical tensions.

Since its formation four years ago, the Russian state investment fund has invested $7.3 billion in Russia’s economy. It plans to continue at a similar pace with total annual investments of around $2 billion, of which up to a fifth will be marked for transactions abroad, Dmitriev said in an interview with Dow Jones.

Russia’s economy has been hit by falling oil prices and Western sanctions, devaluing its national currency and discouraging potential investors.

“Some of our co-investors from the US delayed some of their investment decisions and are taking a pause. And yet some investors from China are accelerating their investment pace and some of the Middle Eastern investors also see this is as a very unique opportunity to invest into some assets with very reasonable valuations,” he said.

“The goal is not to substitute US and Europeans with Asian and Middle East but to work with all our partners,” he said. “I think obviously investing in Russia right now is not for every investor in the world but for people with long- term views and with some clear industrial expertise.”

The RDIF was set up in 2011 by the Russian government to encourage joint investments in the Russian economy from international investors and has brought in around $15 billion of capital since then. Of that, $7.3 billion has been deployed, of which $6 billion came from foreign investors, Dmitriev said.

Dmitriev believed there were attractive opportunities in a number of sectors, including agriculture, energy, outsourcing and healthcare -- which was benefiting from a five-year breaks from income and capital gains tax.