His fellow oligarchs have fuelled the London property market, with Knight
Frank data showing that Russians were the biggest foreign buyers of £1m–plus
homes in the capital last year, spending more than £500m on some estimates.
Their regular rows have also kept the UK legal profession in pocket.
Some 227,000 Russian visitors to Britain in 2012 spent £240m. Their average
£676 per transaction – where VAT is reclaimed – puts them in the top five of
foreign shoppers. But relations run much deeper than that. Russia is
Britain’s fastest growing export market. UK sales to Russia have grown at an
average 21pc a year, rising 15pc to £5.5bn in 2012, according to UK Trade
Investment. And Russia has, for example, bought an average 9.4pc of UK car
exports over the past three years.
One of the main trades coming back is energy. Russia supplies 6pc of Britain’s
natural gas. But as the world’s biggest oil producer, with most of its 5m
barrels of oil exports a day heading for Europe, it also drives the Brent
crude price, now at a 2014 high. As Kathleen Brooks, at Forex.com put it, “a
full blown war between Russia and Ukraine could trigger a dramatic and
abrupt jump in energy prices”. So could sanctions. Local politics this
isn’t, as we explore below – Alistair Osborne
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ENERGY
Oil and gas prices rose yesterday amid warnings that an escalation of conflict
between Russia and the Ukraine could have “severe” consequences
for gas supplies across Europe.
Russia supplies 30pc of Europe’s gas demand, with about half of it flowing
through the Ukraine, raising fears of shortages and significant price
spikes.
Motorists could see petrol prices rise as much as 5p per litre as traders
begin to buy in bulk because of the uncertainty, the RAC warned. Brent crude
oil prices hit 2014 highs yesterday, topping $112 a barrel in intraday
trading, while UK day–ahead gas prices rose more than 8pc.
European gas prices spiked in 2006 and again in 2009 when Russia cut off
supplies to Ukraine amid price disputes. Russia has already raised the
spectre of another gas war by threatening to revoke a discount to Kyiv on
gas prices, citing unpaid debts. It had cut prices for Ukraine by a third
after now–ousted President Viktor Yanukovich forged closer ties with Moscow
in December.
Europe has become less dependent on imports via the Ukraine since a major new
gas pipeline from Russia to Germany, Nordstream, opened in 2011.
However, sanctions on Russia could have a significant impact, experts said. “If
Russia and Ukraine go to war, the consequences for the EU could be severe,”
Joe Conlan at energy analysts Inenco said. “If the conflict persists,
then sanctions are likely to be placed on Russia. These could include
sanctions on gas exports, which would place considerable strain on the UK,
France and Germany.”
He said that, while the UK does not directly import gas from Russia, it
receives “secondary imports, such as Russian exports of gas to Germany,
and we import via pipelines from Belgium and Holland”.
He added: “If we see this turn into a protracted conflict lasting through
the summer then gas shortages may be a possibility.”
Britain has become more reliant on imports as North Sea supplies dwindle. The
crises of 2006 and 2009 led for calls for new gas storage facilities but
ministers ruled out subsidies for new storage projects last year. However,
the mild winter has resulted in relatively plentiful supplies, with storage
levels 40pc higher than a year ago.
The Department of Energy and Climate Change said that less than 1pc of UK gas
is supplied from Russia, adding: “The risk to our energy supply is low.”
Suppliers indicated the temporary price spike should not result in price rises
for households. “We buy energy in advance to give us greater cost
certainty and attempt to protect our customers from price volatility,”
a spokesman for SSE said.
However, analysts at Bank of America Merrill Lynch warned that UK utilities
could face difficulties if gas prices stay high because the “political
environment” makes it difficult to pass through higher costs to
consumers.
Shares in BP, which has a 20pc stake in Russia’s state–controlled oil giant
Rosneft, fell more than 2pc amid fears about its exposure to any sanctions
on Russia.
Russia exports about 5m barrels of oil per day, with the “lion’s share”
going to Europe, analysts at Commerzbank said. – Emily Gosden and Nick
Collins
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Motorists could see petrol prices rise as much as 5p per litre as
traders begin to buy in bulk because of the uncertainty, the RAC warned.
Photo: Alamy
COMMODITIES
Fears over Russian and Ukraine grain supplies sent prices for wheat surging on
international markets. Most of Ukraine’s wheat and corn is shipped from
Odessa on the Black Sea, or Sevastapol in Crimea. Disruption due to the
current stand–off would put pressure on supplies from the US, Canada and
Australia to make up for any shortfall.
Wheat futures for July quoted by the Chicago Board of Trade gained 28 cents to
$6.30 yesterday and are up 5pc since 2013.
Agricultural production is of vital importance to Ukraine, accounting for 24pc
of the country’s total exports and bringing in more than 5pc of gross
domestic product annually.
“Concerns of a disruption to planting which begins this month could begin
to escalate if the current clampdown on the Crimean peninsula extends
northwards,” said Deutsche Bank in a research note yesterday. “For
the time being, attention is on the possible disruption of grain exports
from Ukraine’s Black Sea ports.” – Andrew Critchlow
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Wheat futures for July quoted by the Chicago Board of Trade gained 28
cents to $6.30 yesterday and are up 5pc since 2013. Photo: Corbis
OLIGARCHS
Russian billionaires could be among the biggest losers from the market rout
prompted by investor fears over the military incursion into Ukraine.
Most of Russia’s richest men have substantial equity holdings in major
Moscow–listed companies that yesterday took a battering after the MICEX
share index ended the day’s trading session down 10.8pc, wiping more than
$50bn off Russian stocks.
Alisher Usmanov, Russia’s richest man and a major shareholder in Arsenal
football club, is likely to have seen his $19bn fortune shrink as shares in
local mobile phone operator Megafon fell 11.5pc.
The country’s second richest man, Leonid Mikhelson, who is estimated to be
worth $17bn by Bloomberg, will also have seen his wealth fall as shares in
Novatek, Russia’s second largest natural gas producer, of which he owns
25pc, fell 15.3pc.
The close to 11pc fall in the value of shares in X5, Russia’s biggest food
retailer, will have hurt the $15.4bn fortune of Mikhail Fridman, the
country’s third richest man, while Viktor Vekselberg, the fourth richest,
will have seen the value of his publicly listed holdings, such as telecoms
company Vimpelcom, drop.
The share price falls have echoes of late 2008 when the Russian stock market
crashed more than 70pc in the wake of the bankruptcy of Lehman Brothers. The
market collapse led several billionaires to ask the government for bail–outs
as Western banks called in loans that had been made against their share
holdings.
However, emerging market specialists do not expect a repeat of this situation.
Jerome Booth, the co–founder of emerging markets fund manager Ashmore and
now an independent investor, said the current market was “very different”
to that of six years ago. – Harry Wilson
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Alisher Usmanov, Russia’s richest man and a major shareholder in
Arsenal football club, is likely to have seen his $19bn fortune shrink as
shares in local mobile phone operator Megafon fell 11.5pc. Photo: AP
FLOTATIONS
Lenta, the Russian hypermarket chain that began trading in London on Friday,
has lost $665m (£400m) of its market value in two days, as the recent events
produce jitters over the IPO market.
The company’s global depository receipts – a certificate representing shares
in a foreign company – fell 14.2pc yesterday to $8.45, following a minor
fall on Friday, in the run–up to unconditional dealings on Wednesday.
The sharp drop from the $10 listing price has seen the company’s value drop to
$3.64bn from $4.3bn when trading began. Its shareholders, including US
private equity firm TPG, took out around $1bn at the float.
John Oliver, the chairman, who has personally invested $5m in the business,
said: “Lenta is a long–term story, the markets go up and down and
currency goes up and down but that does not diminish the potential for
growth in Russian food retail space.”
Sources close to the company said Lenta had grown like–for–like sales at
double–digit rates for the past four years. “Where else in Europe
can you invest in that sort of growth for nine times Ebitda?” asked
one.
The banks advising on the Lenta listing are Credit Suisse, UBS, Deutsche Bank
and VTB Capital. Rothschild is the company’s financial adviser.
The turmoil in Ukraine coincided with the indicative pricing for Danish
facility services group ISS, which employs 530,000 staff worldwide and aims
to raise €1.1bn (£910m) via a float in Copenhagen.
Jeff Gravenhorst, the ISS chief executive, said Russia’s invasion of Crimea
had not had any effect to date on investors’ interest in the listing, which
values the company at £3bn–£3.5bn.
“We have had very robust earnings and we don’t have any exposure to the
Russian economy or Ukraine,” he said.
Companies including Pets At Home, Poundland and Boohoo.com are lining up to
list in London.
One banker involved in a number of floats said: “At the moment, the view
is that market nerve will hold for most of the IPO pipeline but that could
change quickly.” – Alistair Osborne
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Companies including Pets At Home, Poundland and Boohoo.com are lining
up to list in London. Photo: AFP
FOREIGN EXCHANGE
The dollar rose to a record high against the Russian ruble, as investors
sought refuge in the US currency as a safe haven from the volatile situation
in Eastern Europe.
The greenback was also buoyed by figures which showed an increase in
Americans’ personal incomes and spending in January, despite a bitter US
winter. “The deteriorating situation in Ukraine poses a fresh threat to
the global economy,” said Joe Manimbo, senior market analyst at Western
Union Business Solutions. “Investors turned to classic safe havens amid
heightened tensions.”
The ruble fell to a record low against the euro as well as the dollar.
However, the boost to the dollar came at the expense of American stock
markets, which suffered as investors pulled their money out of companies
that could be impacted by the turmoil in Ukraine and Russia.
The blue–chip SP 500 index, which had closed at a record high on
Friday, slumped to as low as 1,834 in New York but regained some of those
losses to close at 1,845.73. The Dow Jones Industrial Average fell 153.68
points to close at 16,168.03. – Katherine Rushton
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The ruble fell to a record low against the euro as well as the dollar
on Monday. Photo: Reuters
TOURISM
Luxury retailers and hotels in the UK will be among the most exposed
businesses if Russian tourism to Britain dries up as a result of a
deterioration in relations between Moscow and the West.
While the number of visits made by Russian nationals to the UK, at 227,000 in
2012, is relatively low compared to other countries, Russian tourists tend
to be among the highest spenders.
According to Global Blue, which collects information on tax–free shopping in
the UK, Russian tourists rank among the top five highest spending nations,
behind visitors from China and the Middle East.
Shoppers from Russia will spend an average of £676 every time they go to the
till, according Global Blue’s tax–free spending index for 2013. By
comparison, visitors from the Middle East spend an average of £776 per
transaction, the Chinese part with £741 and visitors from Thailand splash
out £746.
Overall, Russian visitors spent £240m in the UK in 2012, according to the
latest available figures from the Office for National Statistics. – Nathalie
Thomas
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While the number of visits made by Russian nationals to the UK, at
227,000 in 2012, is relatively low compared to other countries, Russian
tourists tend to be among the highest spenders. Photo: PA