Privatizations to Share Sales, Russia Wants to be China (XOM, BP, RDS-A, BIDU, LDK, TSL, YNDX)

Russia’s President Dmitry Medvedev told an economic conference last month that he had ordered the government to reduce its controlling interests in some of the country’s biggest companies. He wants Russia’s largest state-controlled enterprises to follow the lead of the country’s second largest bank, VTB, which sold a 10% stake in itself for $3.4 billion last year to kick off a privatization program that seeks $59 billion in foreign investment in Russia. Now the country is literally beating the bushes for investors.

If this sounds familiar, it sort of is. Following the collapse of the Soviet Union, the country leapt into the deep end of the privatization pool, attracting large investments from major oil companies like Exxon Mobil Corp. (NYSE: XOM), BP plc (NYSE: BP), and Royal Dutch Shell plc (NYSE: RDS-A). Then, Russia changed its mind in the mid-2000s, when former President Vladimir Putin declared energy resources to be strategic and the government effectively clawed back large portions of the stakes it had once sold.

The situation has changed again as Russia is having a hard time attracting foreign direct investment and its energy-based economy can’t keep the economy growing by itself. Medvedev and Putin shouldn’t be too surprised at this. After all, anyone who paid attention to what happened to the huge multi-national oil companies can’t be too excited about investing in Russia now.

The government is dangling some pretty attractive privatization candidates though. State-run diamond miner Alrosa could sell up to 50% of its shares to the public. Russia’s largest bank, Sberbank, will peddle another 7.6% of its shares on the London Stock Exchange, bringing state ownership of the bank to 50% plus one share.

But the big prize might be Rosneft, Russia’s state-controlled integrated oil company. Rosneft produced about a quarter of Russia’s oil in 2010. The proposed privatization plan for Rosneft would have the government reducing its current 75% stake to 51% by 2014 or 2015, and then selling off more shares leaving the state with a minority position.

The company’s new chairman is not very excited by this idea. In his view, Rosneft’s strategic importance to Russia is too important for the state to give up its ownership. He noted that the company’s $90 billion capitalization is just too big to entrust to non-state owners. He told The Moscow Times that allowing some independent directors to manage these assets is nothing short of “a very exotic point of view.”

Exotic, indeed. China and its large banks have done very well at raising large amounts of cash from foreign investors while still retaining control of the companies it deems to be strategic. China has also had good success with stock issues like Baidu, Inc. (NASDAQ: BIDU) and solar makers like LDK Solar Inc. (NYSE: LDK) and Trina Solar Ltd. (NYSE: TSL). Russian search engine Yandex N.V. (NASDAQ: YNDX) raised $1.43 billion in its May IPO and the shares are up about 36% since then.

Russia had its chance to do this 20 years ago and failed. Investors with long memories ought to be able to curb their enthusiasm for new issues of Russian stocks. But those with short memories and large appetites for risk might be interested in the next chapter of the Russian IPO story.

Paul Ausick