Britannia Radio

Alistair Darling: high street banks to be broken up

Exclusive: three new banks are to appear on Britain's high streets 

as part of a major break-up of the sector.

Banks: what the changes will mean for consumers

The return of Williams and Glyn's

Battle for banking's future

When high politics meets high banking blood will be spilt.

RBS fights to keep Citizens

Labour councillors want higher council tax on large homes

Russia's £11bn UK bond bid

Vladimir Putin's deputy visits London this week as the crisis-hit country seeks Western relief.

 

By Andrew Osborn in Moscow
Published: 8:45PM GMT 31 Oct 2009

Russian prime minister Vladimir Putin (left) needs Western money to rebuild his economy, while Lord Mandelson is keen to exploit trading opportunities

The Russian government is to announce an £11bn bond issue in London this week in an attempt to draw Western investment into its crisis-hit economy.

The Business Secretary, Peter Mandelson, will meet the Russian finance minister and deputy prime minister, Alexei Kudrin, on Thursday when the bond will be announced. It is the first such move by the Kremlin in over a decade.

 

Related Articles

• Russia desperate to court new friends after oil's humiliation

• Russian gas supplies to EU could be cut in Ukraine row

• Russian court overturns acquittal of men charged over Anna Politkovskaya murder

• Can Dmitry Medvedev clean up the wild East?

• Russia defies West with new arms spending

• Russian oligarch Mikhail Khodorkovsky fails to gain release from jail

The development comes despite political tensions between Britain and Russia. On Friday, Yuri Fedotov, the Russian ambassador to London, criticised the UK for adopting "anti-Russian measures". The main tension centres on Britain's refusal to extradite Kremlin critics sought in Russia and on Russia's refusal to extradite the man the UK wants for the 2006 murder in London of Kremlin foe Alexander Litvinenko.

Despite the clashes, British Government officials believe that the business relationship with Russia has thawed considerably since the economic crisis as Vladimir Putin, the Russian prime minister, now needs Western money to support the ailing Russian economy. Two weeks ago, The Sunday Telegraph revealed that Gazprom was looking for tax changes in Russia to encourage Western investment in energy.

"I'm delighted that deputy prime minister Kudrin is coming to the UK," Lord Mandelson said. "This is an important opportunity for us to build on our strong trade relationship with Russia. Over 1,000 UK firms are already established in Russia, and Russia is our 12th largest export market. Whatever our differences, we must continue to work hard at deepening our understanding of each other and improving our commercial ties."

News of the bond issue comes as David Miliband, the Foreign Secretary, arrives in Russia today for the first visit by a British foreign secretary in more than five years. Although much of his visit will be devoted to political and diplomatic issues such as Afghanistan and the Litvinenko murder, he will also host a business breakfast where guests will include senior executives from British companies in Russia including Delloittes, HSBC and JCB.

Foreign Office sources said that Mr Miliband would tell his Russian counterparts that Western firms needed a more modern economy to invest in. Infrastructure needed to be improved, the economy expanded beyond its reliance on energy and a more 'transparent' business environment put in place. Officials pointed out that Russia had fallen to 120th out of 183 in the World Bank's ease of doing business survey and was 143th on the Corruption Perceptions Index.

Britain's multi-billion pound trading relationship with Russia has in fact flourished in recent years despite worsening political relations and Soviet-style bureaucracy. Yet analysts say the relationship has been held back by fears about Russia's unpredictable investment climate and by a series of diplomatic and corporate crises.

Thursday is being billed as a turning point. Mr Kudrin is to lead a Russian delegation that will include senior figures from the Russian central bank and finance ministry as well as top business people.

"Everything in Russia is very political and this is a signal to Russian business and officials that it is OK to do business with the UK," says one person who follows the bilateral relationship closely.

Mr Kudrin will meet Lord Mandelson as part of a joint UK-Russia steering committee which is meeting in London for the first time after a long hiatus caused by stormy diplomatic relations. The two sides will discuss barriers to doing business in both countries and what can be done to remove them. The UK has five priority business sectors in Russia: the oil and gas industry, financial services, hi-tech, life sciences and sporting infrastructure.

Though hammered by the global downturn, Russia is keen to diversify its economy away from oil and gas and to upgrade its crumbling Soviet-era infrastructure. UK officials say British companies can and should play a big role in the country's modernisation.

Separately, Mr Kudrin will give a presentation to potential investors on the £11bn bond issue planned for February next year. The Eurobond issue will be Russia's first since 1998 and is designed to cover budget deficits between now and 2012. Demand is expected to be high.

Although the UK regards itself as the largest bona fide foreign investor in Russia with an estimated cumulative investment of £26.7bn, continental competitors such as France and Germany have stolen a march when it comes to expanding business and trade in Russia.

More than 1,000 UK companies operate in Russia, the world's largest country. Cadbury has its largest factory outside the UK in Russia, retail chains such as Kingfisher and Monsoon are well established, and banking behemoths HSBC and Barclays have been aggressively opening up retail banking outlets.