Investors increased direct investments in Russian companies

Direct foreign investments in fixed capital of Russian enterprises in the second quarter of 2016 made up of $3.47 billion, according to statistics from the Bank of Russia. In previous quarters, according to the regulator, the indicators were mostly negative. In particular, in the second quarter of 2015, the indicator went negative by $1.2 billion.

“This is the largest, since the second quarter of 2013, the amount of net revenues to the capital of organizations-residents. However, in many ways, it was also due to a significant decline in seizures of capital that prevailed in previous periods,” — said the press service of the Central Bank.

According to the Central Bank in January—September of 2016, the outflow of capital from Russia amounted to $9.6 billion versus $48.1 billion in the first nine months of 2015. However, as mentioned CB, if in 2015, the outflow of capital was affected by the decline in demand of Russian companies for foreign assets, but now the demand for them grows. If in the first quarter of 2016, the Central Bank recorded a decrease in the demand for foreign financial assets by $2.5 billion in the second quarter of 2016, this figure rose to $3.8 billion In 2015 net capital outflow by banks and companies from Russia amounted to $56,9 billion, which is 2.7 times less than in 2014 ($153 billion).

Analysts believe that investment growth has also affected the return of assets in Russia. “Companies continue repatriation of assets, i.e. sell them abroad and return to the country”, — said the chief economist of the Eurasian development Bank Yaroslav Lissovolik. This, in his opinion, in part, led to a growth in direct equity investment.

“This figure is quite positive for Russia. In General, however, it is not foreign investment. The probability that a significant portion of this amount is the Russian money came through offshore zones” — believes the chief economist of the pension Fund “Kapital” Evgenie Nadorshin.

Starting in 2015, together with the adoption of the so-called law, or the law on controlled foreign companies (CFC), in the Russian legislation appeared tools to counter the artificial transfer of profits to offshore and low tax jurisdictions. These include the Institute of tax residency of foreign companies, the tax treatment of controlled foreign corporations and so-called end-to-end approach in taxation. The essence of the latter is that income is taxed not in accordance with the rules of the country’s first recipient of the income, and by the rules of the country of the person having actual right to income (“beneficial owner of income”).

According to the practice partner “Legal and tax support” Marina Shevchenko, the law on controlled foreign companies in a limited form already applied by the Russian tax residents, but its full effect is expected in 2017, when the Russian resident will have to submit to the tax authorities notification on participation in CFCS to include in the tax base of their retained earnings.

According to Lisovolik, the potential investment growth due to the return of assets has not been exhausted. “This process lasts for several years. Under the current situation, if it remains in its current mode, I think this process will continue, mainly in the commodity sector, oil and gas and metallurgy” — says the analyst.

He recalled that in previous years the largest examples of such returns became public, was the transfer of the USM Holding Alisher Usmanov controlling stakes in MegaFon and metalloinvest to Russian “daughters”. At the same time Arkady and Boris Rotenberg withdrew from offshore “SGM”, and in early 2015, Russian resident became the holding “Airports of Regions” Viktor Vekselberg.

Among the recent transactions for the sale of foreign assets Lissovolik the selling Sberbank Europe AG 99.5% of Slovak subsidiaries of Sberbank Slovensko. According to Sberbank, the agreement on the sale of its Penta Investments was signed on 17 December 2015. As of Dec 2015 the total assets of Sberbank Slovensko amounted to €1.8 billion.

The upward trend in investment is actually visible, but keep in mind that the main driving force of financial flows in the international economy remains a collection of insurance risks, agrees the Director of analytical Department of “Golden Hills — Kapital AM” Mikhail Krylov. “It is significant that our direct investments continue to grow despite the protracted period of sluggish economic stupor. At the same time tougher rules for money handling and de-offshorization significantly reduced insurance risks and the desire of investors to escape abroad. It is likely that this trend will continue in the future,” he adds.