Streetwise Professor

July 12, 2012

Sucden’s Sugardaddy: A Sweet Krysha, or, The Natural State at Work

Filed under: Commodities,Economics,Financial Crisis II,Politics,Russia — The Professor @ 6:37 am

This provides a truly fascinating insight as to how Russia works:

Sucres et Denrees SA, a French sugar trader with processing in Russia, may offer a stake in Russian assets to Kirsan Ilyumzhinov, a former regional governor, to help protect operations, its head of the local business said.

“This can be the case if Mr. Ilyumzhinov helps to save our assets from the corporate raiders,” Etienne Pelletier, also a member of the company’s executive committee, said today by phone. Ilyumzhinov, governor of Kalmykia until 2010 and World Chess Federation president, has “necessary contacts,” he said.

“Necessary contacts.”  Those two words speak volumes.

Ilyumzhinov is a real piece of work, by the way.  (And his WCF involvement provides yet more evidence, as if any is needed, of the deeply dysfunctional and corrupt nature of virtually every international sports organization, e.g., the IOC, FIFA, Formula 1.)

This part is particularly illuminating:

The trader has been in legal disputes over ownership of Russian assets since 2008 after contracts to buy equipment for plants were challenged by local counterparts. Sucden has three sugar plants in Russia that processed 2.5 million metric tons of beet into 316,000 tons of sugar last year, company data show.

This illustrates the challenges that commodity trading firms face generally, as many must deal in jurisdictions in which the state is predatory and/or the the state does not protect property rights and/or the line between the state and predatory elites is somewhere between blurry and non-existent.  Russia presents all of these problems.

This is how the natural state works.  Which makes the following borderline insane:

Investors should buy European stocks with sales in Russia as the oil-producing nation’s economic growth will outperform the debt-stricken euro region’s, according to Citigroup Inc. (C)

“The point is that Russia has growth while Europe is facing stagnation,” Kingsmill Bond, chief strategist at Citigroup in Moscow, said in a phone interview today. “A lot of the growth that European companies will generate will be from their Russian operations.”

First, Russian growth is highly dependent on what happens in Europe.  Remember, Russia is a high beta economy, and due to the natural resource dependence an economic crisis in Europe or China will hit Russia even harder.  So the idea that investing in Russia is some sort of hedge against economic troubles elsewhere is particularly daft.  Second, Russian operations pose their own special risks to foreign companies.  Such as having to get a krysha from corrupt governors who believe they were abducted by aliens.

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  1. Another example of
    excess liquidity searching for a home: the Eurolemmings are marching towards yield- with a clothes pin over their sophisticated schnozes so they can pretend there is no stench.

    Comment by sotos — July 13, 2012 @ 6:38 pm

  2. Spot on sotos. If the excess liquidity goes to Russia, it will indeed find a new home and never come back.

    The ProfessorComment by The Professor — July 13, 2012 @ 8:50 pm

  3. If my memory is not playing tricks on me, at one point, years ago, he was driving at the separation of Kalmykia from Russia.
    Then, Putin flew to Kalmykia and had a long meeting with him…
    In the aftermath, he was given vast powers and the drive for separation was shelved out.

    Comment by MJ — July 13, 2012 @ 11:03 pm

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