Moscow times

In April this year, Egorov Puginsky Afanasiev & Partners became the first Russian firm to establish a base in London. The office in Gough Square – a stone’s throw from the Royal Courts of Justice – is small, but it’s an important symbol of the Russian trend towards outward expansion. As managing partner Dimitry Afanasiev explains: ‘Expanding beyond Russia is the logical next step. Our choice of London not only reflects its status as the world’s centre of the legal profession, but is also a response to our Russian clients’ increasingly international ambitions and requirements.’

The first major Russian outbound acquisition took place in June 2003, when Norilsk Nickel acquired North American palladium mining company Stillwater for $257m. Since then, a slew of major Russian companies – such as Gazprom, Lukoil, Rusal and Severstal – have been actively acquiring assets in western Europe and North America. Pranav Trivedi, a corporate partner in Skadden, Arps, Slate, Meagher & Flom’s Russia group, believes that outbound investment could account for 50% of all Russian M&A work within the next two years. ‘Russian companies are not only cash rich, but they also now have listed equity to use as capital – they have all the tools necessary for major international acquisitions,’ he says. However, Mathieu Fabre-Magnan, managing partner of Salans’ Moscow office, believes that there are less obvious motives. ‘International expansion means a diversification of risk for Russian companies, as their international assets may be beyond the reach of the Russian state,’ he says.

The flow of outbound investment from Russia has risen dramatically, increasing by 67% to $52bn last year (see graph, ‘Russian investment flow: 2000-2006’, p79). But that data only tells half the story, as it fails to take into account investments made by offshore holding companies. Offshore jurisdictions account for 40% of the accumulated foreign investment in Russia (see box, below), with Cyprus topping the list at $32.28bn. The country’s GDP is $18.2bn.

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