Weekly 23 May 2020

Rosneft‌ ‌on‌ ‌the‌ ‌rampage

Hello! This week our main story is Rosneft’s enormous damage claim against business news website RBC that has sent shockwaves through the media industry. We also calculate exactly what Russia’s anti-crisis spending package will cost (spoiler: it’s much less generous than most Western countries), and look at the two Russian start-ups in Silicon Valley that have attracted U.S. investment despite the pandemic.   

Rosneft sues major media outlet for record $600 million

State-owned Rosneft continues to cause controversy in the media world. The oil giant made legal history Thursday when it filed a lawsuit demanding an astronomical 43 billion rubles ($600 million) in damages from major business news website RBC over a headline. This was a week after an investigation revealed the ties between Rosneft and leading newspaper Vedomosti.

Disclaimer: The Bell founder Elizaveta Osetinskaya was previously editor-in-chief of RBC, and other editors at The Bell have also worked in senior roles at RBC.The Bell’s current editor-in-chief, Irina Malkova, was named in Rosneft’s 2014 lawsuit against Forbes. 

  • Rosneft was upset about the headline of an RBC article on 14 May over Rosneft’s recent sale of its Venezuelan assets. In a press release, Rosneft stated (Rus) RBC “misled members of the public, representatives of the market and regulators, and deliberately distorted the true nature of the deal”. The company apparently believes that the headline increased the risks of it being targeted by Western sanctions.
  • The $600 million claim is the largest ever made against a media organization in Russia. The previous record was also held (Rus) by Rosneft and RBC — in 2016, the company sued the publication for 3 billion rubles ($42 million) over an article (Rus) on Rosneft’s privatization. In the end, the court reduced the size of the claim to 390,000 rubles, and the case ended in a negotiated settlement. Back then, Rosneft’s lawyers calculated the size of the claim against lost ‘goodwill’. But this time, they said the 43 billion ruble figure was the difference in Rosneft’s share price and an index of Russian energy producers on the day the article in question was published.
  • Rosneft announced its exit from Venezuela at the end of March after the U.S. sanctioned two of its trading subsidiaries. The oil company transferred all its Venezuelan assets to another state-owned company, Roszarubezhneft, and received 9.6 percent of its own shares — valued at $4 billion — in return.
  • Venezuela is a sensitive topic for the powerful head of Rosneft, Igor Sechin. Dealing with President Nicolas Maduro, and Hugo Chavez before him, was politically important for Sechin, but ultimately the Russian state has been left to foot the bill for Rosneft’s risk-taking. Recent incidents of censorship at Vedomosti, which is linked to Rosneft, have also involved articles about the oil giant’s ties to the South American nation.
  • RBC has more readers than any other business publication in Russia, and recorded a monthly audience of 33.5 million in March. In 2016, the Kremlin pressured then-owner billionaire Mikhail Prokhorov to fire the outlet’s editorial team led by The Bell founder Osetinskaya. Shortly after, Prokhorov sold the publication to tabloid publisher Grigory Berezkin. RBC shares are held as collateral by state-owned bank VTB.

What does Rosneft want?

Rosneft has traditionally poor relations with journalists, and the company’s vice president for communications, Mikhail Leontiev, routinely responds (Rus) with obscenities when asked awkward questions. On the other hand, Rosneft usually wins the lawsuits it launches against media outlets, and the company’s ambitions are growing.

Earlier this month, a joint investigation by four Russian publications, including The Bell, showed how Rosneft was behind the recent change of ownership at Vedomosti, which has led to the new editor-in-chief trying to introduce blanket censorship rules.

Seeking such an enormous sum for damages was not the Kremlin’s idea, a source close to the Kremlin told The Bell, and the influential deputy head of the presidential administration, Aleksei Gromov, who oversees the media, apparently has no issues with RBC. Either way, it will be impossible for RBC to pay Rosneft 43 billion rubles: the media company turned a 3.6 billion profit last year, and has debts of almost 18 billion rubles. Even RBC’s owner, Berezkin, would struggle to pay that sum (Forbes estimates (Rus) his net worth to be $700 million).

Why the world should care

The revelations about censorship at Vedomosti were interpreted by many as the beginning of a new era of crude political pressure on independent media in Russia. If even 10 percent of Rosneft’s claim is approved, this interpretation will gain ground and RBC, which has managed to preserve most of its editorial independence in recent years, could face bankruptcy.

What did Russia spend on its coronavirus handouts?

The Russian government is already preparing (Rus) to lift lockdown and restart the economy, which means there are unlikely to be any new anti-crisis measures. The Bell calculated that the total amount of support for Russia’s coronavirus-hit economy amounted to 2.6 percent of GDP, up to five times less than the equivalent spending by most Western countries.

  • The government has announced three packages of support for businesses and individuals since the crisis began, the most recent on May 11. In total, they will cost 3 trillion roubles ($42 billion). Half is cash handouts, while the rest is made up of tax breaks or the waiving of other obligatory payments.
  • Small and medium-sized businesses have been the biggest recipients of state support (63 percent of the total and 30 percent of the ‘real money’). Under an affordable loan scheme, small companies (with up to 500 employees) on a list of vulnerable industries can take out loans to pay staff. If these companies still employ 90 percent of their payroll by October, they won’t have to repay the loans. The main complaint about this scheme has been that the size of the loans are limited by the official monthly minimum wage of 12,300 rubles ($173), which is four times less than Russia’s average salary.
  • The second biggest group of recipients are those with children and the unemployed (18.2 percent of the total, 30 percent of the ‘real money’). All parents of children aged between three and 16 will receive a one-time payment of 10,000 rubles ($140) for each child, and there are subsidies for those in poverty and those recently unemployed. Some economists criticized this as a ‘hidden tax on not having children’, but others pointed out there is a direct correlation between the number of children you have and level of wealth.
  • The rest of the money will go toward covering regional budget deficits (5 percent of total), victims of the fight against coronavirus, and direct subsidies and affordable loans for major companies, for example airlines (4 percent).

Russia’s total anti-crisis spending of $42 billion is far less than what is being spent in Europe (on average 10 percent of GDP) or the U.S. (14 percent). Russia could easily have spent much more: the country has $565 billion in gold and currency reserves, and the liquid portion of its National Wealth Fund — created for crisis situations — is worth $156 billion. In addition, Russia has historically low levels of debt and could have decided to increase borrowing. But President Vladimir Putin and the government prefer caution because of a traumatic experience in the 2008 financial crisis when Russia burned through almost all its reserves. They likely also want to save the money for a populist spending spree ahead of the 2024 presidential election.

Why the world should care

Russia’s cautious approach to containing the economic consequences of the coronavirus may save money, but it could lead to political problems if the economic downturn is particularly severe, or obviously more painful than in European countries.

Russian start-ups attract investment despite the pandemic

Two U.S. start-ups with Russian founders have received major investments in the last month. Morgan Stanley Expansion Capital and PeakSpan Capital announced Friday that they are investing $42 million in Ecwid, which builds e-shops, and was set-up by Ulaynovsk-born Ruslan Fazlyev. At the end of April, ICONIQ Capital, which manages the money of Mark Zuckerburg and Jack Dorsey, invested $50 million online whiteboard platform Miro that was founded by Andrei Khusid and Oleg Shardin.

  • Both Ecwid and Miro work in areas attracting attention because of the pandemic. Ecwid, founded in 2009, offers its users a range of instruments to help them launch an internet store on any website or social media platform. In 10 years, the company has attracted 1.5 million small and medium-sized business clients across 175 countries. Its headquarters is in San Diego, California.
  • Miro is an online service allowing teams to work remotely. It has its own digital whiteboard, which can host virtual meetings, seminars and brainstorming sessions, and can be integrated with Slack, Microsoft Teams, Zoom and other similar services.
  • Despite Miro and Ecwid, this year has — so far — not been the most successful for Russian tech companies. Last year, software producer Luxoft was sold for $2 billion, and web server Nginx went for $670 million. In September, Acron, a cybersecurity and data protection company founded by Sergei Belousov, received investment of $147 million from Goldman Sachs and was valued at $1.5 billion.

Why the world should care

The Russian IT market is not just Telegram founder Pavel Durov. And the number of young Russians heading to the U.S. with their start-ups looks set to grow: an April film (Rus) about Silicon Valley by Youtube star Yury Dud already has 18 million views.