http://www.nortonrosefulbright.com/knowledge/publications/68488/piercing-the-corporate-veil-an-update-in-light-of-vtb-v-nutritek

In December 2013, President Putin of Russia signed an agreement that commits Russia to buying US$15 billion worth of Ukrainian bonds. The money for the purchase will come from the government’s National Wealth Fund, one of two sovereign wealth funds (SWFs) operating out of Moscow. As the power battle on the streets of Kiev escalated, Putin’s move is a striking example of how politics interferes with sound and prudent sovereign wealth management practices, an accusation that SWFs at large have long sought to fend off. The Russian commitment also appears to break the Fund’s own investment guidelines.

According to the Russian Ministry of Finance and based on regulations issued by the Russian government in January 2008 on the “Management of National Wealth Fund Assets”, any asset on the list of assets that the National Wealth Fund is allowed to purchase must meet certain criteria. These criteria specify that within its allocation to foreign state debt, the National Wealth Fund may only purchase debt securities issued by a set of Western European sovereigns, Canada, and the USA, including other state agencies and central banks. Ukrainian Government debt is not, for the time being, listed by the Russian authorities as an asset it is allowed to invest in.

Also, according to Russian regulations, foreign issuers of debt securities must have a long-term credit rating of AA- or higher from Fitch Ratings or Standard & Poor’s, or Aa3 or higher from Moody’s Investors Service. Moody’s Investors Service in September this year downgraded the Ukrainian government-bond rating to Caa1 from B3, and placed the rating on review for downgrade. In November, Standard & Poor’s lowered its long-term foreign and local currency sovereign credit ratings on Ukraine to B- from B, the same “junk” level as Greece. Standard & Poor’s considered the Ukraine’s economic policies to be increasingly unlikely to secure sufficient foreign currency to meet the country’s elevated external financing needs. Ironically, Russian backing could offer support for the Standard & Poor’s B- rating.

The National Wealth Fund’s purpose is to support the Russian pension system, co-financing the voluntary pension savings of Russian citizens and balancing the pension fund budget. Its assets under management amount to US$88.1 billion as of December 2013

http://www.nortonrosefulbright.com/knowledge/publications/68488/piercing-the-corporate-veil-an-update-in-light-of-vtb-v-nutritek