Tuesday, 17 April 2007

Aeroflot reinvents itself with Italian bid

Jason Corcoran

16 April 2007

Letter from Moscow

Russian airline Aeroflot’s surprise bid for Italy’s Alitalia is not the flight of fancy many commentators would have you believe. State-controlled Aeroflot has teamed up with Italian bank UniCredit to bid for a stake in the troubled airline in a transaction worth up to €700m ($933m).

Analysts have dismissed the deal, arguing the carriers make an unwieldy pair, given their varied aircraft fleets, bad reputations and issues posed by air-travel regulations governing non-EU countries.

However, the former Soviet carrier, previously known as Aeroflop because of its safety record and outrageous delays, is reinventing itself.

It recently introduced internet booking, increased net profits 32% last year and had a 17% rise in passenger traffic.

Its European and Asian services are being expanded and investment of $500m has been found for Moscow’s new Sheremetyevo-3 terminal.

Aeroflot’s new fleet is among the youngest in Europe, its business class is considered first rate and its flight attendants have been back to school to learn how to smile.

The Aeroflot-UniCredit consortium is among three in the field and may succeed, if only because of greater political cooperation between Russia and Italy.

Italian energy utilities group Eni and Enel this month scooped up the remains of oil company Yukos. They cast the winning bid at a bankruptcy auction and announced plans to pass on the bulk of the assets to Russian gas monopoly Gazprom.

Russian President Vladimir Putin and Italian Prime Minister Romano Prodi are reported to have spoken by phone the day before the auction.

Italy is Russia’s third largest trading partner – after Germany and China – and its participation in the auction comes against a backdrop of several deals involving the two countries. And their leaders signed economic accords – on the building of a jet, nuclear power projects, banking and construction – at a meeting in Bari last month.

The co-operation includes Russian conglomerate Sistema’s attempt to buy a minority stake in Telecom Italia from the Pirelli group. UniCredit bought Russian brokerage Aton Capital for $424m in December, which will allow it to offer underwriting and merger advice, in addition to corporate lending through its International Moscow Bank unit.

German investment banks Dresdner Kleinwort and Deutsche Bank have profited in the past from close links to the Kremlin. But following a cooling of relations between Germany and Russia, since Angela Merkel replaced Gerhard Schröder as Chancellor, Italian financiers may find Moscow more receptive.

Experts say Aeroflot has a slim chance of winning a stake in an Italian airline saddled with debt, losses and a truculent trade union. But Russian coup could be sweetened, should Aeroflot find a European partner, and the Italian press has cited Air France-KLM.

Aeroflot’s rivals are Italian airline Air One and a consortium comprising US investment fund MatlinPatterson, private equity firm TPG Capital and Italy’s Mediobanca.

Candidates have until today – April 16 – to file non-binding offers and business plans. For the Italians, surrendering an airline on the brink of bankruptcy may not be a steep price for gaining access to Russian mineral resources and power-generating facilities.

But, regardless of the outcome, both airlines can be expected to increase the number of well-tailored suits using their Rome-Moscow routes.


Allianz pushes money into Russia

Jason Corcoran in Moscow

16 April 2007

Chief executive returns to rebuild Rosno after year of rows and staff departures

German financial services group Allianz and its institutional clients are to invest $1bn (€750m) this year through its Russian subsidiary, Allianz Rosno Asset Management.

The push follows Allianz’s move to take control of a joint venture from Russian partner Sistema, the telecoms group run by oligarch Vladimir Evtushenkov. Sistema sold a 49% stake in Rosno to Allianz in February for $750m after a year of wrangling that led to staff departures. Allianz has become the majority shareholder while Rosno retains a 2.8% stake.

Part of the dispute centred on Allianz’s desire to develop the insurance and fund management operation with shareholders’ funds, while Sistema wanted to carry out an initial public offering.

The rows led Oleg Mazurov to resign as chief investment officer of Rosno last July and join rival manager Renaissance Investment Management. He returned to Rosno three months later as chief executive with a mandate to rebuild the business and rehire colleagues who had left.

Mazurov said: “There was real conflict between management and shareholders, because we were caught in the middle between Allianz and Sistema. There were disputes and shareholders didn’t seem to appreciate that management had to concentrate on making sure the start-up survived.”

The asset management venture was the product of a merger in 2004 of dit Moscow, Allianz’s Russian asset manager for private and institutional clients, and Sistema Investments, manager of Sistema’s assets.

Rosno will be more closely integrated with Allianz Global Investors, a top-five global asset management with fund subsidiaries that include US bond specialist Pimco and Nicholas Applegate, although Mazurov said the manager would retain its independence.

The company manages assets worth $700m in six open-ended investment funds and 12 non-governmental pension funds. Mazurov said funds under management would grow this year, with clients of Allianz, mainly insurance companies and pension funds, set to invest up to $1bn.

Rosno is pursuing institutional investors interested in investing in Russia and the fast-growing $15bn domestic mutual fund market, which is dominated by local rivals Troika and Renaissance.

Mazurov said: “We have had a lot of interest from German investors interested in Russia, and Allianz will be our link to that market. Retail is also a growth area because it is so uncompetitive in Russia, with penetration at just 1% of GDP.”

Distribution agreements to sell mutual funds at state bank Vneshtorgbank branches have been agreed and Rosno may also sell through its life insurance salesforce. Western institutions will be able to invest through Rosno funds registered in Luxembourg.

New Rosno funds will enable Allianz to invest in Russian real estate and private equity, according to Mazurov. “Allianz wants to buy real estate here and we will provide consultancy and ultimately funds,” he said.

Rosno last year won two mandates from the Russian government to manage regional venture funds and will make its first investments in Russian research and development projects soon.

Rosno represents a strategic play in an additional emerging market for Allianz. It is also assessing an asset management joint venture with its Indian insurance partner, Bajaj Auto.

Finnish asset manager FIM this month launched its first Russia-domiciled mutual funds, having received a fund management licence last year.

Jan Forsbom, chief executive of FIM Asset Management, said: “The Russian mutual fund market is roughly a tenth of the Finnish market. We have the competitive edge and experience of investing in Russia to make the most of a big opportunity as its middle class grows and grows.” FIM’s target is to have €200m ($266.7m) under management by the end of the year.

State Street Global Advisors, a US institutional fund manager, ended its seven-year partnership with local manager Pallada Asset Management in 2005. The Russian institutional market has grown slowly compared with its retail counterpart because Russian pension funds keep much of their portfolios invested in their parent companies.

Other western fund managers are rumoured to be setting up shop in Russia. Benelux manager Fortis started a joint venture last year with CIT Finance Asset Management of St Petersburg.


Tuesday, 3 April 2007

Deutsche Bank battles Russia defections

Financial News

David Rothnie and Jason Corcoran in Moscow

02 April 2007

Deutsche Bank is revamping the leadership of its Russian investment banking operation after suffering further defections in the scramble to secure top talent.

Several executives have left and more departures are expected, including that of Ilya Sherbovich, its co-head in Moscow.

He is a co-founder of UFG, the Russian securities brokerage that Deutsche Bank bought in a two-step deal for $700m (€523m). The German bank acquired 40% of UFG in 2003 and the remainder last year.

The acquisition established Deutsche as the leading foreign bank in Moscow, where it employs 700 people and has strong links with big companies, such as energy group Gazprom, but it has also made it a prime target in the battle for talent in Russia’s booming capital markets.

Last week, Igor Lojevsky, a derivatives specialist at Deutsche UFG, left for Dresdner Kleinwort, while last month Lehman Brothers hired Nick Jordan, Deutsche’s co-head of Russian investment banking, to spearhead its return to the fast-growing but risky market.

Goldman Sachs and UBS have also suffered hiring raids from local banks, which are forcing up rates of pay for top rainmakers. Last week, Renaissance Capital hired Gordon McCulloch from Goldman, while last month Alfa Bank lured Ed Kaufmann from UBS. More than 30 senior bankers have been recruited from rivals in the past six months.

Charles Ryan, chief country officer and chief executive of Deutsche Bank in Russia, said the Moscow hiring spree “resembled a French farce”.

He added: “I have seen this movie before. Moscow is not a get-rich scheme, because you need to have all the pieces of infrastructure in place like we do. A lot of our competitors are becoming increasingly desperate because they can’t achieve scale. They are planning tennis without a net.”

Sherbovich, UFG’s third-largest shareholder with a stake of between 15% and 20% behind co-founders Ryan and Boris Fyodorov, is understood to negotiating the terms of his departure that could see him walk away with more than $200m in stock and compensation.

Moscow banking sources said Sherbovich has informed Deutsche of his plans to leave, which the bank has denied.

Ryan said: “Ilya is not leaving. We both have contracts to 2008 and we are going to start thinking about succession and internal planning.”

Jordan’s departure has forced Deutsche Bank to rethink its plans to groom a successor to Sherbovich. Banking sources said it may turn to Philip Southwell, an equity capital markets banker who has held a variety of roles, but Andrew Chulack, head of central and eastern Europe, has also been mentioned as a candidate.


Renaissance spreads wings

Financial News

Jason Corcoran in Moscow

02 April 2007

Jason Corcoran in Moscow

Russian investment bank Renaissance Capital is expanding aggressively outside of its domestic market by hiring for new operations across Africa, Central Asia and Switzerland.

Renaissance is setting up an African continent-wide investment bank with an emphasis on the sub-Saharan. It has hired 50 people and is also the leading shareholder in Ecobank, a regional African bank with a presence in 16 countries.

Ecobank shareholders recently approved the bank's decision to raise $300 million from the capital market to finance its Pan-African expansion programme.

Part of Renaissance's operations will be being run from London with the main African centres being the Nigerian capital Lagos and Nairobi in Kenya. Chief executive Stephen Jennings said the bank will be involved in stock and bond trading, mergers and acquisitions, and capital markets.

He said: "After 50 years of disaster, it has become the world's second fast-growing region. I believe this growth will be stable. If I am right, this region will begin to see the formation of huge capital markets and their integration into the global markets. Structurally, this process is going to be identical to one that has happened in Russia during the last 15 years."

Renaissance has its own African clients and is believed to be working
on two IPOs.

Mark Jennings has been recruited as managing director of merchant banking in Johannesburg, South Africa from private equity firm Kingdom Zephyr.

Eight analysts have been hired to cover sub-Sahara with four in London, two in Lagos, one each in Nairobi and Harare. Matthew Pearson joins as head of research from Investec while Gordon Smith arrives as strategist joining from Citigroup

Renaissance is expanding in Central Asian. A new office offering investment banking and asset management will be opened this month [April] in Almaty, Kazakhstan Adel Kambar, director of debt Markets in Russia and Eastern Europe at Merrill Lynch, will be its chief executive.

Gregory Gurtovoy, head of Renaissance Ukraine, said the bank had built a full-scale replica of Renaissance in Kiev over the past two years.

He said: "We are the only full scale investment bank here. There are 50 people working on big M&A deals, trading and sales and a full research team." Gurtovoy claimed the Ukrainian market was the highest performer so far this year, up 800 points at 49%.

Head of research Roland Nash said Western institutional investors had caught the scent of the Caucus region. He said: "Last year we took over 40 investors from household-name funds to such relatively eclectic markets as Georgia, Azerbaijan and Kyrgyzstan. In April, we will be taking another 30 funds on a ten day trip across the region from Uzbekistan to Armenia."

Renaissance has also just opened a Swiss office in Geneva for international wealth management clients. Philippe Magistretti, head of private banking from Swiss bank Union Bancaire Privée, has been hired to head the business.

Deputy chief exeutive Neil Harvey said Renaissance was still "110% focused" on Russia. "We have a unique model suited to frontier-type capital which we would are applying elsewhere.”


Deutsche Bank braced for string of defections in Moscow

Financial News

Jason Corcoran and David Rothnie

02 Apr 2007

The defection by Deutsche Bank’s Russian rainmaker Nick Jordan to Lehman Brothers has rocked the German bank amid speculation of further raids on its Moscow operation.

Sources suggested Jordan’s exit last month could be the tipping point for other bankers to leave. Igor Lojevsky, head of sales and origination for Russia and the CIS, resigned last week to join Dresdner Kleinwort in Moscow.

A team of bankers is believed to be following Jordan to Lehman, and his co-head of investment banking, Ilya Sherbovich, whose contract expires next year, is said to be negotiating his departure.
Charlie Ryan, chief country officer and chief executive of Deutsche Bank Russia, admitted more bankers would probably join Lehman but said this allowed the next layer of bankers to step up.

“We make sure we are orchestrating people’s career paths and this allows the next row to move up. I am privately proud at how well my former protégées are doing elsewhere,” he said.

With the exception of Sherbovich, market sources say Deutsche, which bought the remaining 60% of United Financial Group it did not own last year, has underpaid its bankers by as much as 50% since it took full control of UFG.

However Ryan, a founder of UFG, said it was “categorically untrue” that bankers were not paid competitive market rates. He said: “I was a benign dictator at UFG in consultation with some colleagues. This has not changed starkly although there is still some input from Deutsche on certain compensation issues.”

A former Deutsche banker said the culture of entrepreneurialism fostered at UFG had changed drastically in the past two years. He said: “Deutsche Bank is a large institution. UFG is much smaller and a different animal with very different payout ratios. Smaller institutions need to pay out much more in Moscow because of the higher risk premium involved in working there.”

Deutsche’s research team in Moscow has also been hit. Its co-head of research, Stephen O’Sullivan, left last month for Macquarie Bank’s Asian team.

Derek Weaving, former head of Deutsche’s Russian utilities research business, has joined rival Renaissance in a similar job, having left almost a year ago while former chief strategist Christopher Granville is editing an emerging markets intelligence service.

A Moscow analyst said: “Its research team is losing its way. O’Sullivan and Granville going were big blows. Alexis Zabotkin is in the only recognised strategist it has left.”

Deutsche, which employs more than 800 people in Moscow, made a strong showing in the Russian investment banking league tables last year, topping the rankings for mergers and acquisitions advisory work and coming second in the league table of underwriters of domestic corporate bonds, according to data provider Cbonds.

Deutsche is primed to take part in the imminent $2bn (€1.5bn) flotation of state-owned Vneshtorgbank and was last week named as one of the underwriters of an initial public offering by Russian insurance group RESO-Garantia.

Deutsche and Goldman managed last week’s $2.5bn share offer by power utility OGK-3.