Tuesday, 3 November 2009

Barclays and HSBC march on Moscow

The Independent

BarCap boss putting 'considerable' money to work in Russia


By Jason Corcoran in Moscow

Monday, 2 November 2009

Banking giant Barclays is spearheading a new British invasion of Russia’s high street, according to one of its most senior bankers, as relations between the two countries bounce back from last year’s low point.

Barclays, as well as rival HSBC, have become increasingly visible across central Moscow with new branches and high-profile advertising as part of a move to aggressively expand in Russia’s major cities.

Hans-Joerg Rudloff, chairman of Barclays Russia and the investment banking arm Barclays Capital, said the group was making significant capital and trading commitments to Russia in light of an improving investment climate.

He said: “The battle against the command economy has been won and there are signs that ongoing reform will be favourable for the investment community and that is part of the reason I am putting considerable amounts of money to work in Russia.” Barclays has 36 branches across the country and is expanding its operations to offer full-service retail banking from previously offering support mainly to small and medium enterprises. Stuart Lawson, head of HSBC Russia said last month that the group would be “aggressive” in expanding its existing four branches in Moscow and one in St Petersburg.

A year ago, British firms were afraid they might become outcasts in Moscow following a dispute at Anglo-Russian joint energy venture TNK-BP, the closure of the British Council’s offices in Russia and the Kremlin’s refusal to extradite Andrei Lugovoi, the chief suspect in the London killing of dissident Alexander Litvinenko. Diplomatic relations between the two Governments sank to their lowest point since the Cold War but the economic crisis and the need for foreign investment stimulus has since helped to paper over political differences.

Mr Rudloff said BarCap, which lost £250m after Russia’s sovereign default in 1998, would also help build a domestic capital market. He added: “Right now, we are entering a phase where everything seems to go on green light. It is evident that Russia is now making huge strides to move forward, be responsive and get things going. It’s a big offensive directed at foreign investment and will undoubtedly lure investors into the market.”

Barclays, which acquired local player Expobank last year for $745m, has recently hired two senior financiers on the ground to build their businesses.

Nikolai Tsekhomsky joined from state bank VTB last month to head up Barclays retail and commercial banking business. American Bob Foresman,the former deputy chairman of Russia’s Renaissance Capital, will start work as Barclays country manager on December 1. He will be responsible for building investment banking on the ground as well as the launch of a new local asset management business to cater to Russia’s wealthy.

HSBC, which already has corporate and investment banking interests in the country, is spending $200m rolling out a retail and private banking network. Royal Bank of Scotland’s blue and white livery has also surfaced in Russia thanks to its acquisition of Dutch Bank ABN AMRO’s operations. Mr Lawson believes the UK banks offer a better service than domestic rivals. He said: “In addition to providing conduits for Russian corporates to access international debt markets, foreign banks are helpful to the Russian market as they import innovative products and also provide sources of training for Russian bankers.”

Foreign banks burnt by Russia’s sovereign default in 1998 turned off the taps to international credit in the aftermath of the current economic crisis. The banks are reluctant to open new lines of credit until oligarchs agree to painful debt restructuring of $437bn (£265m) in foreign debt.

BarCap has billions of debt in the Russian public sector although virtually no exposure to the troubled private sector. Railway monopoly RZD repaid $1.5bn late last year.

A lack of regulation of Russia’s local bond market have resulted in over 100 defaults since the crisis hit. Bondholders, who have very limited statutory rights, have in some cases accused issuers of ducking their responsibilities and stripping assets.

Eric Kraus, a strategist with investment bank Otkritie: said: “By allowing the bond holders to be robbed outright, the financial regulators have ensured that no second or third-tier company will be able to raise finance again.”

Rudloff would like to see tougher regulation and the establishment of arbitrage courts to resolve disputes. He said: "There should be a review of the bankruptcy procedures. That would be one of the most important measures to establish clear procedures if a default occurs."

Rudloff, who sits on the board of oil giant Rosneft, stepped down from the Russian media company RBC due to a conflict of interest over $18 million (£11m) in debt owed to him and his friends.

RBC, which may yet be acquired by Russia’s richest oligarch Mikhail Prokhorov, has offered creditors to restructure half its debt and asked them to accept a 64% discount on the remainder.

Rudloff’s own family office has operated in Russia since 1995. As chief executive of Credit Suisse First Boston in the early 1990s, he sent bankers Stephen Jennings and Boris Jordan to Russia to scout for deals. The pair became involved in the state's pilot voucher auctions and soon left to set up investment bank Renaissance Capital.

http://www.independent.co.uk/news/business/news/barclays-and-hsbc-march-on-moscow-1813272.html

INTERVIEW: DST drives social networking in Russia and beyond

Business New Europe

October 27, 2009

By Jason Corcoran in Moscow

Yuri Milner two strong bets in the horse race for global domination of social networking. The heavily fancied Facebook is the frontrunner, but Russian challenger Vkontakte has caught the attention of some punters and is showing good form on its home turf.

Digital Sky Technologies (DST), which Milner founded with his partner Gregory Finger in 2005, leapt to international attention in May after it acquired an initial 1.96% stake worth $200m in Facebook. It was DST's first foray out of Russia where it has sizeable stakes in a string of internet companies such as the social networks Vkontakte and Odnoklassniki, web portal Mail.ru, game developer Astrum Online and the online classified business Headhunter.ru.

Facebook and Vkontakte are now going head-to-head in 12 new markets besides the Russian one, where Facebook is only the seventh most popular social network. Milner insists a conflict of interest does not arise, because DST does not interfere operationally or with its companies' products. "For us, the fundamental issue is that we don't get involved operationally and that's how we really resolve the conflict of interest situation. Vkontakte is doing what they want to do, as is Facebook, and we don't get in the middle of it," he tells bne in an interview.

DST will continue to build its share of Facebook "opportunistically" by buying from shareholders of the California-headquartered company. It initially spent about $200m acquiring 1.96% and has since invested another $100m, which increased its holding to 3.5%. Milner insists a potential merger of Facebook and Vkontakte, which looks like a clone of its US rival in design and functionality, has "never been an issue."

"It's about the vision," he explains. "It's about being long term and our mutual understanding that social networks will play a significant role going forward in the people-sharing information."

Vkontakte claims on its homepage to have attracted over 46m registered users, which still pales in comparison to Facebook's 250m-plus users. But the company has recently snapped up the domain name Vk.com for an undisclosed amount and plans to use it to brand and market Vkontakte in 12 other languages, starting this month.

Entrepreneurial spirit

From his 57th floor office in Moscow City Naberezhnaya Tower, Milner can survey the growth of the capital's emerging business district, which is close to where he grew up in nearby Kutuzovsky. Sipping on expensive bottled Voss water, Milner points out the building where he grew up and the Number 4 School he attended. A trained particle physician, Milner has not followed the typical career path of a Soviet Academy of Sciences graduate. After leaving the academy for US-based Wharton School of Business in 1989, he turned to the world of banking and worked for the World Bank for a few years helping to develop Moscow's embryonic financial markets.

Milner was lured to Bank Menatep, founded by the now-jailed oil tycoon Mikhail Khodorkovsky, to build its brokerage and investment banking arm. He left the bank and got involved in private equity before stumbling on the internet's early boom in the late 1990s. Milner's international and banking contacts have helped DST to raise about $1bn to invest in its portfolio of Russian and Eastern European internet companies. Investors include Renaissance Partners, Tiger Global, Goldman Sachs and steel billionaire Alisher Usmanov, who is rumoured to hold a 32% stake.

Yet Milner, 46, says his most prized contacts are the young internet entrepreneurs running his portfolio companies rather than the bankers and investors. "The founder of Vkontakte is 25 and the chief executive of Mail.ru is 30. The internet is mostly the game of the young. Social networks started in colleges and grew, which means these guys started these businesses young and will run these companies for another 15-20 years."

Milner says his business model is more long term than other private equity firms investing in technology. An IPO is the favoured exit for investors, but only when the investment climate is absolutely right. "We would rather DST goes public and gives them liquidity that way. I don't have a date for that. A lot depends on the market and other things we don't control," he says.

Some warn that the growing investor interest in online social networks like Twitter and Facebook could yet feed another dot.com bubble, which burst spectacularly at the beginning of the decade. Milner is conscious of past mistakes and he has own experience of launching three Internet businesses during the same period. The e-commerce vehicle failed to take off while the online auction site Molotok and the Geocities-styled Narod have since been folded into Yandex and Mail.ru, respectively. "The problem with e-commerce was transaction trust and low penetration, because you need a critical mass of buyers," explains Milner. "Russia is still not today a perfect play for e-commerce, but in a few years it will be."

DST's portfolio companies have been pioneers insofar as showing their western counterparts how to monetise and to make social networking a profitable enterprise. Vkontakte and Odnaklassniki generate their incomes from the traditional model of online advertising, but have also experimented successfully with premium paid services and micro-payments, allowing users to buy and sell items with the site taking a portion of the revenue.

Russia's other competitive advantage is its legacy from the Soviet system of producing great mathematicians. Milner cites how three teams from Russia featured in the top four places of last year's 32nd Annual ACM International Collegiate Programming Contest World Finals. Russian students from St Petersburg and Saratov rose to the top against 6,700 teams from 1,821 universities globally in the event, which is seen as the Olympics of computer programming.

Milner added: "Russia could encourage sectors outside natural resources and the technology sector could be one. We have a competitive advantage because we have always produced good mathematicians and Russians have the entrepreneurial flair too which is required."

VTB Capital: Putin's favourite bank ?

Financial News

September 22, 2009

By Jason Corcoran in Moscow

Russian markets bounce back after rollercoaster ride of a year 28 Sep 2009
VTB Capital can expect to be informally crowned Russia’s investment banking state champion by Prime Minister Vladimir Putin at its inaugural investor forum starting tomorrow in Moscow. It will be the first time the Russian leader has appeared at a brokerage event, underlining the rise of VTB Capital, which has become pivotal in managing the state’s interests since its launch a little over a year ago. Its parent, VTB Bank, is 77% owned by the Russian Government.

More than 300 international investors are scheduled to attend the “Russia Calling” forum, which is expected to feature a three-line whip of the Kremlin’s top brass and the country’s leading industrialists. Deputy Prime Minister Igor Sechin and Finance Minister Alexei Kudrin are scheduled to attend, along with oligarchs such as Oleg Deripaska.

In an interview with Financial News, global chief executive of VTB Capital Yuri Soloviev said Putin had demonstrated an active interest in the business. He said: “The Prime Minister has a domestic-focused portfolio, and so his perspective is an important component to any discussion of the Russian economy. Prime Minister Putin has confirmed his participation in the event and it will be the first time that he will have addressed and taken a role in such an investment forum.”

VTB Capital does not have the market dominance of an energy state champion such as Gazprom but it has made enough impact for sceptics to sit up and take notice.

The business was officially launched last September amid the collapse of Lehman Brothers, the US-Government backed bailout of insurer AIG and the destruction of confidence in global banking. Its parent had committed in the first half of last year to spend $500m (€341m) over three years in building the investment banking business. At the time of its launch, the heads of Moscow’s largest brokerages were privately scornful that a Kremlin-sponsored investment bank could prosper in a highly competitive market.

However, the global credit crisis has since wreaked havoc on the Russian investment banking landscape, forcing market leaders Renaissance Capital and Troika Dialog to cede sizeable stakes to stay afloat, while KIT Finance and other banks have been effectively nationalised. Meanwhile, state-controlled financial institutions such as VTB, Sberbank and Gazprombank have come to the fore as lifeboats for cash-strapped oligarchs and indebted corporates.

Soloviev accepted the importance of his operation’s relationship with the state and its luck in escaping the brunt of the financial crisis. He said: “We were quite fortunate that we managed to stay away from the most turbulent time of the crisis because we were rehiring, rebuilding, managing the whole franchise. So we didn’t go into an abyss together with other market participants just because we had to provide liquidity.”

Kremlin connections are vital and VTB Capital has secured business from its parent and other state entities during the economic crisis. Bankers have been seconded for long periods by the parent to lead restructurings, under which companies agree to sell non-core assets or pledge their holdings as collateral for securitised loans.

State-run diamond monopoly Alrosa last month disclosed it would sell two oil and gas assets to VTB, its main creditor, for $620m (€420m). In a complex deal, VTB Capital is advising Alrosa and is also expected to resell the asset on behalf of its parent for a considerable profit.

Bankers from VTB Capital and other VTB subsidiaries have also been involved in restructuring clients in Russia’s heavily indebted real estate sector. VTB Bank has acquired a controlling stake in Sistema-Hals, the real estate subsidiary of Russian industrial group Sistema, for a mere $2m. A year ago, it had a market capitalisation of $1.7bn.

Soloviev said: “The team was extremely busy working for VTB as our biggest client. With the market down by 70%, there was a huge portfolio of loans against the shares and we were immediately put to work on a number of those.”

VTB’s bankers expect to play a key role in a wave of privatisations when the state lenders put seized assets back on to the public market, as a reward for rolling debt owed to its parent.

With the international credit markets shut for most Russian issuers this year, VTB took advantage to dominate the rouble bond market. According to data provider Cbonds, it arranged 15 issues in the first half of the year and is the second-biggest arranger this year of Eurobonds in Russia and the Commonwealth of Independent States, according to Thomson Reuters. VTB Capital also benefited from its parent’s balance sheet in areas including derivatives trading, credit and foreign exchange.

Soloviev said: “Almost anyone can issue a Eurobond, but what differentiates us from local competitors is our ability to offload that from the balance sheet and sell it on.”

Soloviev is keen for the business to stand on its own two feet and points to several secondary public offerings, where companies issue more stock following their initial public offering, and convertible bond mandates won independently from the state.

VTB recently headed a syndicate in which steelmaker Evraz raised $900m in a combination of convertible bonds and equity. It also co-arranged with Merrill Lynch a $265m convertible bond issue for Russian oil producer Alliance Oil in June and is slated to arrange a $300m secondary public offering for supermarket chain Magnit this year. However, government connections will continue to bring in business and Soloviev is confident VTB will play a big role when Russia issues $15bn in sovereign Eurobonds next year.

Critics suggest VTB will struggle to win mergers and acquisitions mandates in the non-state market although Soloviev maintains its bankers have had success but declined to comment further.

Soloviev’s next big challenge is to reorganise VTB’s asset management activities, which are split into three divisions for public funds, venture capital and infrastructure and real estate. VTB Asset Management was launched several years before the investment bank and has yet to make much impact.

A consortium led by VTB’s infrastructure team won a competitive tender to revamp St Petersburg’s Pulkovo Airport in what is set to be Russia’s first big public-private partnership. Soloviev acknowledged VTB’s relationship with the finance ministry, the transport ministry and the regional St Petersburg government in charge of the project.

VTB has set up joint ventures, including a private equity partnership with Deutsche Bank to invest in prime real estate in Russia’s cities.

The private equity team also made its first noteworthy deal this month, by joining US buyout firm TPG to buy a 35% stake in grocer Lenta.

Sunday, 27 September 2009

Barclays To Launch Funds Unit In Russia

Wall Street Journal Europe

September 20, 2009

By Jason Corcoran

Barclays is planning to launch an asset management business in Russia, building on its retail and investment banking activities in the country.

The bank will launch an asset management group focused on wealthy onshore clients and, potentially, the pension scheme and corporate sectors. Bob Foresman, who last week joined Barclays Capital as local chief executive and country head from Renaissance Capital, will lead the venture. Foresman’s appointment at BarCap was first revealed by Financial News on Friday.

Hans-Joerg Rudloff, chairman of Barclays in Russia, said the recruitment of Foresman demonstrated the bank’s commitment to the country.

Rudloff said: “These are good long-term investments – buying a bank, rebranding and getting into asset management onshore. When you hire lots of very high-profile people in a short period of time, it shows you are committed to the country. We also confirmed our intentions when Barclays bought Russian bank Expobank last year for a high price.”

Barclays’ retail bank acquired Russian lender Expobank last year for $745m. It has since rebranded and revamped Expobank’s 36 branches in western Russia. BarCap employs nearly 30 bankers in Russia, plus 70 Russian-dedicated bankers in London.

Barclays Capital fills top Russian role

Wall Street Journal Europe

By Jason Corcoran

September 18, 2009

Barclays Capital has filled one of the most hotly-contested positions in Russian banking, hiring the deputy chairman of Renaissance Capital as its chief executive in the country, where it is leading a fresh assault on the investment banking market.

Bob Foresman, who has only recently stepped down as one of RenCap’s most senior bankers, will lead Barclays Capital, the investment subsidiary of Barclays, in Russia.

RenCap declined to comment but a source close to the group confirmed that Foresman had left to join Barclays after completing a deal whereby the state development bank Venesheconombank agreed to become a cornerstone investor in a Macquarie Renaissance joint infrastructure vehicle.

A London spokesman for Barclays Capital could not immediately be reached for comment. Foresman could not be reached for comment.

Headhunting sources said they expected a spate of mandates from Barclays for more bankers in light of Foresman’s appointment to one of the most coveted investment banking jobs in Russia.

Foresman emerged from a tough shortlist, which has featured at different stages many of Russia’s top bankers. One headhunter familiar with the situation said Foresman could command an annual salary of between $2m (€1.4m) and $3m.

Foresman joined RenCap in September 2006 from Dresdner Kleinwort Wasserstein, where he was chairman of the management committee for Russia and the Commonwealth of Independent States. Prior to joining Dresdner in 2001, he was head of investment banking for Russia and the Ukraine at ING Barings and had worked at the International Finance Corporation in various roles.

At Dresdner, he played an important role on most of Russia’s large energy sector transactions in recent years, including advising state controlled Rosneft on its $10.4bn initial public offering in 2006, and state energy giant Gazprom on its acquisition of a 72.7% stake of in oil producer Sibneft for $13.1 billion in 2005.

Hans-Jörg Rudloff, chairman of Barclays Capital, told Financial News in April that the bank was a launching a fresh campaign in Russia and would be building on its traditional stronghold in debt capital markets into equities and mergers and acquisitions.

BarCap has steadily been growing its Moscow operation over the past year having hired extensively for back and middle office functions.

Alexander Zakharchenko was recruited about a year ago as head of M&A advisory from ABN Amro RBS in Moscow, while earlier this month Stefano Marsaglia joined Barclays Capital in Russia as chairman of its worldwide financial institutions group and Nikolai Tsekhomsky became chief of its retail and commercial banking business in Russia.

Marsaglia joined from Rothschild and Tsekhomsky from state-owned bank VTB.

Saturday, 19 September 2009

Sweden publishes its recipe for recovery

By Jason Corcoran

September 14

Letter from Stockholm

Sweden’s Finance Minister Anders Borg wouldn’t look out of place carrying an amp on a heavy metal road tour. He may sport a ponytail and loop earring but he isn’t known to be a headbanger. A trained economist, Borg can still play a crowd and his recent call for European Union restrictions on bankers’ pay has gone down well at home and abroad.

Borg, who chairs European Union finance ministers’ meetings as Sweden is the current holder of the EU presidency, has argued that “the banks were partying like it was 1999, but it is actually 2009”. He said the bonus culture must come to an end when the G20 meets in the US this month.

The former chief economist at ABN Amro Bank in Stockholm in the late 1990s warned there could be “social tension in our societies” if bankers’ compensation is not reined in. However, there was not much sign of social tension in Stockholm’s trendy Södermalm district last week where its inhabitants were enjoying the sunshine in crowded outdoor bars and restaurants.

The Swedish capital seems to have been relatively insulated from the global economic crisis compared with the country’s industrial cities, where national automotive icons such as Saab and Volvo are ailing and could end up in the hands of the Chinese.

Locals said the social democrats, which ruled for much of the past 60 years, were winning support in the regions but were still deeply unpopular in the capital. Borg’s centre-right Alliance party, headed by Prime Minister Fredrik Reinfeldt, swept to power in 2006 with a mandate to shrink Sweden’s welfare state. The Government wants market forces to dictate outcomes and has resisted calls to rescue the struggling car industry.

Borg’s recipe for growth has been to slash taxes and to axe some unemployment and sickness benefits in the Organisation for Economic Co-operation and Development.

As US President Barack Obama uses Sweden as his template for taking over corporations outright, the Swedish Government has been busy unloading its industries. State-owned pharmacies have been sold and the Government plans to sell its remaining 37% share of telecoms operator TeliaSonera.

Last year, it offloaded Absolut Vodka, which Borg said was a core function for neither a welfare state nor a nightwatchman’s state.

Borg maintains Sweden is better positioned to recover from the crisis than the UK or US because the state did not spend money on interventions and emergency measures.

He said last week he had revised his economic prognosis for economic growth upwards to 0.6% for next year. He expects Sweden’s public finances to balance within the next four to five years, with gross domestic product growth rising to 3.1% in 2011 and 3.7% in 2012.

Some 7.9% of the workforce in Sweden were out of a job in July, which was lower than expectations of a 8.3% rate.

The property market in Stockholm has rallied strongly after a dip last year. Policymakers are expected to raise interest rates sooner than the European Central Bank if and when the recovery takes hold.
There have been calls in the Swedish press for Borg to shed his ponytail.

But one civil servant drinking in the vast Mosebacke Terass bar overlooking the city said there was a fear the finance minister could lose his radicalism without his long tresses: “He’s our Viking-styled Samson and he would be just been another politician without his ponytail.”

Fresh fundraising signals hope for Russia

Private Equity News

Jason Corcoran in Moscow
09 September 2009

Moscow-based private equity start-up Quadro Capital Partners has so far raised $200m (€139m) for its first fund amid signs that the moribund fundraising market in Russia is recovering.

Quadro was formed in April by Giedrius Pukas, the former managing director of Troika Capital Partners who quit the alternative asset manager subsidiary after a dispute over the running of the business with Ruben Vardanian, the majority owner of parent investment bank Troika Dialog.

Pukas, who has been joined at Quadro by former Troika Capital directors Vladimir Kozlov and Nikolay Sergeev, said: “We tried to buy the business from Reuben but he wouldn’t let us so we set up Quadro on our own. We have so far raised $200m (€138m) and we have a target of $350m.”

The fund, which includes several investors in Troika’s private equity funds, will invest in distressed debt and across the consumer, lifestyle and finance sectors.

Quadro joins a host of other funds raising private equity funds in the country. Russia Partners has recently raised an $800m fund while new player PPF Partners announced in June it had raised €615m ($891m) to invest in assets in central and eastern Europe, with Russia the key market.

UFG and Delta, which are closing in on final merger talks, are both currently trying to raise funds. Many of the commitments made by investors to UFG’s Private Equity Fund 11 were generated by Boris Fedorov, the firm’s founder who died late last year. A source close to the firm said some investors had withdrawn since Fedorov’s death.

Aim-listed Aurora Investment Advisors has recently raised £50m for its second fund which will be primarily used to reinvest in its current investments.

James Cook, joint founder of Aurora, believes a demand for private equity financing will return as companies who survived the crisis seek fresh capital to grow.

He said: “We are seeing heavily reduced valuations which will likely yield high returns for private equity capital invested in 2009/10. As companies continue to find debt financing hard to secure, there is increasing demand for private equity capital to finance growth.”

Private equity deals have been thin on the ground over the past two quarters as funds had their allocations reduced or pressure was exerted by limited partners not to draw down commitments for investment. However, last week it was reported that US buyout fund TPG and the Russian state bank VTB had bought a 35.4% stake in Russian hypermarket chain Lenta for about $115m.

TPG is thus far the only international buyout fund with an office in Moscow but has found deals elusive. In the summer of 2007, a protracted deal to acquire the grocer Seventh Continent collapsed over price, while in April last year, TPG signed a contract to buy half of SIA International, Russia's largest pharmaceutical distributor, for $800m. TPG later withdrew and paid a fine of $50m.

Departing VTB finance chief takes Barclays role

Wall Street Journal Europe

September 9, 2009

Jason Corcoran in Moscow

The chief financial officer of Russian state lender VTB, who left the bank today, is to become head of Barclays' global retail and commercial banking business in Russia in move the bank says is vital for it to "diversify internationally".

Nikolai Tsekhomsky, whose appointment is subject to approval from the Central Bank of Russia, will take over from Sergey Radchenkov at the helm of Expobank, Barclays’ retail and commercial business in Russia.

Tsekhomsky joined VTB with a specific remit to spearhead it the bank’s $8bn (€5.5bn) initial public offering on the London Stock Exchange in May 2007, which is the second-largest listing by a Russia company. Domestic press and investors have criticised the bank followed the IPO as its share price has plummeted by 70%.

He has previously been chief financial officer for Renaissance Capital and financial controller for Brunswick, a Moscow brokerage subsequently sold to Switzerland’s UBS.

Tsekhomsky has been replaced as chief financial officer at VTB by Herbert Moos, who had been executive of VTB Bank Europe, an investment arm of VTB. A spokeswoman for VTB said no decision had been taken yet about a replacement for Moos. “Herbert will stay with us to help with a transition until we announce someone for the role,” she said.

Barclays reacquired Russian lender Expobank in March last year for $745m. The bank, which employs 1,800 staff in Russia, has since re-branded and revamped Expobank’s 36 branches in the west of the country Russia.

Analysts said last year that the $745m price tag, at four times Expobank's net asset value, was hefty but that the acquisition was relatively small and gave Barclays a place in a fast growing market.

In a statement issued to Financial News, the chairman of the board of directors of Barclays in Russia Hans-Joerg Rudloff, said: “This is an important step in the strategic development of Barclays in Russia and integral to Barclays ambitions to diversify internationally. We are optimistic about the growth opportunities in Russia and remain committed to the market in the future," he added.

Rudloff told Financial News in April the bank was launching a fresh campaign in Russia and would be building out further in investment and commercial banking, as well as retail.

Barclays' investment banking subsidiary Barclays Capital has steadily been growing its Moscow operation over the past year having hired extensively for back and middle office functions and yesterday announced the hire of Rothschild’s global co-head of financial institutions, Stefano Marsaglia, as chairman of its worldwide financial institutions group.

A senior hire to head up the investment banking team in Russia is expected with a number of senior Russian bankers in the frame.

VTB recruits for global expansion

Financial News

Jason Corcoran in Moscow
07 September 2009

VTB Capital, the Russian state-controlled investment bank, has hired a three-man mergers and acquisitions oil and gas team from Dresdner Kleinwort and two Morgan Stanley bankers in a worldwide recruitment drive.

The brokerage, which was launched in April last year, has lifted a hiring freeze that had led to a cut in personnel, costs and a halt on business expansion.

Yuri Soloviev, VTB Capital chief executive, said he had recruited an M&A energy advisory team from Dresdner in London, headed by Alex Metherell, along with Giles Coffey and Andrew Hollins. The bank has also hired a sales team from ING plus Morgan Stanley pair Alexei Mitrofanov, a financial institutions group banker, and Alexey Makhnyov, head of consumer and retail.

VTB Capital, which has recruited more than 500 personnel since launching last April, said it was also hiring financial controllers, traders, salespeople, commodities professionals, corporate finance professionals in M&A, and equity capital markets coverage bankers for roles in Moscow, London, Dubai and Singapore, where staffing had been cut to a third of previous levels.

Soloviev said the bank was likely to hire an initial team of a dozen bankers on Wall Street having ruled out buying a boutique investment bank stateside. VTB Capital has leveraged its parent’s balance sheet and government contacts to win business and has broken into the top three bookrunners for arranging eurobonds and rouble bonds in Russia and the Commonwealth of Independent States.

Renaissance Investment founder raids firm for new venture

Wall Street Journal Europe

September 4, 2009

By Jason Corcoran
Of FINANCIAL NEWS


Andrei Movchan, the founder and former chief executive of Russian fund manager Renaissance Investment Management, has recruited 20 personnel from the firm he launched to help set up a new wealth management business.

The firm name, Third Rome, alludes to Movchan's previous roles at Renaissance and Troika Dialog and also to what he describes as Russia's third cycle following the 1998 default and last year's banking crisis.

In an interview with Financial News, Movchan said the firm had hired a total of 30 personnel and had already won $200 million in client assets from Renaissance.

He said: ???In the private client world, the conversion rate is usually 100% because people like to stick to advisers they trust. There will be hurdles but expect we will have a very high ratio of clients defecting to us from Renaissance over time."

Movchan had been sole head of RIM from its inception in 2003 to 2007, when Rod Barker was hired from London-based hedge fund RAB Capital to take up the role of co-chief executive alongside him.

Movchan quit in February this year after the disagreement with the founder of parent group Renaissance Capital Stephen Jennings over the strategic direction of RIM. Jennings had wanted RIM to become a diversified asset manager involved in retail, institutional and international funds while Movchan wanted to focus on the high net worth segment.

Third Rome will focus exclusively in discretionary asset management accounts for high net worth clients and will steer clear of mutual funds and pension fund management, which Movchan believes are negligible. Clients will require a minimum of $1 million to invest.

"We are going to focus on discretionary management accounts rather than setting up funds. Clients want liquidity rather than additional legal structures. We will set up funds at a later stage," Movchan added.

Danilo Lacmanovic and Alexander Granovski have both been hired as senior partners of new firm. Lacamanovic worked at Renaissance for almost five years and latterly as a director advising high net worth clients and corporates, while Granovski worked at Renaissance for third years on discretionary client programs for high net worth individuals.

Other arrivals from Renaissance include business development director Dmitry Zhuk and Max Yanpolsky, who has joined as chief operating officer and chief technical officer.

RIM, which focused primarily on high net worth client referrals from Renaissance Capital, had built up client assets to $6 billion by early 2008.

Those assets have since fallen due to client redemptions and a fall in equity valuations. It has assets of $3.6 billion as of January 16, 2009.

Renaissance declined to comment.

Pension funds start building with Brics

Financil News

Jason Corcoran

24 August 2009

UK consultants advise clients to invest up to 15% in emerging markets
Emerging markets have finally gone on the pension scheme radar as the stock market boom in China and India outpaces the recovery in the west. While developed world equities have advanced by 15% this year, markets in China, Russia and India have clocked up 44%, 52% and 61% respectively.

In the absence of economic growth, western markets are starting to acquire some of the dysfunctional characteristics of developing countries, as governments agonise over the future.

Figures from global fund tracker EPFR show dedicated emerging-market equity funds took in $1.6bn (€1.1bn) in the first week of August, bringing total year-to-date inflows to $36.1bn.

Investor demand for emerging market bonds means the cost of insuring against debt defaults has fallen below western governments for the first time. Russian default swap prices, for example, have fallen to 255 basis points, or 20 basis points less than those linked to California.

Investment consultants in the UK remain cautious but none the less they are advising pension fund clients to invest up to 15% of their portfolios in emerging markets through equity, debt, currency, swaps and other strategies.

Hewitt Associates recommends that schemes should invest a maximum of 10% in emerging markets. Consultant Tapan Datta said: “The general fear factor associated with emerging markets has diminished. Their debt and equities are now on a par with developed markets.” Mercer recommends a 10% to 15% exposure and advises schemes to tap into the skills of specialist managers rather than broadening the remit of global teams.

Deborah Clarke, a principal at Mercer, said there was evidence that money has been switched out of UK and US equities into global and emerging market mandates.

She said: “We are seeing global and emerging market mandates picking up this year after going very quiet in 2008. A number of global equity managers are broadening their mandates.”

The risk aversion of pension fund trustees has historically been a factor working against increased asset allocation to emerging countries. The repeated occurrence of financial crises in countries such as Argentina, Mexico and Russia heightened perception that emerging markets were excessively volatile.

In the past, schemes in the UK and the US have viewed emerging markets as deserving their own asset class. They were seen as a sub-component of global equities, within Morgan Stanley’s All Country World Index for equities or Citigroup’s World Government Bond Index for bonds.

The upheaval in developed markets over the past two years and the reduced contagion to emerging economies suggests a greater migration of capital from the West is under way.

Mark Humphreys, a member of Schroders’ Strategic Solution group, said: “Pension funds should look at emerging markets more closely. They represent 12% of the MSCI all countries index and we expect that to increase.”

Asset managers and investment banks have been positioning themselves to benefit as emerging markets recover more quickly from the global economic crisis.

A survey by Bank of America Merrill Lynch published last week showed a net 52% of fund managers wanted to be overweight developing economies.

UK-headquartered bank Standard Chartered has raised £1bn (€1.1bn) to allow the group to expand in Asian markets. Standard chief executive Peter Sands said the group believes Asian markets will benefit from a faster recovery than the west.

Fund manager Mark Mobius plans to double Templeton Asset Management emerging-market assets to $50bn within two years. China is the top Mobius pick. Other managers see the country as a catalyst to a global recovery.

Jerome Booth, head of research at Ashmore Investment, has caused waves with his recent suggestion that investors should increase their level of exposure to emerging markets to between 35% and 50% based on the share of global GDP.

Long-only managers and emerging market specialists said Booth’s allocation is excessive and would blow a hole in pension scheme risk budgets.

Bill O’Neill, a portfolio strategist at Merrill Lynch Global Wealth Management, said: “Fifty per cent is way beyond what funds should be putting in. We think 12% should be a starting point. The story is right but the key problem is that the opportunity was more compelling early in 2009 when emerging markets were seriously undervalued.”

Aviva Investors supports Booth’s views in terms of how he has highlighted the potential for emerging markets, relative to developed markets, to contribute more substantially towards portfolio outperformance.

It believes that as emerging markets are growing, developing and arguably maturing, investors need to take a more sophisticated approach to tapping main growth markets.

Instead of allocating on a country or regional basis, Aviva makes the argument for using different emerging market styles. Aviva recently reorganised its emerging markets team on this basis, and instead of having regional experts it has managers dedicated to emerging macro, emerging special situations, emerging small cap, and so on, with the aim of delivering greater alpha.

Baring Asset Management is cautious on developed markets. Percival Stanion, head of asset allocation at Baring, said pension schemes should be downsizing their structured weightings to developed markets.

He said: “The industry is seeing a big ramp-up in searches and appointments in the UK and the US for emerging markets mandates. We have about 25% of our portfolio invested in emerging markets, which would be considered aggressive elsewhere.”

Baring stresses that emerging market portfolio exposures should depend on client risk appetites. But it believes investors’ allocation to emerging markets should, on a long-term strategic basis, be about 20%.

In multi-asset portfolios, Baring can argue that you need an investment manager that can tactically manage this exposure to emerging markets as conditions dictate, rather than maintaining a certain level of exposure at all costs.

Jonathan Harrison, global head of research at UBA Capital, the investment arm of the United Bank for Africa, recommends pension funds commit 40% to emerging economies.

He said: “Developing markets are, almost by definition, growth leaders and therefore more attractive investment destinations than developed markets. The global crisis has not altered the fundamental thesis but has illustrated that it is not only developing markets that are prone to periodic economic earthquakes.”

Swiss private bank Lombard Odier Darier Hentsch said allocations stretching to 50% are neither realistic nor pragmatic. Curtis Butler, head of emerging market equities at Lombard, said many inflows were a reaction to the correction from last year’s slump.

He said: “We believe in gradually increasing exposure. Emerging markets have not yet achieved the stability on an annualised basis. We need to see another decade of stability. There are still those who see emerging markets as a fair-weather friend but they have not yet learned to have them as a permanent place in their portfolios.”

Sunday, 23 August 2009

Deal-hungry RenCap wins mandate for Sistema issue

Financial News

Jason Corcoran in Moscow

18 August 2009

Russia’s Renaissance Capital has been appointed as lead manager and bookrunner for a 20bn rouble bond (€441m) by conglomerate Sistema, capping a string of deals worth over $2bn (€1.4bn) that the bank has worked on in the past few weeks.

The Sistema rouble bond is the biggest of the year and beats the recent 15bn rouble issue by Russia’s biggest lender Gazprom.

The seven-year bond, which will be issued via a Dutch auction on Tuesday, will be used to refinance foreign debt owed by Sistema.

The other deals won by Renaissance mark a new entry into new markets in Poland, Zambia, Sierra Leone, as well as the convertible bonds sector.

Renaissance was a co-lead manager on a follow-on $200m public offering by Polish vodka producer CEDC on July 20. The deal was four times over-subscribed and pricing was close to the market.

On July 29, RenCap priced a combined $300m equity and convertible bond issue for Zhaikmunai, a Kazakh oil and gas company. It was the first convertible bond structured and priced by Renaissance and the first convertible offering structured and led by a Russian bank.

Renaissance acted as sole bookrunner on a follow-on offering for AIM-listed African Minerals that raised $105.5m. The placing raised growth capital to finance the company’s drilling campaign at an iron ore project in Sierra Leone.

The transaction is the only second equity offering to have priced at a premium in EMEA this year.

Current deals include a $49m rights issue by Zambia Sugar which would become the bank’s third African capital markets transaction this year.

The sting of fixed income mandate wins follow tthe recruitment of Yury Gruzglin from Deutsche Bank last October to run the debt product group.

Renaissance, which was forced to pare back its staff by 40% following the banking crisis, has recently started hiring again and has raised salaries to pre-crisis levels.

Russian banking carousel spins once more

Financial News

Jason Corcoran

17 August 2009
Letter from Moscow

The great purge in Moscow’s banking sector is over. Pay and staff were cut to the bone, but wages are now back to near pre-crisis levels, with annual guarantees of $2m to $3m ensuring that the hiring carousel is back in action.

Russian markets have rallied a year after being pistol-whipped by the international credit crunch, and roiled by a five-day war in Georgia, a domestic banking crisis and a series of investor scandals.
Russia’s RTS and Micex stock exchanges have won back trading lost to the London Stock Exchange and have recovered from their 80% plunge in value.

The upheaval caused by the market’s meltdown resulted in the effective nationalisation of brokerage KIT Finance and mid-tier lenders Globex and Svyaz Bank. Renaissance Capital was forced to accept a $500m investment last September from billionaire Mikhail Prokhorov in return for the sale of a 50% holding while Troika Dialog sold a 30% stake to South Africa’s Standard Bank.

RenCap, once the standard-bearer for Russian investment banking, slashed its staff by about half, and Troika by 35%.

Western banks, which had built aggressively in Moscow since 2007, were also forced to retrench as equity and credit markets shrivelled.

RenCap is hiring for selective areas and has increased salaries in Moscow by 20% and in London by 10%, which returns most surviving staff’s pay to pre-crisis levels. Deutsche Bank, the largest foreign investment bank in Russia, said it had never cut wages and had raised them in some departments by 15% to 20% from July 1.

As dealmaking has returned in oil and gas and in pockets elsewhere, owners and country heads are starting to worry about hanging on to their best people. Credit Suisse has fought to retain its sales staff in Moscow after an attempted raid by Goldman Sachs.

The Swiss bank was forced to authorise $2m guarantees after Goldman tried to swoop, according to a source close to the matter.

Goldman, which has struggled to break into the top five in any of the Russian league tables, has been linked with a move for several of Moscow’s best-known rainmakers.

The rumour mill went into overdrive this month after Alfa Bank’s Edward Kaufman had lunch with Chris Barter, co-chief executive of Goldman Sachs in Russia. Kaufman insists the issue never came up and that he is happy to stay at Alfa, where he is taking charge of “a revenue opportunity” to merge the group’s investment bank and the corporate bank. He said its fixed-income and equities divisions had recorded their best two quarters and corporate finance deals were growing rapidly.

At the height of the war on talent in 2007, Kaufman gained notoriety after being hired from UBS for a reputed $15m over two years. Sources close to Alfa suggest Kaufman has in the past few weeks signed a new two-year contract that is more lucrative than the original package.

Goldman is not the only outsider looking to land a senior banker to break into Russian dealmaking. Merrill Lynch has hired a co-head for its global market team in Russia from MDM Bank and is rumoured to be close to be bringing a head trader on board.

Barclays Capital is understood to be whittling down a short list of top bankers to head its expanded business in Moscow.

Swiss bank UBS is close to naming senior hires for investment and private banking while state-controlled VTB Capital continues its build-out into equities following its startling progress this year in debt capital markets.

One leading headhunter said: “The merry-go-round of hiring is back on. It won’t be as dizzy as 2007, but we have more work than we can handle and we are having to partner with other firms.”

Russia's Alfa to merge banking units

Financial News

Jason Corcoran in Moscow

10 August 2009

Russia’s Alfa Bank, is merging its investment banking and corporate banking businesses into one division in a move it believes is a "revenue opportunity".

The new unit will be aimed at increasing Alfa’s ability to sell products ranging from loans to advice on takeovers to its 40,000 plus corporate clients. The move mirrors a decision taken by Citigroup in the aftermath of last year’s financial crisis.

Ed Kaufman, co-head of corporate and investment banking at Alfa Bank, said: “It’s not a cost issue but a revenue opportunity. The client managers on the corporate banking side will be put together with the corporate finance team to offer the best products to our clients.”

Kaufman dismissed rumours among Russian bankers that the group was closing its investment bank and said it had just posted its best two quarters. “There were a lot of trading opportunities in fixed income where we invested heavily and booked the profits. We have also done well in equities and made more money from making educated bets.”

Kaufman and Vladimir Tatarchuk, head of corporate banking, will co-lead the combined division.

Alfa, which is controlled by the billionaire Mikhail Fridman, employs 135 in its investment bank and 600 in its corporate bank. The group has already downsized in many areas of corporate and investment banking over the last year. “We would look to see how markets develop if there needs to be reductions or additions in any specific areas but there are no layoffs due to the merger,” Kaufman said.

The bank insisted there would be no conflict of interest resulting from combining the two businesses.
Kaufman added: “We do not believe that corporate bank relationship managers will be able to sell M&A or corporate finance products but they are a key part of the coverage model and will be trained to understand the products and also to know when they need to bring in product specialist.”

The president of Alfa Bank, Pyotr Aven, has been one of the most bearish commentators on the prospects for bad loans in Russia’s banking sector. Aven has warned that the country's banks' non-performing loans could rise to 30% of assets, from an estimated 10% today.

Alfa hit headlines in March this year when it clashed with the oligarch Oleg Deripaska in a bid to protect itself against the possible default of a $1bn (€780m) loan. It comes as Deripaska faces a struggle to restructure his outstanding debt to other creditors.

Bloomberg reported on July 31 that Deripaska’s Basic Element unit is close to agreeing with Alfa on revising terms of $800m in debt.

Sunday, 9 August 2009

Russian banks back on the hunt for talent

Financial News

Jason Corcoran in Moscow
31 Jul 2009

VTB Capital and Troika Dialog have both boosted their equity sales and trading desks as recruiters report a summer uptick in hiring by Moscow-based investment banks.

State-controlled VTB has hired Vlad Markovskiy from UBS and Denis Gorvat from ING for its equity trading operation.

The bank, which launched just over a year ago, wants to build on its success in debt capital markets by building out an equity brokerage. VTB is ranked number two in the league table of arrangers of Eurobonds in the Russia and Commonwealth of Independent States debt capital markets for the first six months of 2009, according to data provider CBonds.

Separately, domestic peer Troika has hired Jim Bevan and Marcus Martin in London to replace a sales and trading team that quit for VTB in June. Both join from Nomura International in London.

The pair, will replace Will Lynch, Peter Walker and Richard Phillips who left to join VTB’s growing presence in London, one of its three global hubs.

VTB and Troika are the latest hires from banks in Moscow, where recruitment is beginning to pick up, according to headhunters.

Taras Rybak, a managing partner at headhunters Brain Source, said: “The hiring freeze at the bulge brackets and the Russian banks in Moscow ended several months ago. Most banks are looking to hire selectively now that the domestic recovery has spread from M&A and the equity markets to the debt capital markets.”

Bank of America Merrill Lynch last week recruited Sergey Babayan from Russian bank MDM as managing director and co-head of the bank’s global markets team in Moscow. Russian brokerages Aton Captial and Otrkritie have been also hiring.

The relaunched investment banking business of Aton has hired Ivan Nikolaev and Maxim Kabanov as a senior analyst and vice president of equity and fixed income sales, respectively. Both had previously been employed by Renaissance Capital.

Otrkrite has also tapped a former Rencap employee having hired George Zarya as senior sales executive for DMA (direct market access), which allows buy-side institutions to access liquidity venues without having to go through an execution desk. Zarya had been at Rencap for over three years working on international DMA sales until a month ago.

Ashmore opens in Japan and China

Financial News

Jason Corcoran in Moscow

27 July 2009
Emerging markets fund specialist Ashmore Investment Management is expanding by opening offices in China and Japan.

A source close to Ashmore said it was already recruiting for an operation in China and for a sales office in Japan. Ashmore is also expected to start working in Russia at the end of this year or in early 2010, the source said.

Ashmore, which manages about $25bn (€18bn), last year opened operations in Brazil and Turkey in a bid to increase its local presence in emerging markets, to raise more capital and to add more country-focused funds.

In 2007, Ashmore entered into a joint venture with private equity firm Alchemy Partners to invest in distressed debt and special opportunities in India.

Jerome Booth, head of research at Ashmore, declined to comment on specific geographical expansion plans. He said: “Our overall objective is underpinned on the need to grow and so far a lot of that has been organic in Brazil, Turkey and India. It’s a natural extension to build on further.”

Ashmore, which has traditionally raised most of its capital from US and European institutional investors, is attempting to raise money in emerging markets. Booth added: “We already manage money for central banks and sovereign wealth funds but eventually hope to manage funds for small investors in emerging markets.”

Ashmore has strong links with several sovereign wealth funds, with 15% of its assets under management coming from government institutions.

Booth said Asia sovereign funds, scarred by investing in western investment banks, were taking a fresh look at emerging markets.

Norway’s $370bn state pension fund, one of the world’s largest sovereign wealth funds, earlier this year increased its exposure to Russia by two and a half times and hired Prosperity Capital to run a country mandate. Norges Bank, the wealth fund’s manager, also wants to raise the emerging market weighting in its benchmark portfolio to 10% from 5%.

Banks press Russian authorities for market reforms

Financial News

Jason Corcoran in Moscow
27 July 2009

International custodians headed by Dutch bank ING are forming a lobby group to pressurise the Russian financial regulator and the Government to improve the market’s infrastructure.

The mission of the International Custodians League is to address regulatory and infrastructural market issues in the interests of local and international investors and their global custodians and sub-custodians.

In a policy paper, ING described the Russian securities market as “fragmented, decentralised, non-standardised and inefficient”.

It added: “There are many legal deficiencies and white spots in the securities, tax and corporate legislation that prevent many local and international investors from entering the Russian securities market or make their investments quite costly and cumbersome.”

Natalia Sidorova, head of securities service of ING Wholesale Banking in Moscow, said the main international custodians in Russia had been approached about joining the group.

Sidorova said: “We want to have an informal working group with other Russian custodians who are well aware of best international practices and foreign clients’ concerns with regard to the deficiencies of the Russian securities market infrastructure towards its development. In particular, such development would entail creation of a centralised system of handling of securities.”

A main goal of the group is to push for the creation of a central depository, an issue that has dogged the Russian market for almost a decade.

The Government has put forward several plans to create a central depository, but the politics of choosing one depository to form the base of the single company have been a stumbling block.

The National Depository Centre, Micex’s settlement depository and the Depository Clearing Company, the depository of the rival RTS exchange, continue to compete to be the central clearing company.

The league also wants the authorities to look at the issue of legal recognition of foreign nominee concept, setting up internationally recognised standards in the interaction between custodians and registrars, recognition of non-true legal entities, of partial and split voting and tax pre-clearance.

Custodians blame politics and bureaucracy for the slow pace of reform in the Russian securities market. To bring about change, they believe custodians and investors with similar interests must be heard as one voice.

However, Russia’s custody industry is fragmented and it remains to be seen if it can unite.

A spokeswoman for UniCredit, one of the leading sub-custodians in the Russian market through its ownership of International Moscow Bank, dampened enthusiasm for the initiative.

She said: “UniCredit managers are represented in the boards of various bodies that control the stock market. Though currently we do not yet have a clear picture what this new initiative will be aiming at, it remains to be seen if there is room for a privately organised custody lobby of such a format.”

Founder departs top-performing Russia hedge fund

Financial News

Jason Corcoran in Moscow
17 July 2009

Dmitry Kryukov, the co-founder of one of the best long-term performing hedge funds operating in Russia and the former Soviet Union, has left to pursue other projects.

Kazimir Partners, a hedge fund firm with offices in Moscow, London, New York and Baku, was set up by Frank Mosier and Kryukov in 2002 after the pair left the investment bank Renaissance Capital.

Kazimir declined to comment on Kryukov’s departure but a source close to the firm said: “Dmitry wanted to spend more time with his family and to explore other projects. We have a large and deep team so it shouldn’t have any impact on the business.”

The fund was one of one of the few hedge funds to focus on Russia and the former Soviet Union. Its flagship long/short fund, Kazimir Russia, shot up by more than 650% in five years from its inception in 2002.

The Kazimir Russia fund maintained a top ranking amid last year's banking crisis. The fund was rated third in a peer group of 40 Russian and regional investment vehicles for the year to November 28, according to Bloomberg charts.

In 2005, Kazimir acquired the funds business of investment bank Brunswick Capital, which was disposing of assets after entering into a joint venture with Swiss bank UBS.

A number of hedge funds operating in Russia and the former Soviet Union were forced to close or restructure earlier this year following a collapse in the region's equity markets and subsequent client withdrawals.

However, a Kazimir source said the group had not needed to restructure nor seek additional capital.

Kazimir has a Caspian fund which invests in the frontier markets of Kazakhstan, Azerbaijan and Turkmenistan. Sources close to the firm said the fund had exited positions in Kazakhstan before the country’s banking and construction sectors collapsed.

Kazimir, which has mainly institutional clients, declined to provide its current assets under management which are believed to have been about $1bn (€708,462) a year ago.

Third Senior Banker Leaves Troika Dialog Brokerage

WALL STREET JOURNAL EUROPE

By JASON CORCORAN in Moscow

July 17, 2009

The head of sales at Troika Dialog has become the third senior banker at the Russian brokerage to step down in less than three months.

Gerrit Heyns, who has stepped down from his position after joining Troika in 2002, follows the resignation of the firm's chief executive for the U.K. division, Howard Snell, and the departure of Giedrius Pukas, the managing director of Troika Capital Partners in late May.

A Troika Dialog spokeswoman said Mr. Heyns hadn't left the firm and would be retained in some capacity. "Gerrit has gone on a kind of academic leave," she said. "There's no arrangement yet. He has gone away to think about his future but he is still with Troika."

Troika Dialog entered a strategic alliance with South African bank Standard Bank in March after selling a 33% stake in itself for $200 million and is reorganizing its business lines to integrate it with the Standard's Moscow-based operations.

Mr. Heyns, who is one of the senior partners at Troika, is one of the most experienced and well-known bankers in Moscow.

Prior to joining Troika, he helped to establish the equity business of Kleinwort Benson in Asia as its first head of equity sales in Hong Kong. He later joined Lehman Brothers to establish and manage an institutional equity sales team as its head of sales and went on from there to be head of sales for J.P. Morgan Securities.

He began in the equity broking business in Bangkok as a salesman and then head of sales with Crosby Securities, which later became SocGen Securities Asia.

He couldn't be reached for comment.

Russian banks are hiring in numbers as domestic corporates queue up to issue new debt. After a 10-month break, the euro-bond market has been pried open for Russian issuers by OAO Gazprom and Russian Agricultural Bank, which recently raised a combined $3.25 billion on it.

UBS promotes for equities and structured products

Financial News


July 10, 2099

Jason Corcoran in Moscow

The head of emerging European equities at UBS has been promoted to a newly-created role as dedicated co-ordinator for structured products and equity capital markets for Europe and the US.

In a memo to clients, UBS said the promotion of Tulga Cordan was prompted by the growing importance of corporate financing for the bank’s franchise customers.

Cordan will act as a liaison between the bank’s structured products business RMP and equity capital markets.

Cordan, who been with UBS for eight years in a number of roles in specialist sales and sales trading, will site on the bank’s loan review group for both regions in addition to acting as liaison to ECM.

Additional responsibilities will include sitting on the equity global client committee and assisting the capital commitment team.

Cordan joined UBS from ABN Amro in 2001, where he had been a top-rated equity analyst.

UBS said there was nothing to announce yet regarding Cordan’s successor as head of emerging European equities.

Thursday, 9 July 2009

Russian bondholders form pressure group after defaults

Financial News

Jason Corcoran in Moscow
06 July 2009

A group of disgruntled bondholders in Moscow have formed a club to uphold their rights in the wake of 60 Russian corporate bond defaults since last September.

Members claim some Russian issuers are avoiding liability by disposing of assets and initiating voluntary bankruptcy and insolvency procedures.

A third of Russian domestic bond issuers have defaulted since the final quarter of last year, according to Russian law firm Liniya Prava.

The Moscow Club, whose members include international banks, Russian banks, asset management companies and pension funds, is being spearheaded by US law firm Baker & McKenzie and Anglo-Russian consultancy RB Partners.

Members are known to include representatives from Italian bank UniCredit, Russian brokerage Otkritie, investment fund VR Group and private equity firm SCP.

Max Gutbrod, a partner at Baker & McKenzie, said the lack of regulation, the uncertainty of rules and increasingly errant corporate behaviour had brought bondholders together. He said: “Our immediate focus is on the really bad defaults where everything has disappeared. Issuers are taking advantage of the lack of organisation of bondholders and are making unreasonable proposals and profiting from the chaotic restructuring processes.”

Members cited defaults by factoring firm Eurokommerz, media holding RBC, baby food producer Nutritek and sugar producer Razgulay for their action.

Rating agency Moody’s last week cut Eurokommerz’s long-term ratings to C from Caa2. It said the company was in default on the majority of its obligations after it first defaulted on its coupon payment for 3bn roubles ($107m) in domestic bonds last December. It said that “bankruptcy is now the most likely scenario”. Eurokommerz did not return calls for comment.

RBC, whose debts are believed to be $200m, first defaulted on a $45 rouble bond payment in March.
A spokesman said a new chief executive had been installed and the company could not comment. Board members voted last week to terminate the power of the company’s head, Yuri Rovenski, who was one its founders.

Razgulay and Nutritek declined to comment.

The Moscow Cub said it aimed to develop a strategy to negotiate with issuers and their agents.

VTB wins tender for airport development

Financial News

Jason Corcoran in Moscow

26 June 2009

A consortium led by the investment bank VTB Capital has won a competitive tender to revamp St Petersburg’s Pulkovo airport in what is set to be Russia’ first large public-private partnership.

The consortium consisting of VTB Capital, the state-controlled investment bank, Fraport, the owner and operator of Frankfurt airport and the Greek investment and business group Copelouzos, won the €1.4bn ($1.9bn) open tender to redevelop Pulkovo, the fourth-largest airport in Russia. The PPP is to be run over 30 years, in conjunction with the government of St Petersburg.

In the final round, the VTB consortium beat off competition from the Basic Element investment holding of oligarch Oleg Deripaska and Vienna airport operator Flughafen Wien in partnership with Leader, the pension fund manger of energy giant Gazprom.

The municipal government had in a previous round whittled down the list of consortia to six. Those that didn't make it on to the shortlist included Macquarie Renaissance, a joint venture formed by the investment banks Macquarie and Renaissance Capital to invest in Russian and CIS infrastructure; Germany's Hochtief in partnership with oil and mining tycoon Viktor Vekselberg; India's GMR; and Turkish TAV Airports.

VTB said their tender bid submitted has been recognised “as the best based on a combination of technical, legal and financial criteria”.

The overall amount of investments required for the first stage of constructing the new terminal and upgrade of existing infrastructure will amount to €1.4 bn. The European Bank of Reconstruction and Development and the state development bank VEB have already expressed interest in providing credit support to the project.

In a statement, VTB capital global chief executive Yuri Soloviev said: “We are sure that the Pulkovo project will convincingly prove the possibility of successful implementation of large infrastructure projects in Russia in the current market conditions."

Many infrastructure projects have been postponed or moth-balled due to the lack of available finance from domestic and international capital markets. And the Kremlin's much touted public-private partnership (PPP) programme to stimulate investment has yet to take off, while bankers hired to capitalise on an anticipated deal-making boom have been twiddling their thumbs for the past nine months.

The government is now targeting selective projects in St Petersburg, Moscow and the Winter Olympic venue of Sochi as priorities for completion until the investment climate for foreign and private capital improves

The St Petersburg municipal government has said it will delay $13bn (€9.2bn) of infrastructure projects, which had attracted bids from international companies including Alstom, Siemens and Oleg Deripaska's Basic Element, due to the credit crisis deterring most private investors.

Projects facing prolonged delays include the $10bn highway, known as the Western High-Speed Diameter, and the Orlov tunnel under the Neva River. Banking sources said the Orlov tunnel and a fast-speed train link to the airport are likely to be postponed indefinitely.

The WHSD roadway encircling St Petersburg was meant to be the pioneering large PPP project in Russia, but the winning consortium formed by oligarch Oleg Deripaska and Strabag has not yet signed the concession contract governing the project.

EBRD invests in Moscow buyout firm

Financial News

Jason Corcoran in Moscow
19 June 2009
The European Bank for Reconstruction and Development has approved a $50m (€36m) investment with Moscow-based private equity firm UFG Asset Management, as fund-raising activity in Russia bounces back.

The investment comes days after it was disclosed that Robert Sasson, the former head of the St Petersburg office of the EBRD, is to join UFG as a senior managing partner of its private equity business. Sasson is to co-head UFG Private Equity alongside Charles Ryan, a former chief executive of Deutsche Bank Russia who started his career at the EBRD.

A spokesman for the EBRD in Moscow said Sasson had left the development bank some time ago and had worked for the hedge fund Moore Capital before taking up his UFG position.

The UFG Private Equity Fund II, whose target is to raise $200m, has just had its first closing at $150m and is aiming for the second and final closing towards the end of the year. The fund will invest in a diversified portfolio of investments over three years and take stakes in mid-market companies, particularly those requiring a restructuring of their capital base

The EBRD, which has committed over $900m to Russia-focused private equity funds since the Bank made its first such investment in 1993, previously invested $50m with UFG’s first fund. It has also previously invested $35m in the Russian New Growth fund, a joint venture between Troika Dialog and Singapore sovereign wealth fund Temasek.

UFG is just one of several raising funds to be raising cash in the region. Russia Partners, a wholly-owned subsidiary of New York based Siguler Guff & Company, recently raised an $800m fund to invest in consumer and basic industries in Russia and other former Soviet states.

Italian insurance firm Generali last week launched a new private equity firm with PPF, a financial group set up by Czech financier Petr Kellner/ The firm PPF Partners, which has already raised €615m ($855m), will focus on purchasing assets in Central and Eastern Europe, with Russia the key market.

Swedish investment group East Capital also said in April it is raising a new private equity fund aiming at Eastern European listed companies. The East Special Opportunities Fund is targeting a $100m maximum size with €35m being seeded by the company.

Troika receives $150m boost ahead of Russia 'bad debt peak'

Financial News

Jason Corcoran in Moscow
17 June 2009

The European Bank of Reconstruction and Development has approved a $150m (€108m) five-year loan for Troika Dialog as part of package to fortify Russian banks against a second wave of bad debt, which is expected to spike in two months' time.

The loan comes three months after South Africa’s Standard Bank took a 33% stake in the Moscow investment bank in a $200m deal, which increased the bank’s capital base to $850m.

The IFC, the World Bank's investment arm, last week announced plans to invest $200m to buy stakes in Russian banks struggling with a second wave of bad loans. Banking analysts in Moscow have forecast that non-performing loans could hit 20% by the end of year. The Russian Central Bank maintains that bad loans are unlikely to exceed the threshold of 10% to 12% of the banks' total loan portfolio.

A spokesman for the EBRD in Moscow said: “We have already committed $500m in subordinated loans to Russia’s banking system and to boost their capital bases. A total of $5bn has been designated to Russia, which represents a 20% increase.”

Pavel Teplukhin, president of Troika Dialog, yesterday told the Prime-Tass press service the problem of bad debt in Russia's banking sector will hit a peak during August to September. “At that time, the problem of bad debt will intensify, and it will be necessary to make a decision on the capitalisation of Russia's banking system,” he said.

A spokeswoman for Troika Dialog in Moscow said the $150 loan from the EBRD would support the bank’s trading and brokerages activities and reduce its dependency on the repo-market for short-term lending. "The funds received from Standard Bank are aimed at the development of our commercial banking business."

The facility will consist of two separate tranches and the funding will support Troika’s trading and brokerage activities.

The EBRD, which has previously invested $35m in Troika’s private equity arm, opened a three-year credit line in November 2007 worth $100m. A spokesman declined to comment on the terms of the new loan.

The new loan, which will consist of two separate tranches, require a single repayment at maturity.

Troika, which is currently re-organising its business lines to integrate it with the Standard’s Moscow-based operations, has cut costs and staffing by 35% since last Autumn’s bank crisis.

Friday, 19 June 2009

UK banks splash out for Russian mission

Financial News

By Jason Corcoran

15 June 2009

Letter from Moscow

The opening last week of HSBC Bank’s first branches in central Moscow heralds a new British retail invasion of Russia.

The bank is spending $200m rolling out a retail and private banking network in Russia’s biggest cities. A large marquee was pitched on Moscow’s pedestrianised Tverskoi Boulevard as part of a week-long HSBC-sponsored festival of classical music.

The bank has hired 300 staff and some were on hand to welcome curious Muscovites. The main branch’s air-conditioning was appreciated, although many may perhaps have balked at the required minimum deposit of 75,000 roubles ($2,420), in a city where the average monthly salary is $800.

Other British high street banking brands have been popping up around the city. Barclays has just completed a rebranding of 36 branches of Expobank, which it acquired in March last year for $745m.

Royal Bank of Scotland acquired three offices in Moscow and one in St Petersburg following its acquisition of ABN Amro.

A year ago, British businessmen and investors were afraid they might become pariahs in Moscow following a dispute at Anglo-Russian joint venture TNK-BP, the closure of the British Council’s offices in Russia and the Kremlin’s refusal to extradite Andrei Lugovoi, the chief suspect in the London killing of dissident Alexander Litvinenko. Diplomatic relations between the two Governments sank to their lowest point since the Cold War.

The global economic crisis has helped paper over some of the political differences while the British seem happy to renew their interest in Russian expansion.

Russia remains one of the world’s last great untapped consumer markets even though rising unemployment, high inflation and a slowing growth rate make it a harder nut to crack.

The financial crisis took its toll on the luxury industry with boutiques in Moscow featuring British designers Alexander McQueen and Stella McCartney forced to close in January, but now the consumer economy is picking up, helped by a stronger rouble and oil hitting $70 a barrel last week.

Upmarket UK department store Harvey Nichols is understood to be scouting for locations for a flagship store in central Moscow while British toy chain Hamleys has signed a franchise agreement to set up in the city.

Foreign direct investment into retail remains a safer bet than energy and other sectors where the Kremlin has erected “strategic investment” barriers.

Mergers and acquisitions almost tripled in volume during May compared to April as dealmaking returned. Barclays investment banking arm BarCap and other institutions are ramping up to capitalise on a recovery in capital markets.

But a startling resurgence in the domestic equity markets is not expected to translate into any initial public offerings until next year. Future foreign listings could also be hampered if a proposed law is passed limiting IPOs on foreign markets to 5% of Russian companies.

The new regulations are part of a drive to channel investment in Russian securities away from foreign markets and on to domestic exchanges, where low liquidity causes volatility. Such moves have boomeranged in the past, however, due to concerns about restrictions on foreign investment into Russia.

The target of this campaign is the London Stock Exchange, which has historically been the desired destination for Russian blue chips to list. The LSE abandoned a plan to open a representative office in Moscow last year after 43 companies from Russia and the Commonwealth of Independent States pulled their IPOs in the wake of the worst trading crisis in Russia since its sovereign default in 1998.

Russian bank recruits as market rebounds

Financial News

By Jason Corcoran

June 15, 2099

Russia’s relaunched investment bank Aton Capital has recruited three executives to run its sales, research and private equity arms. And Moscow-based rival Troika Dialog has handed its head of research control of its London office.

Aton has hired Ilya Veller and Alexei Yazykov, both previously at Renaissance Capital, to run the sales and research teams respectively, according to sources close to the bank. This brings to 12 the hires it has made in the past month.

Dmitri Moiseyev has been recruited as managing director of the private equity division of Aton Capital Partners. He was previously an investment director of Technoprom, a private equity company.

The Russian stock market has been one of the world’s best performing this year, rising more than 70%, almost wiping out last year’s loss of about three quarters of its value. Meanwhile, Troika Dialog has declared it handed control of its London office to its head of research Paolo Zaniboni, following the resignation last month of Howard Snell.

Snell’s departure came in the same week that Giedrius Pukas, managing director of Troika Capital Partners, the bank’s alternative asset management division, left the firm to launch his own business.

Evgeny Yuriev, the founder of Aton Capital, is re-entering the investment banking market two years after selling the group’s institutional business to UniCredit for $424m. UniCredit dropped the Aton brand in February this year and the Russian business was renamed UniCredit Securities.

Aton declined to comment.

Aton plucks Russian strategy head from JP Morgan

Financial News

Jason Corcoran in Moscow
09 June 2009

Peter Westin, head of Russian strategy at JP Morgan, has left the bank and is believed to be rejoining Aton Capital, the Moscow-based group that has been hiring aggressively in its bid to relaunch as a full-service investment bank.

Westin, one of the best-regarded analysts in Moscow, had previously worked with Aton, which is relaunching after the original business was sold to Italy’s Unicredit in July 2007 for $424m (€306.5m).

A source at JP Morgan confirmed Westin had left the company and said his role was being covered temporarily by its Russian head of research Alex Kantarovich.

Swedish national Westin was part of a group of 20 bankers poached by JP Morgan from Russia’s MDM Bank almost two years ago.

Westin had previously worked for Aton, joining in 2001 as a senior economist. He had worked as chief analyst at the Stockholm Institute for Transition Economics, where he was responsible for monitoring macroeconomic developments in Russia.

Aton, which is hiring up to 50 staff for its equity brokerage, declined to comment although two sources close to the company indicated Westin had joined its new business.

A growing recovery in Russia’s capital markets is leading to a renewal in hiring with VTB Capital leading the way. Financial News revealed yesterday that VTB had hired a team of sales and traders from rival Troika.

Separately, Russian bank UralSib said it had hired Gareth Johnson as head of trading from Alfa Capital.

VTB Capital recruits from rival

Financial News

Jason Corcoran in Moscow
08 June 2009

VTB Capital, the investment banking arm of Russia’s VTB Bank, is hiring a three-man sales and trading team from rival Troika Dialog as a growing recovery in Russia’s capital markets leads to a wave of hiring.

Will Lynch, Peter Walker and Richard Phillips have quit Troika to join VTB’s growing presence in London, one of its three global hubs.

A Troika Dialog spokeswoman said the bank was hiring to replace the three and would soon announce recruits to its private equity and investment banking teams. She said: “Troika Dialog remains committed to building one of Russia’s largest and most significant financial institutions and we continue to bring on-board strong talent to strengthen our business in this challenging environment.”
VTB was unavailable for comment.

Russia’s RTS index has leapt 85% this year, making it the world’s best-performing large equity market, after a 72% decline last year. Mergers and acquisitions have bounced back too with volumes almost tripling in April to $8.3bn (€5.9bn), up from $3bn in March.

The recovery has spread to the debt markets with oil company Gazprom Neft, mobile phone operator MTS and Russian Railways successfully returning to local and foreign debt markets. Agricultural bank Rosselkhozbank is set to issue the first Eurobond by a Russian bank since last summer.

Jonathan Astbury, managing director at the headhunter Sandton Group, said banks in Moscow were looking for staff in cash equity sales, equity trading, oil and gas M&A, in addition to chief operation officers and senior support staff in risk.

He said: “Russia has seen a good recovery in recent weeks, with increased cautious optimism regarding the future and sustained rises in oil prices.

“This is a much-needed boost to the recruitment market and once again banks are starting to add staff.”

Crisis bites deep into Russian infrastructure programme

Business New Europe

Jason Corcoran in Moscow
June 5, 2009

Russia's Stalinist-like trillion-dollar infrastructure programme to revamp its crumbing roads, bridges, ports and airports over 10 years has been shaken by the global financial crisis. Many infrastructure projects have been postponed or cancelled due to the lack of available finance from domestic and international capital markets. And the Kremlin's much touted public-private partnership (PPP) programme to stimulate investment has yet to take off, while bankers hired to capitalise on an anticipated deal-making boom have been twiddling their thumbs for the past six months.

Senior financiers held a meeting with Deputy Prime Minister Sergei Ivanov at the start of the financial crisis in November last year and were told that the infrastructure programme for 2009 was being cut by 30%. The 2009 budget for infrastructure is believed to have been slashed again by a similar amount following the ruble's devaluation and dwindling federal revenues from lower commodity prices.

The government is now targeting selective projects in St Petersburg, Moscow and the Winter Olympic venue of Sochi as priorities for completion until the investment climate for foreign and private capital improves. Joerg Bongartz, chairman of the board of Deutsche Bank Russia, said the government was stepping in to meet the shortfall in showcase projects. "In Russia, there has been a reality check on infrastructure spending since the start of the crisis," Bongartz tells bne in an interview. "A significant amount of foreign capital was expected to be made available for a number of large infrastructure projects structured as public-private partnerships, but it appears now that if the government wants these projects to materialise, a larger share of the funding and the coverage of particularly the foreign exchange rate risk will need to come from the budget and government funds."

Bongartz said Deutsche Bank is still hoping to get involved in infrastructure via its corporate finance specialist team, its infrastructure and property management unit Rreef and DB Partners, and its joint venture with the Austrian construction firm Strabag.


Planes, trains and automobiles


The St Petersburg municipal government has said it will delay $13bn of infrastructure projects, which had attracted bids from international companies including Alstom, Siemens and Oleg Deripaska's Basic Element, due to the credit crisis deterring most private investors. Projects facing prolonged delays include the $10bn highway, known as the Western High-Speed Diameter (WHSD), the Orlov tunnel under the Neva River and a planned $1bn upgrade of Pulkovo airport. The Orlov tunnel and a fast-speed train link to the airport are likely to be postponed indefinitely.

The WHSD roadway encircling St Petersburg was meant to be the pioneering large PPP project in Russia, but the winning consortium formed by oligarch Oleg Deripaska and Strabag hasn't yet signed the concession contract governing the project. St Petersburg Governor Valentina Matviyenko said in April that some of the major projects of the city's road infrastructure would be built at the expense of the federal budget after private investors pulled out. The federal government is to allocate $617m for the construction of the WHSD roadway provided the city authorities keep their word to invest $198m.

A decision on the winning consortium for Pulkovo airport has been pushed back to June 25. The municipal government on May 21 whittled down the list of bidders to upgrade Pulkovo airport to three - Deripaska's Basic Element, Flughafen Wien in partnership with Leader, an investment house founded by Gazprom structures, and German Fraport in tandem with state bank VTB. Those that didn't make it on to the shortlist include Macquarie Renaissance, a joint venture formed by the investment banks Macquarie and Renaissance Capital to invest in Russian and CIS infrastructure; Germany's Hochtief in partnership with oil and mining tycoon Viktor Vekselberg; India's GMR; and Turkish TAV Airports.

A spokesman for Renaissance Capital in Moscow declined to comment on "specific transactions," but said the alliance sees the number and quality of potential deals increasing as industrial groups look to exit non-core investments, including infrastructure assets. Macquarie Renaissance's first fund raised half of its $1.5bn target last year. Most of the funds raised came from Russian and CIS multinational development agencies such as Vnesheconombank (VEB), the Kazakhstan State Development Bank and the Eurasian Development Bank.

VEB, which is the government agency responsible for infrastructure spending, has declined repeated requests for an interview. However, VEB's chairman, Vladimir Dmitiev, recently claimed on the VEB website that international agencies such as the International Finance Corporation and European Bank for Reconstruction and Development (EBRD) had expressed an interest in participating in the Macquarie Renaissance fund. Dmitriev said the fund's resources will soon be used for implementing infrastructure projects in CIS countries and more credit will be made available by VEB, the Kazakhstan State Development Bank and the Eurasian Development Bank.
"And we are absolutely sure that as soon as the [the Macquarie Renaissance Fund] starts operating, we'll get a number of private and institutional investors to participate in it, including ones from the Middle East," Dmitriev said in a statement on the VEB website.

Renaissance said fund raising continues to progress, and is making solid progress, but declined to give any specifics. The Russian investment bank, which has its own financing difficulties, insists that private investment still has a role to play in priority projects alongside government funding. "The process of private investment alongside the government will be evolutionary," explains the Renaissance spokesman. "Macquarie Renaissance Investment Fund, for example, is the first dedicated infrastructure fund to be focused on Russia and the CIS. As in other markets, investor interest will follow as the opportunities to invest ramp up."

One location where investors can be certain that most planned projects will be undertaken is Sochi, the Black Sea resort which will host the Winter Olympics in 2014. "Sochi is one of the priority areas for the government because of the reputational issue attached to hosting the Olympics," says Deutsche's Bongartz. "This has to be successful and there has to be a clear timeline for projects as the date is fixed. There still remains a great deal of interest from abroad from companies keen to get involved in services and construction."

Monday, 8 June 2009

UniCredit chief quits as Aton relaunches

Financial News

Jason Corcoran in Moscow
03 June 2009

UniCredit Securities in Moscow, which has lost staff to resurrected investment bank Aton in recent weeks, has been dealt another blow with the departure of its chief executive and head of investment banking.

UniCredit confirmed Alexander Kandel was leaving the bank for “personal reasons”.

A spokeswoman declined to comment on whether Kandel would join Aton at a later stage. “Alexander will remain with the group for the forseeable future to ensure a smooth handover of his responsibilities,” she said.

Kandel was chief executive of Aton Capital for three and half years until UniCredit bought its institutional business in July 2007 for $424m .

The Aton brand was subsequently dropped in February this year and the Russian business was renamed UniCredit Securities.

However, Evgeny Yuriev, the president and founder of Aton Capital, is re-entering the investment banking market after retaining the Aton Line discount brokerage and Aton asset management businesses.

Aton is building a full service investment bank and is looking to hire up to 50 bankers, according to recruiters.

Sources close to UniCredit said they were dismayed by the move. Both operations are located in the same building in central Moscow. UniCredit confirmed Aton had already recruited four of its staff, including head of equity trading Denis Sarantsev.

UniCredit said Steven Dashevsky, its head of equities, would remain with the group.

Sources close to UniCredit said Martin Rauchenwald, head of markets and investment banking for Russia, had left at the end of last year and is working as a self-employed adviser in Vienna.

Rauchenwald, an Austrian and a former global head of equities at UniCredit, was brought on board to help integrate UniCredit’s acquisitions of Aton and the International Moscow Bank in Russia.

Kremlin fuels surge in Russian oil deals

Financial News

Jason Corcoran in Moscow

01 June 2009

The state is thought to be using the crisis to tighten its grip on the country’s energy industry

The recent spurt in acquisition activity in Russia’s oil and gas sector underlines the power state-controlled entities enjoy in dealmaking.

Industry analysts claim the Kremlin is using the economic crisis to exert greater control over oil and gas assets, sometimes at the expense of foreign-owned and independent energy companies.

Thomas Beck, director of corporate finance at KPMG in Russia, said that recent deals had largely been driven by the Government and realism on pricing by both sellers and buyers.

He said: “There has certainly been an uptick in M&A activity during the second quarter so far. A lot of this is in the very early stages and, where we have seen deals, most of them have been Government-driven. This modest recovery should continue at the same pace until the end of the year when we should see some improvement in the real economy.”

Last week, mid-sized oil company Sibir Energy agreed to a takeover offer from Gazprom Neft in the state’s first big play for the assets of indebted tycoons. Gazprom Neft, the oil arm of state energy company Gazprom, had previously seen off a rival bid for an initial 16% stake in Sibir by Anglo-Russian joint venture TNK-BP. A source familiar with the situation said: “TNK-BP was either naive or called it badly. The Kremlin may have given the nod to Gazprom which is something TNK-BP would have struggled to get.”

Credit Suisse had started an accelerated bookbuild of Sibir’s shares, offering 430p a share on behalf of TNK-BP, but was trumped after Renaissance Capital intervened and offered investors 500p a share on behalf of Gazprom Neft.

Andrew Cornwaithe, co-head of investment banking at Renaissance, said: “Our structure to counter TNK-BP’s offer on a first-come first-served basis proved to be an attractive one for shareholders. In two and a half hours, we had achieved our client Gazprom Neft’s objective in acquiring a sizeable minority position in Sibir.”

Gazprom Neft has since amassed a 27.5% stake in Sibir, which stopped trading in February after it became known that Shalva Chigirinsky, one of the firm’s major private shareholders, owed the company $325m (€230m).

Gazprom is now expected to acquire an additional 23.3% stake which is owned by businessman Igor Kesayev and has been held as collateral by state lender Sberbank.

Gazprom Neft has shown an acquisitive streak in recent years, most recently by taking stakes in Russian oil producers Slavneft and Tomskneft. Its 50% stake in Tomskneft in December 2007, for example, accounted for 11% of its total oil production in 2008 and prevented a year-on-year decline in production.

Gazprom also gained control of Serbia’s national oil monopoly NIS in December last year, and has formed alliances with European energy firms to build two pipelines to pump Russian gas to northern and central Europe, bypassing Ukraine.

Analysts said the completion on May 22 of a $2.5bn deal by conglomerate Sistema to acquire six oil production, refining and marketing companies in the Bashkortostan region of Russia had all the hallmarks of a Government-sanctioned deal.

Pavel Sorokin, an oil analyst at UniCredit in Moscow, said: “If you look at Sistema’s loan conditions, they don’t have to pay interest to the state for two years. They are primarily involved in telecoms and I can see them selling the assets on to state-controlled Rosneft.”

Sorokin said independent oil and gas producers could compete better for assets in western Europe and in the neighbourhood of the Commonwealth of Independent States than at home. Novatek and Lukoil are looking to do deals domestically and overseas but even these come within the Government’s sphere of influence.

Independent oil company Lukoil recently considered a bid for Spanish energy firm Repsol and last year added a joint venture with Italian refiner ERG to other European assets. On a trip to Spain, Russian President Dmitry Medvedev criticised the reaction in Spain to a possible bid from Lukoil. He said claims that the proposal would endanger Spain’s security were based on “stereotypes” and contradicted “the idea of a united Europe”.

The board of gas producer Novatek last week approved the purchase of a 51% stake in the Yamal Liquefied Natural Gas (LNG) project in east Siberia for $650m.

Yamal was previously thought to belong entirely to Gazprombank, although Novatek said it had acquired the stakes from three companies related to Volga Resources, which is reportedly controlled by Gennady Timchenko, a prominent businessman with close links to Russian Prime Minister Vladimir Putin.

Oleg Maximov, a senior oil and gas analyst at private investment bank Troika Dialog, said: “Volga Resources is a circa 5% shareholder in Novatek. Whatever the case, such a large field could only have been transacted with Gazprom’s blessing.”

Timchenko, who also has a major stake in Gunvor, the largest trader of Russian crude oil and products, is thought to have a stake of about 5% in Novatek as he seeks to diversify his businesses. Russian daily newspaper Kommersant said the sale of Yamal would enable him to double his stake in Novatek to about 10%.

Investment banks are beginning to capitalise on the M&A activity. Deutsche Bank has recently hired William Donovan, former head of M&A for oil and gas at Goldman Sachs, while UBS has tapped Maxim Moshkov from US hedge fund giant Farallon Capital Management to run the bank’s oil and gas research team. Citigroup and Nomura are also understood to be adding to their energy research teams in Moscow.

The Kremlin is assembling a unit to advise on foreign mergers and acquisitions in the energy sector and this month hired Natasha Tsukanova, head of investment banking at JP Morgan in Russia.

The purchase of 21.2% of Hungarian oil and gas company MOL for $1.9bn in March by Surgutneftegas indicated Russia’s appetite for foreign downstream assets in the west. Surgut, which has close links to the Kremlin, has long been seen as the most conservative Russian energy company, quietly hoarding a cash pile of around $23bn.