Wednesday 27 June 2007

Russia's Renaissance expands into Middle East and Southeast Asia

Business New Europe

Jason Corcoran in Moscow
2007-06-26

Russian investment bank Renaissance Capital is opening offices in Dubai, Singapore and Hong Kong to service its fast growing wealth and asset management business, bne has learnt.

Its expansion overseas is underpinned by a conviction that Russian private investors will want to diversify their portfolios and invest more abroad amid uncertainty ahead of next year's presidential election.

Stephen Jennings, chief executive of Renaissance Capital, says the Asian openings stemmed from existing Russian and CIS clients demanding access to key international finance markets.

In an interview with bne, Jennings said that clients within Russia and the CIS want international assets, and international custodian and wealth management services.

"As we go into other geographies, we will sell those same products to local clients in those markets also. It's about giving really tailored wealth management products to high net worth Russians, Ukrainians, Kazakhs and so forth," he said.

Renaissance's fund arm Renaissance Investment Management is Russia's market leader with almost $4.5bn in assets under management. Jennings said more than half of assets were accounted for by high net worth clients.

Domestically, Jennings welcomed the arrival of global wealth management players to Moscow, but suggested their strategy might not be best suited to Russia's ultra rich.

"UBS and Credit Suisse are tailored towards a global business. They would say otherwise, but their product is quite standardised. What we are dealing with in Russia is a completely new class of wealthy people. They are used to exceptionally high levels of service in other areas of their lives. They are not getting that highly tailored and high-end service from someone who is a generic wealth provider," he said.

UBS launched limited onshore private banking services in Russia in January, hot on the heels of Credit Suisse which launched in September last year. Other competitors in the onshore market include market leaders Deutsche Bank, Citigroup and Austria's Raiffeisen. UBS is offering wealth management, asset management, ruble fixed-income and foreign-exchange services alongside their existing Russian operations in equities and investment banking.

Jennings argues Renaissance can provide clients with a higher level of service along with best-of-breed products through white-labelling - the selling of externally managed funds that are branded as its own.

"It's not an option for us to give people anything but a Rolls-Royce service," he said. "International products are all available through white-labelling and open architecture so there is nothing by way of product that an international bank can provide that we can't. What we can do that is different is the tailoring of products, including domestic products, the location of service and the whole nature of the relationship."

Africa and elsewhere

The bank is targeting the top segment of the market and clients with a minimum investment size of $1m. Actually, the average account size is in excess of this, at over $6m, while the largest single account is just above $100m.

Renaissance recently launched its investment bank in Sub-Saharan Africa. Asset management and wealth management services will follow in time, according to Jennings.

The move to set up operations in Asia and the Middle East follows the recent launch of operations in Geneva, the backyard of the Swiss wealth management giants.

Philippe Magistretti, head of private banking at Swiss bank Union Bancaire Privee, has been hired to run the business. Magistretti joined UBP in 2004 from Lazard Freres, where he was a partner. He was previously head of the French derivatives operation for the US insurance giant American International Group. His new title is chief executive of Renaissance Investment Management Switzerland.

Renaissance has received a Swiss banking license and is looking to increase its headcount in Geneva from six to 15 by December.

Both Jennings and his deputy Neil Harvey insist Renaissance's overseas expansion is not a hedge against Russia.

"We are 110% focused on Russia," said Harvey. "We have a unique model suited to frontier-type capital which we are applying elsewhere."

www.businessneweurope.eu

Monday 25 June 2007

Deutsche Bank Russian chief to start boutique


Financial News

Jason Corcoran in Moscow
25 June 2007

Deutsche Bank is to lose one of its most senior Russian executives after giving him the go-ahead to start an investment boutique.

Ilya Sherbovich, head of investment banking at Deutsche Bank in Russia, has been given permission to launch a business as part of an agreement that will allow him to leave the German group with more than $200m (€149m) in stock and compensation when his contract expires next year.

A source close to Deutsche said: “Ilya has been given permission to work on this after we convinced him to stay on until the end of his contract. It’s in no way linked to Deutsche.” Sherbovich and a spokeswoman for Deutsche Bank in Moscow declined to comment.

The new venture, United Capital Partners, has raised $300m to invest in public and private equity and hired several of his former colleagues.

Sherbovich is the third-largest shareholder, with a stake of between 15% and 20%, in UFG, the Russian brokerage he founded with Charles Ryan and Boris Fyodorov and which Deutsche bought in a two-step deal for $700m. The German bank acquired 40% of UFG in 2003 and the remainder last year.

Deutsche persuaded Sherbovich to see out his contract after the departure of its co-head of investment banking, Nick Jordan, to Lehman Brothers and further defections in the scramble to secure top talent in Russia.

The bank has since appointed Andrew Chulack and Dmitry Snesar as joint deputy heads of global banking in Russia as part of its plans to find a successor for Sherbovich.

Both are responsible for the investment bank’s daily operations and report to Sherbovich, who is believed to have stepped back from a client-facing role.

Further appointments to its global markets team are expected this week, according to a Deutsche source.

United Capital Partners is modelled on UFG Asset Management, the Fyodorov-run investment business that was not part of the sale to Deutsche. Article tags:

www.efinancialnews.com

Monday 18 June 2007

Oil boom sweeps across the Kazakh plains



Business New Europe

Jason Corcoran in Aktau

The windswept dustbowl of Zhanaozen in the Mangistau oblast in western Kazakhstan can be a sweltering and inhospitable place in summer. Stretching out as far as a squinted eye can see is an army of nodding donkey oil pumps scattered across the plains.

Employees of state-controlled KazMunaiGaz seem to have little to distract them but work at these production facilities, where temperatures range from 40 degrees in summer to minus 30 degrees in winter. Company officials say workers are compensated for toiling in such desolate conditions and are even allowed to take subsidised breaks at the president's summer resort at Kenderlie on the Caspian coast.

Such is the nature of the oil boom that is sweeping over the steppes of Kazakhstan, creating a vast new industry and breathing new life into old ones.

Oil is pumped through a pipeline to the seaport Aktau, 190 kilometres away on the Caspian coast, which is the departure point for over 8m tonnes of oil and 1.5m tonnes of solid cargo. A legacy of the Soviet era, Aktau was built in the 1960s to produce uranium and plutonium for the military, and the city was a secret and closed to outsiders until the demise of the Soviet Union.

Today, the chemical factories are closed and the nuclear power station no longer functions. But the port is now the centre for the development of the offshore oil industry and a transport hub for ships crisscrossing the Caspian from Azerbaijan, Iran and Russia, exporting oil and wheat, and importing cars and machinery for the oilfields. Downtown, cranes intersect the skyline and the old Soviet apartment blocks have been spruced up and daubed with bright blue paint.

Facilities at Aktau are being upgraded to make it into a major industrial centre and hub for exports, but it doesn't have all the capacity for the anticipated Caspian oil boom.

A second port to bolster the region's oil export potential is being built at Kuryk, located 70 kilometres south of Aktau. Once this is completed, oil from the giant Kashagan field would then flow from Aktau to Kuryk for shipment across the sea to Baku and the newly completed Baku-Tbilisi-Ceyhan (BTC) pipeline.

Friends in the region

State-controlled KazMunaiGaz, which is building fleets of tankers to shuttle oil across the Caspian, is not just deepening the cooperation on energy and other resources with Azerbaijan. President Nursultan Nazarbayev entertained the Russian leader Vladimir Putin in Kenderlie last month in between trilateral energy talks involving their countries and the new Turkmenistan leader, President Gurbanguly Berdymukhammedov. Their get-together coincided with a summit taking place in Poland aimed at reducing energy dependence on Russia, which got nowhere.

The three CIS leaders, on the other hand, agreed to construct a pipeline to transport Turkmen natural gas to Russia along the Caspian coastline via Kazakhstan, a deal that analysts say eclipses EU plans for a trans-Caspian pipeline bypassing Russia.

China on its eastern frontier has not been forgotten either. The Chinese CITIC Group acquired the Kazakhstan oil assets of Canada's Nations Energy Company, for almost $2bn at the end of last year.

The deal allows CITC to develop the Karazhanbas oil and gas field until 2020. It has proven reserves of more than 340m barrels of oil and produces more than 50,000 barrels a day. A Sino-Kazakh oil pipeline, extending 962 kilometres from Atasu in central Kazakhstan to the Alataw Pass on the border with China, has also been completed.

Much of Kazakhstan's wealth is still controlled by relatives, friends and close associates of Nazarbayev, who doesn't have a fantastic track record of managing the country's natural resources. His son-in-law Timur Kulibayev is a senior executive of the parent company controlling KazMunaiGaz. And US banker James Giffin was indicted in 2003 for paying bribes to two top Kazakh officials in exchange for the signing of huge contracts for the sale of Kazakh oil and natural gas to Mobil Oil, Amoco, Texaco and Phillips Petroleum.

However, the country is opening up and KazMunaiGaz E&P, which is 60% owned by the national oil company, was floated last October with shares listed on the Kazakhstan and London stock exchanges.

Analysts say the appointment of independent directors had eased some worries about corporate governance at the company. Paul Manduca, the former European head of Deutsche Asset Management, former JP Morgan investment banker Christopher Cox and oil industry veteran Eddie Walshe were drafted in prior to the listing.

Manduca, who popped up in Astana last month at the company's annual meeting, admits that KazMunaiGaz E&P struggled to reach IFRS accounting standards demanded for the listing, but has since made strides to improve its corporate governance.

"Financial reporting is critical for shareholders to have confidence and even companies in the UK have struggled, so it goes to shows how far KazMunaiGaz has travelled," he says.

www.businessneweurope.eu

Sunday 17 June 2007

JP Morgan takes 16-strong team from Russian rival

Financial News

Jason Corcoran in Moscow
15 June 2007


JP Morgan is understood to have hired a team of analysts, traders and institutional sales people from Russia's MDM Bank in the latest of a series of battles for investment banking talent in the country.

The US investment bank, which was frustrated in its efforts to buy Russia's Troika Dialog and Aton Capital, is believed to have signed contracts with about 16 staff from MDM earlier this week.

A source close to MDM, said: "It's a fait accompli, the team are leaving for JP."

Those joining JP Morgan in Moscow include Vladimir Bril, managing director and head of equity sales, trading and research at MDM, Alex Kantarovich, head of equity research department and Derek Pearlin, managing director and head of equity sales.

The recruits are mainly on research but several sales, trading and back office staff are also understood to be leaving.

MDM is a privately owned bank geared towards retail and investment banking that was set up in 1993.

Businessman Sergei Popov has a 90% stake in the bank after parting company with co-founder Andrei Melnichenko, with whom he jointly owned MDM until last December

The bank recently hired Oleg Vyugin, former director of Russia's Federal Financial Markets Service, as chairman after market speculation tipped him to join Goldman Sachs.

JP Morgan was among the first US banks to open in the Soviet Union when Chase Manhattan chairman David Rockefeller established an office at 1 Karl Marx Square in Moscow in 1973.

The firm's Russian investment banking operation has maintained relationships with state-run entities and large corporations in Russia . It acted as joint bookrunner last year on the $10.7bn flotation of Rosneft and was one of the two international placement agents for this year's $8.8bn listing by Sberbank.

Last year JP Morgan was ranked second in Russian M&A by Dealogic and also had a strong showing in Russian international bonds.

Despite this success, the bank has made little secret of its plans to buy a local brokerage and held talks about buying Troika last year.

Its Moscow team comprises 80 people supported by over 20 Russia-dedicated industry and product specialists in Moscow and London.

Most Western investment banks have operations in Russia , but some have been expanding and investing over the past year to capitalise on the country's natural resources boom and growing consumer sector.

A unit of Italian bank UniCredit last year acquired Russian broker Aton Capital Group's equity, fixed income and corporate finance divisions for $424m.

A Moscow-based banker said MDM was unlikely to be ranked among the top securities houses in Moscow, and added that the best houses were Renaissance Troika, Deutsche, UBS, Aton, Alfa, UralSib.

Another source added: "They have some really good analysts in the team but I bet JP Morgan is paying an inordinately high premium."

A London spokeswoman for JP Morgan declined to comment.

Igor Smolkin, head of investment banking at MDM, did not return calls or emails.

www.efinancialnews.com

Wednesday 13 June 2007

Renaissance Capital Reveals Global Wealth Management Ambitions



Wealth Briefing

June 12, 2007

Jason Corcoran in Moscow


Renaissance Capital, the Russian investment bank, is planning to open offices in Dubai, Singapore and Hong Kong to service its fast growing wealth and asset management business.

Its expansion overseas is underpinned by a conviction that Russian private investors will want to diversify their portfolios and invest more abroad amid uncertainty ahead of next year's presidential election.

The move to set up operations in Asia and the Middle East follows the opening of an operation in Geneva, as revealed by WealthBriefing in April.

Stephen Jennings, the chief executive of Renaissance Capital, said the push overseas stemmed from existing Russian and CIS clients demanding access to international financial markets.

In an exclusive interview with WealthBriefing, he said: "Clients within Russia and CIS want international assets, international custodian and wealth management services. As we go into other geographies, we will sell those same products to local clients in those markets also. It's about giving really tailored wealth management products to high networth Russians, Ukrainians, Kazakhs and so forth."

Renaissance's fund arm Renaissance Investment Management is Russia's market leader with almost $4.5 billion in assets under management. Jennings said more than half of assets were accounted for by high net worth clients.

Domestically, Mr Jennings welcomed the arrival of global wealth management players but suggested their strategy might not hit the mark.

He said: "UBS and Credit Suisse are tailored towards a global business. They would say otherwise but their product is quite standardised. What we are dealing with in Russia is a completely new class of wealthy people. They are used to exceptionally high levels of service in other areas of their lives. They are not getting that highly tailored and high-end service from someone who is a generic wealth provider."

Mr Jennings argued Renaissance can provide a both high end service to its clients and the best products through white-labelling.

He added: "It's not a option for us to give people anything but Rolls-Royce service. International products are all available through white-labelling and open architecture so there is nothing by way of product that an international bank can provide that we can't. What we can do that is different is the tailoring of products, including domestic products, the location of service and the whole nature of the relationship."

Renaissance said it provides clients with a high level of service, an individual approach and flexibility in the management of their investment such as a no redemptions fee policy.

The company targets the top segment of the market and clients with a minimum investment size of $1 million. Actually, the average account size is in excess of this, at over $6 million, while the largest single account is just above $100 million.

Mr Jennings left CSFB to launch Renaissance Capital in 1995 and took control of the firm in the turmoil following the Russian debt crisis in 1998.

He has since transformed Renaissance into Russia 's first full service western-style investment bank and it has since gone from strength to strength, riding the wave of foreign investor interest in the country.

Mr Jennings, who has a controlling stake in the business rumoured to be worth $2 billlion, has rebuffed interest in his business from Western banks and state-owned VTB. He has said selling out would ruin the bank's reputation for providing clients impartial and independent services.

Renaissance recently launched its investment bank in Sub-Saharan Africa. Asset management and wealth management services will follow in time, according to Mr Jennings.

www.wealthbriefing.com

Russian oil wealth raises hopes of equity revival

Financial News

Jason Corcoran in Moscow

11 Jun 2007

Welfare fund will mostly invest overseas


Russia is planning to spin off an investment fund from its $114bn (€84.3bn) official oil reserves to invest in foreign stocks.

The National Welfare Fund could be seeded with about $25bn from next February. Russian Finance Minister Alexei Kudrin said the investment structure would be similar to Norway’s state pension fund, 60% of which is invested in stocks and 40% in bonds.

Peter Westin, chief economist at Moscow’s MDM Bank, said: “Modelling the management of the Russian fund on Norway’s would indicate a focus on investing the fund in foreign securities, and thus would shield the fund from Russian-specific risk, which we believe would be a healthy approach.”

The Norwegian fund’s assets are invested abroad to prevent its economy from overheating but Russian President Vladimir Putin recently raised the prospect of the fund investing in domestic stocks.

Putin suggested part of the windfall could be used to support blue-chip companies, such as state-controlled energy group Gazprom, whose share price value has fallen almost 20% this year.
Julia Tsepliaeva, chief Commonwealth of Independent States economist at ING, described Putin’s view as potentially dangerous.

She said: “If Putin’s idea of government intervention on the equity market materialises, the country may not only face higher inflation, but the stock market could also destabilise and overheat. Foreign investors may not like the idea either, as, in this case, Government intervention is unlikely to be of help.”

In a rare public spat, Putin’s comments clashed with Kudrin’s, who said an infusion of government cash into the equity market to support stocks would be ill-fated.

Chris Weafer, chief strategist at Alfa Bank, said there was little consensus in the cabinet on how best to invest the funds.

He said: “Economy Minister German Gref and his colleague Kudrin are both opposed to the state champion model. Gref recently suggested Russia walk from its controlling equity stakes, apart from Gazprom, while Putin’s camp blames the 1998 crash on a lack of state intervention.”

If a decision is taken to invest in Russian assets, Westin said it should be restricted to mainly bonds and only involve a fraction of the fund. He said: “The Government should limit exposure to Russian risk. ”

The Stabilisation Fund, set up in 2004 to accumulate oil reserves, will cease to exist from next year when it reaches the equivalent of 10% of GDP, or about $125bn.

The accumulated fund will be renamed the Reserve Fund and will continue to be invested in the same way – in AAA-rated foreign government debt. Any additional funds above 10% of GDP will be allocated to a second scheme, the National Welfare Fund.

The central bank will continue to manage the Reserve Fund while the remaining investments are up for grabs.

Arkady Dvorkovich, head of the Kremlin’s economic research department and a Putin aide, has called for international fund managers, not the Government, to be involved. Kudrin said a special agency or a private asset management company might manage the fund’s assets, but the model has not yet been finalised.

The Russian Ministry of Finance is predicting the Reserve Fund will reach $142bn and the welfare one $25bn when the split takes place in February; both could continue to rise in value if oil and gas prices remain high. Roland Nash, head of research at Renaissance Capital, an investment bank, said the fund should reach 10% of GDP about six months before the presidential elections, “creating a political imperative for the money to be invested domestically”.

The Moscow equity market has taken a buffeting in recent months. The Micex index has risen by 0.2% this year, compared with 81% last year, while the Russia US dollar-denominated RTS Index is up 0.7%. Eric Kraus, managing director of hedge fund Nikitsky Russia, blames a combination of initial public offering overload and poor investor sentiment.

He said: “We are bewildered by the recent underperformance of the Russian equity market. Given the superb macroeconomic fundamentals, as well as the strong performance of Russian debt, real estate, foreign direct investment and private equity markets, we are not overly worried.

“Having been oversold, the pendulum appears to be swinging back and we find the market presents a compelling buying opportunity.”


www.efinancialnews.com

Thursday 7 June 2007

A capital plan for St Petersburg



Business New Europe

Jason Corcoran in Moscow
2007-06-07



The ambitious scale of investment planned for St Petersburg suggests a move to switch the capital back to President Vladimir Putin's hometown could be back on the cards.

The former imperial capital, which served as the seat of power of the Russian empire for over 200 years, is regaining some of its old glory with a number of high-profile infrastructure projects costing an estimated $15bn.

Project financing from the government is already in place for the Orlovsky tunnel under the Neva River and the Western High-Speed Diameter motorway around the city. Other projects in the pipeline include a high speed toll road to Moscow, a new sea passenger terminal, a football stadium, bridges, a new airport and reconstruction of the New Holland Island.


Gazprom City

"These showcase-type projects for St Petersburg suggests the government may be looking to move the capital from Moscow," Chris Weafer, chief strategist at Alfa Bank says. "They could be looking at moulding it into Russia's Washington as a way of setting up an alternative power base to Moscow."

A move away from Moscow would be driven as much by politics as economics. The St Petersburg clan – a group of reform-minded Kremlin officials who knew Putin during his time in the city in the 1990s – will want to put a cap on Moscow's presidential-based power base when the president steps down next year.

Mayor Valentina Matviyenko, a Putin ally, has lobbied to transfer elements of the federal Government to St Petersburg and was rewarded in February with the decision to move Russia's Constitutional Court to the city from Moscow next year.

Banks and oil companies have also quietly been moving assets to St Petersburg in recent years. Gazprom City, a controversial new development in Russia's second city, has been prompted by the energy giant's decision to move part of its operations from Moscow. State-owned bank VTB has also confirmed it's interested in new office space.

Putin made infrastructure a central theme of his final State of the Nation address, promising funds to improve Russia's crumbling roads, bridges and airports.

Infrastructure will again be a key theme at this weekend's St Petersburg Investment Forum, which is expected to trump London's Russia Economic Forum as the premier annual economic showcase for the country after the Kremlin ordered its officials to pull out on the eve of the event in April.

At the St Petersburg Investment Forum, more details on the financing and design of the $3bn High-Speed Diameter motorway linking the city with highways to Scandinavia, Kyiv and Moscow are expected to be revealed. Half of the cost is to be met by the government's Investment Fund, and the remainder by private investors and the city budget. The European Bank for Reconstruction and Development last week announced its plans to invest $250m in the construction of the road, which is to be Russia's test case for public-private partnership.

Renaissance Capital is also working with Australian infrastructure specialist Macquarie Bank to provide financing for the road. The Russian investment bank is set to announce a formal joint venture with Macquarie to make additional investments in Russia, according to a source close to the bank.

"The deal has been agreed, but there is some tension still on the logistics. Macquarie is being very tenacious about some of the arrangements," says the source.

Renaissance and Macquarie are believed to be talking to investors about setting up a multi-billion-dollar infrastructure fund to invest in transport, ports and utilities across Russia.

Stephen Jennings, chief executive of Renaissance Capital, toldbne that, "There will be hundreds of billions of dollars of projects. The infrastructure financing requirement is massive. Russia will be very pragmatic at adapting private sector solutions. There will be a lot of projects and a huge range."

Jennings declined to comment on the tie-up with Macquarie, but said that Renaissance would not go it alone in the infrastructure space. "Unlike equity capital markets where we can create scale to have best sales and best capital market professionals, it's very questionable that a go-it-alone model is efficient if you want to be strong. There is a strong case for us to team up with somebody in that space – I think infrastructure is going to be one of the very next big developments in Russia."

Macquarie, the world's largest private manager of infrastructure, became the first bank to launch a dedicated European infrastructure fund in 2004 and its success has attracted rivals to the sector, pushing up valuations for assets that provide pension fund investors with stable long-term returns. In 2006, it paid £8bn for Thames Water in the UK and made a failed approach to buy the London Stock Exchange

Macquarie already has an existing infrastructure partnership in South Korea with the country's second largest financial services group Shinhan, which is itself interested in investing in Russia.

Shinhan's chief executive, Shin Sang-Hoon, recently said the bank wanted to acquire a Russian bank to grab a foothold in the country's corporate banking business, but admitted that earlier talks to form a partnership with Macquarie in Russia had been dropped.

Other potential Russian investors include Goldman Sachs, Morgan Stanley and Credit Suisse, who have all raised infrastructure funds in other countries.