Monday, 26 May 2008

Troika Dialog - the chosen one

Business New Europe

Jason Corcoran in Moscow
May 22, 2008

Andrei Sharonov is flattered that Troika Dialog has been dubbed the Kremlin's preferred investment bank, but gently demurs at such a lofty description.

Troika's managing director and chairman of board of directors knows more than most about the links between Russia's public and private sector, having served in the government for a decade, including nine years as deputy minister of economic development and trade.

"I think Troika is in a good position, but there are some sectors in the government where we have no mandate and it proves the market is competitive," he tells bne in an interview. "I think there is no preference in general for the participation of investment banks in deals with the government."

Troika's status as the Kremlin's banker of choice has been raised because of its key role in the recent sale of a 25% stake in state-controlled carmaker AvtoVaz to France's Renault, its mandates from the break-up of the electricity monopoly UES and its involvement in the privatisation programme of the state-owned rail giant RZD.

Troika's owner and chief executive, Ruben Vardanian, has long-held links with several state-held industries as well as members of the siloviki, the so-called securities services faction in the Kremlin. He is also a member of the board of state-owned arms agency Rosoboronexport and has close ties to its chairman, Sergei Chemezov. A key Kremlin player tasked with reshaping the economy, Chemezov sits on the board of several Rosoboronexport-controlled enterprises such as Sukhoi Civil Aviation, which is spearheading the Kremlin-backed project to create a new passenger plane, and Russpetsstal, a specialist steel producer with military applications.

Sharonov, who was appointed to the bank in July, retains seats on the boards of the utility UES and the airline Aeroflot, but is clearly relishing his first job in the private sector. His role is to act as a bridge between the bank and the state, and to attract investments into Russian companies in utilities, automotive, telecommunications and high technologies sectors. "We are glad to be involved in such projects providing a valuable link to the private sector," explains Sharonov. "It's a pro-market activity and we try to involve first-class investors and producers and to increase competitiveness and financial stability for the target."

Having presided over the sale in February of a 25% blocking stake in AvtoVAZ worth $1.16bn to Renault, Sharonov says Troika hopes to clinch a similar deal for trucker manufacturer KamAZ. "KamAZ could be developed as a truck manufacturer with one of the big boys from the West. We are looking for a strategic investor and there are talks with a number of interested parties," he says. Reports in the Russian press suggested talks were taking place with Volvo, Iveco, MAN and a number of other manufacturers, though Sharonov declined to comment on the names.

Troika is one of the two co-ordinators of the upcoming IPO of TransContainer, the cargo subsidiary of national railways operator RZD. Sharonov also says Troika is putting together a debt syndicate for RZD so it could address its colossal half a trillion rouble investment programme.

He says Troika had taken part in half of the restructurings involving subsidiaries of the electricity grid UES. "The example of UES has been a good template for future privatisations insofar as unbundling a monopoly and attracting private investors. The final hurdle will be price liberalisation, which will be painful for citizens and companies involved," he says.


A keen observer of the current transition of power from Vladimir Putin to Dmitry Medvedev, Sharonov has been in touch with former ministerial colleagues in recent days to gauge the mood. "I spoke [recently] with a guy from government. He and his colleagues are very nervous about the imminent changes and what course the government will now take," he says.

Sharonov, who worked under German Gref, the former economy minister of and current head of savings giant Sberbank, believes the remaining economic liberals like Finance Minister Alexei Kudrin could be squeezed further. "I think it's going to get more difficult for him [Kudrin] to maintain his anti-inflationary policy when more and more factions from the parliament and the regions are pushing for spending. It's going to be difficult for him to maintain his course and for him to stay in government."

Kudrin is also fighting a battle to resist calls to invest Russia's new sovereign wealth fund in domestic stocks and bonds, a move Sharonov regards as disastrous for macro-economic stability at home.

Equally, Sharonov is also critical of western concern over the potential to use the $32bn National Welfare Fund as an instrument of foreign policy or to build up stakes in strategically vital assets. "Western markets have been overly paranoid about our new sovereign fund," he explains. "The idea that special laws were adopted in the West faster than in Russia to curb these funds indicates a level of paranoia and how the pendulum is swinging globally from an open market to a closed one."

Troika is itself trying to cash in on new markets overseas by reaching out to the Middle East and Asia. The bank set up a Kuwait-Russian business forum in March and is understood to be setting up an office soon in Dubai. It is also setting up a $1bn infrastructure fund and is seeking investment from Singapore's state-owned Temasek fund. Stephen Cohen, head of Troika's hedge fund business, told bne, the bank would soon launch a retail fund for the Japanese market in conjunction with local bank Shinsei.

Elsewhere, Troika recently acquired a brokerage and fund management operation in Kazakhstan and is understood to be bolstering its operations in Ukraine's capital Kyiv.


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