Troika thrives on connections

Financial News

Jason Corcoran in Moscow
28 Jul 2008

The Russian investment bank benefits from privatisations


Andrei Sharonov, managing director and chairman of the board of directors at independent Russian investment bank Troika Dialog, knows more than most about the links between Russia’s public and private sectors. He served in the Government for a decade, including nine years as Deputy Minister of Economic Development and Trade.

Troika’s status as, in observers’ eyes, the Kremlin’s preferred investment bank has been cemented by its leading 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.

The deals have propelled Troika to the top of the Russian mergers and acquisitions league table for the first six months of the year, according to data provider Thomson Reuters.

Sharonov said: “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. There is no preference in general for the participation of investment banks in deals with the Government.”

Troika’s owner and chief executive, Ruben Vardanian, has long held links with several state-owned 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.

An important Kremlin player tasked with reshaping the economy, Chemezov sits on the board of several Rosoboronexport-controlled enterprises such as Sukhoi Civil Aviation, which is leading 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 a year ago, retains seats on the boards of the utility UES and the airline Aeroflot.

Sharonov’s 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 technology sectors. He said: “We are glad to be involved in such projects providing a valuable link to the private sector. 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 (€740m) to Renault, Sharonov said Troika hoped to clinch a similar deal for truck manufacturer KamAZ. He said: “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.”

Both AvtoVAZ and KamAZ are large Soviet-era manufacturers located in the neighbouring Volga regions of Tatarstan and Samara. However, unlike AvtoVAZ, KamAZ is controlled by its management, which has built up a stake of over 50%, with the help of Troika. The Government owns about 30% and has said it may sell its stake through a London listing.

Troika, along with Morgan Stanley, is also one of the two co-ordinators of the upcoming $700m (€445m) initial public offering of TransContainer, the cargo subsidiary of RZD. Sharonov said Troika was also putting together a debt syndicate for RZD to address the company’s 500bn rouble (€13.6bn) investment programme.

Sharonov pointed to privatisations of electricity grid UES as a template for future transactions involving government enterprises. He said: “The example of UES has been a good template for future privatisations in so far as unbundling a monopoly and attracting private investors. The final hurdle will be price liberalisation, which will be painful for citizens and companies involved.”

Troika also has its eye on the Middle East and Asia. In March it set up a Kuwaiti-Russian business forum, and it intends to open a Dubai office next year. Troika is also setting up a $1bn infrastructure fund and seeking investment from Singapore sovereign wealth fund Temasek Holdings.

Troika Dialog UK, its London operation, has been boosted by a number of hires. Douglass Welch and Svetlana Lokhova have both joined from Citigroup as head of equity derivative sales and fixed-income sales associate, respectively. Andrew Keeley has relocated from Moscow as head of financial institutions research.

The privately owned bank, which has previously rejected overtures from western suitors, is playing catch-up with its Russian rival Renaissance. It has recruited the Kremlin’s PR advisers Ketchum to improve its communications and spent money on its inaugural Russia forum in January and an event at Davos, Switzerland.

Its staff in Russia has doubled to 1,500 staff over the past 18 months. Nick Harwood, former head of equities for central and eastern Europe, Middle East and Africa at Citigroup, will join Troika in mid-September to take up a role as deputy head of global markets.

Jacques Der Megreditchian, head of investment banking and global markets at Troika, said Harwood would be responsible for developing the bank’s product range, distribution for international clients and its move into new markets. He said: “We needed to create a deputy position because we are experiencing strong and rapid growth. We are opening in Kazakhstan, Singapore and we will set up in Dubai in 2008.”