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.

Deals come back into vogue after lean start to year

Financial News

Jason Corcoran in Moscow

01 June 2009
The volume of mergers and acquisitions deals in Russia and eastern Europe recovered in April after a barren time for advisers in the first few months of the year.

Data from Thomson Reuters showed the volume of dealmaking in Russia soared to $8.3bn (€5.9bn) during April, compared with $2.4bn and $3bn recorded during February and March, respectively. The number of deals also rose to 340 in April, from 238 in March and 254 in February.

Across eastern Europe, the rally began in March and was just as pronounced. Volumes rose to just under $6bn for both March and April, compared with $1bn for January and February combined.

However, compared with last year, volumes fell 67.5% in Russia and 76% in eastern Europe in the first five months of this year.

The fall would have been greater, were it not for three big deals in the oil and gas sector. According to figures from data provider, Russia’s M&A market value in the first quarter of this year was $12.5bn – and about half of that came from those three deals: investment group Basic Element acquiring Russian private oil firm RussNeft, India’s ONGC Group’s acquisition of London-listed Imperial Energy, and Gazprom taking control of the NIS oil monopoly in Serbia. noted that several deals were likely to close in the second quarter, such as the merger of MDM Bank and Ursa Bank, and South Africa’s Standard Bank taking a 33% stake in Russian investment bank Troika Dialog.

Oil company TNK-BP said it would continue to seek acquisition opportunities in Russia after losing out to Gazprom Neft for a stake in the troubled UK-listed Russian oil producer Sibir Energy.

Apart from the energy sector, bankers believe the buoyant retail and consumer segment remains the most attractive for foreign entrants.

Russian daily Kommersant last week reported that a UK supermarket chain had appointed Goldman Sachs to explore an expansion strategy into Russia. A Goldman Sachs spokeswoman declined to comment.

Wal-Mart, America’s largest retailer, said it might expand into Russia to take advantage of its fragmented retail market while French retailer Carrefour has been circling Seventh Continent, an upmarket grocery chain, for several months.