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.