Financial News

Renaissance revels in independent status


Jason Corcoran in Moscow and Harry Wilson

02 Oct 2006


Russia’s largest private investment bank has become an international contender

Banks are back into Russia in a big way. The default in 1998 is a distant memory, but it was during those chaotic days that what is the country’s largest private investment bank was born.

Renaissance Capital is a rarity among developing market banks. In China, Brazil and India – Russia’s traditional partners in the Bric nations – it is easy to find large commercial banks, but look for a genuine competitor in the investment banking sector and few are found.

Renaissance has in the past two years grown from a junior bank into an international contender and a rival for bookrunner roles on bond issues or flotations. In the past week, Renaissance has won mandates to lead the $1bn (e790m) London listing of steel producer MMK, alongside ABN Amro Rothschild and Morgan Stanley, and the sole bookrunner role on the London flotation of Kazakhstan’s largest bank, Kazkommertsbank.

One Moscow-based observer said the main appeal of Renaissance was that it provided western-standard investment banking. This has been the focus of chief executive and founder Stephen Jennings.

One former employee said: “Jennings saw what no one else could and created what no one else thought could be built – a full-service Russian investment bank.”

Renaissance began in 1995 as the securities trading arm of Renaissance Group, a private financial company. The Russian government’s default on domestic bonds in 1998 gave Jennings the opportunity to transform the business into a full-service investment bank.As the economic crisis engulfed Russia Jennings bought out three other shareholders,, Leonid Rozhetskin, Richard Ditz, and Anton Kudryashov, taking sole charge when the others left.

The crisis led international banks to pull out of Russia. Only now is Lehman Brothers, which was hard hit by the default, re-entering the country. Lehman has a joint venture with Renaissance Capital for M&A advisory but is now expected to establish its own presence (see below).

For Renaissance, the withdrawal of so many banks provided the opportunity to grow into a firm employing more than 300 people. One banking analyst said: “Renaissance is the sexiest piece of investment banking on the block. Jennings has capitalised on the oligarchical connections and he also forecast Putin’s backlash four months before he took office.”

The bank has become notable for its aggressive hiring from bulge-bracket competitors. Last week it recruited six bankers for its fixed-income business, taking them from groups including Dresdner Kleinwort, Morgan Stanley and Moscow-based rival Troika Dialog. The Dresdner hires brought the total from the bank last month to three, and followed Renaissance’s appointment two months ago of Bob Foresman, head of the German bank’s Russian business, as deputy chairman.

Renaissance’s lure is simple, according to one headhunter – multi-million dollar pay packages and the chance to earn more in one of the world’s most lucrative markets.
By the start of this year the number of shareholders exceeded 50, according to one source, providing a vivid example of its rapid growth and the way it has attracted top investment bankers.

Renaissance is unlisted and employees who leave receive only the book value of their stock which, while significant as it is valued at $1bn, does not represent the likely market value.

Jennings has said he has no plans to float the company, despite the success the firm has had in listing other Russian businesses. He has also said he has no plans to sell the bank to a rival, a path taken by other Russian brokers.

According to a Moscow-based friend of Jennings, he believes the firm’s value lies in remaining as the country’s last independent broker, with Russian rivals Aton Capital and Troika Dialog thought likely to be bought soon.

One Moscow-based analyst said: “It is an interesting time for Renaissance. It could conceivably be the only independent investment bank in six months with Troika and Aton in the shop window.”

Troika is understood to be in discussion with Japanese banks interested in buying the firm, after ending negotiations with JP Morgan. Last year Deutsche Bank bought Russian broker UFG, and in 2004 UBS bought Brunswick.

Goldman Sachs is rumoured to have considered buying Renaissance, and the two have worked closely in the past. Several large international banks, including Citigroup and JP Morgan, are also thought to have considered buying it.

The problem for an acquirer is its price, which will exceed $1bn, according to market observers. This is considered by many banks too large an exposure to take on Russia. Renaissance is competing well as an independent and is ranked seventh in Thomson Financial’s league table of Russian equity underwriters, despite not being a bookrunner on Rosneft $10.6bn IPO.

Last year Renaissance hired Hans Jochum Horn, former managing partner of accountancy firm Ernst & Young’s Russian and CIS business, to develop the business. It has branched into areas outside its main business, such as asset management, which the firm expects to grow rapidly as Russians invest their new-found wealth.

But, to unlock Renaissance’s value, analysts say it will have to consider a listing or trade sale. One market observer said: “Renaissance has a unique proposition at the moment, the question is how it deals with the increase in competition in the Russian market.”