Rencap sells 50% stake to billionaire Prokhorov

Financial News Online

Jason Corcoran in Moscow

22 September 2008

Russian investment bank Renaissance Capital has given up its much vaunted independence after selling a 50% stake to billionaire client Mikhail Prokhorov for $500m (€342m) amid the worst market falls in Moscow since the 1998 financial crisis.

Renaissance and the Onexim investment vehicle owned by Prokhorov, who made his money from metals and banking, will buy new equity amounting to 50% of the brokerage for $500m, with the old shareholders retaining a one-share voting majority.

The deal follows a week when market turmoil drove domestic indices down by 25% in just three days and forced another brokerage KIT Finance to agree to sell a controlling stake Leader Asset Management, the pension fund manager of energy giant Gazprom.

A Moscow spokesman for Renaissance said the deal had been in the pipeline for months but had been accelerated due to recent market conditions. "Events in the market moved the negotiations along."

A hastily arranged press conference featuring Prokhorov and Renaissance founder Stephen Jennings was organised at the Ritz hotel in Central Moscow.

Prokhorov said at the press conference: "We've been negotiating for several months. The problems of the global economy sped up the talks... Together with our partners we are ready for major expansion," including in Western markets.

Renaissance said it had not suffered any writedowns or losses due to the markets.

One Russian financier expressed surprise that Renaissance had sold so cheaply. "The market has hit everyone but I thought Rencap would fetch more. Bankers were putting the value of the investment bank at $3-4bn a year ago," the financier said.

Jennings, who set up Rencap in 1995 with a Credit Suisse colleague Boris Jordan, had previously rebuffed interest in the business from western banks and state-controlled VTB Bank.

In an interview with Financial News a year ago, he said selling out, as rival brokerages Brunswick and UFG have, would ruin Rencap's reputation for providing clients with impartial and independent services.

He said: "It would be very damaging and what you sold would be slightly damaged by the time you sold it. By virtue of the sale process, you would lose something. We have seen that has happened in the market here."

In a statement today, Jennings said: "The partnership with Onexim creates a financial powerhouse with the resources, skills and ambition to be the clear leader in all its markets. At a time when many of our competitors are weakened, our unique franchise, solid capital platform and highly motivated staff will enable the firm to aggressively pursue growth opportunities."

Renaissance Group's other asset management, private equity and consumer finance arms are not part of the sale.

Onexim is one of Russia's largest private investment funds, with a focus on mining industry, innovative projects in energy and nanotechnology, real estate and other industries. It has more than $25bn in assets.

Prokhorov was joint owner of mining giant Norilsk Nickel alongside Vladimir Potanin until a very public business divorce led him to sold most of this stake to tycoon Oleg Deripasksa earlier this year.

Renaissance advised Onexim last year on the exchange of its 25% stake in Norlisk Nickel with Deripaska.

A Rencap source said the bank's independence would not be damaged by selling to Prokhorov's group. "Onexim is not Gazprom or the Kremlin. It's an independent investment vehicle."

Onexim will contribute to the strategic direction of the investment bank and will be able to nominate three of the seven board members of Renaissance Capital.

Renaissance Capital was created in 1995 by New Zealander Jennings and American Boris Jordan, who left top positions at the Russian division of Credit Suisse First Boston to establish their own business. Jennings is believed to own an 80% stake in the business.

Following Russian default on its sovereign debt and the economic crisis in 1998, Jennings bought out three other shareholders, Leonid Rozhetskin, Richard Ditz, and Anton Kudryashov, and took sole charge when Jordan left.

In the past two years, Jennings had led the bank's rapid expansion to set up in new frontier markets in Sub-Saharan Africa and Central Asia.

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