VTB CAPITAL: AN INVESTMENT BANKING BREAKTHROUGH
President and Global CEO, VTB Capital
VTB Capital, the investment business of VTB Group, received another top accolade – Euromoney Awards for Excellence 2010 – in July. Yuri Soloviev, President and Global CEO, VTB Capital, talks about the company rising to leadership in the Russia/CIS investment market, names industries that are perceived as the most attractive by international investors and announces talking points for the upcoming VTB Capital "RUSSIA CALLING!" Investment Forum.
Mr. Soloviev, VTB Capital is the winner of the high-profile Euromoney Awards for Excellence 2010. How did you manage to build a leading investment bank from scratch?
We are extremely pleased with the Best Russian Equity House and Best Russian Debt House nominations that we won from this renowned magazine. Euromoney Awards for Excellence is a sign of appreciation from the global banking community. Today, VTB Capital is one of the leading investment banks in Russia and the CIS, we are on par with the global players.
The company started in April 2008. Later that year, in autumn, the crisis broke out. That was when the doomsayers predicted the end of investment banking. Still, we knew that market recovery is only a matter of time. We also realised that a properly adjusted strategy and focus on competitive products are key to our success. We hit the spot by quickly adapting our strategy and building a risk management system.
I think that the success of VTB Capital boils down to a few factors. Mainly, it's adhering to the right business model. Secondly, the team of world-class professionals that we managed to build in next to no time. Finally, using the platform of VTB Group – Russia's second largest financial group – as basis for our development. We were still in our first year of operation (2009 – Ed.) when we fully recouped the build-out investment allocated for the setup of the VTB Group investment arm and raked in a substantial profit for the mother company (more than USD 500mln).
What are the results of VTB Capital's first two years in the investment banking market?
We managed to accomplish a strategic mission for the local economy – VTB Capital attracted considerable investments for key Russian companies, despite global market turmoil. To date, VTB Capital has closed over 80 deals on capital markets, worth over USD 40bln. I would like to point out that VTB Capital has consistently occupied top spots in international ECM and DCM underwriter rankings (Dealogic, Bloomberg). This year the Research team won several major global awards – such as the All Russia Research Team (Institutional Investor), Extel Pan-Europe 2010. The VTB Capital Research team was formed in late 2008, becoming one of the best in the financial market in less than two years, gaining recognition from both Russian and international market participants. Our excellent business results are largely due to our strong Research.
Which projects attract international investors today? Are investors still focused on natural resources?
The common view of Russia's investment potential is limited to oil and gas. Nevertheless, this stereotype is gradually withering, with investor interest turning to other sectors – retail, telecommunications, etc. For instance, last year VTB Capital in co-operation with TPG Capital global fund successfully closed the acquisition of a stake in Lenta retail chain. In May this year we bought a stake in EPAM Systems, the IT company, together with Russia Partners.
More importantly, investors are keen to finance infrastructure projects, including Public Private Partnerships, such as Pulkovo airport modernization. VTB Capital acted as financial advisor, bringing EUR 1.2bln to the project in equity and debt. We attracted EUR 716mln worth of loans, which will mature in up to 15 years. This money will finance one of the most ambitious and important infrastructure projects in Russia. I am certain that Pulkovo will become a gateway to Europe both for St. Petersburg and the rest of our country.
Finally, investors show interest in innovations. VTB Capital has recently completed Russia's first IPO for Russian Navigation Technologies, a venture project. Obviously, the successful closing of this deal will be an added impetus for Russia's venture investment market.
What is the outlook for investment in innovations?
To estimate the investment potential of Russia's innovations, you have to remember that technologies are still not up to global standards in many sectors of our country's economy. There is a lot of work to be done for innovative companies in Russia, meaning that any sector is open for innovative ideas and improvements. This applies to oil and gas, banking etc.
Another major influence is the government supporting the innovative sector. The government not only finances groundbreaking hi-tech developments, but also passes effective laws to speed up innovation.
We witness successful creation of innovative economies throughout the world. For the past few decades, Singapore has remained a leader of innovations in Southeast Asia. To give one example – the Singapore authorities chose the pharmaceutical industry as their top priority sector, created opportunities there for attracting capital and technologies into the country. Last year, pharmaceuticals became the driver of economic growth, outperforming the stagnant electronics and oil refinery, Singapore's more traditional sectors.
What is your outlook on Russian macroeconomics today?
Russia learned the lessons of 1998 very well, and in the period of rapid economic growth and high oil prices the government created reserves. Today, the macroeconomic situation is looking up. The current sovereign debt to GDP ratio is 8 %, significantly less than in many developed economies. The corporate borrowings to GDP ratio is also low compared to other countries. The foreign trade situation is also positive – oil prices are within the comfort range for Russia at USD 70-80 per barrel, bullion prices are up.
Still, many of Russia's trade partners are on comparatively shaky ground. On the financial side, countries with a handful of home problems cut down their foreign trade and often resort to protectionism. This means that funding routes for the Russian economy become less diversified and the cost of finance goes up, affecting local companies' development plans. On the other hand, investors see change in the economy. Consider, for example the cheap and long-term placement of Russian sovereign Eurobonds arranged by VTB Capital. This is probably the cheapest loan our country has borrowed since the Tzars. Especially when there is a tradition of trading Russian sovereign debt and corporate bonds on the secondary market at a discount!
The VTB Capital "RUSSIA CALLING!". Investment Forum is scheduled for October. What kind of results do you plan to see?
First of all, let me say that the October forum is our second. The initial "RUSSIA CALLING!" Investment Forum last year was welcomed as a major step forward for the Russian economy. 400 Russian companies took part in investor meetings during the three days of the forum.
The 2009 Forum opened direct communications between the business and the government (the event featured top government officials and executives from major corporations). I am certain that this year the VTB Capital Investment Forum will be just as representative as last year. The key objective this year is to present new investment opportunities in the Russian market, the latest trends and perspectives. Even the most daring investor will think twice about entering the market, unless he is fully informed on the current situation and the outlook. Normally, it takes months for investors to size up the market, conduct research and arrange numerous sit-downs, hire experts and consultants. "RUSSIA CALLING!" is a unique opportunity to receive important first-hand information and hear the opinions of top Russian officials and businessmen.