Dow Jones Newswires
As its Western rivals cope with the credit crunch and rachet down their international exposure, the investment banking unit of Russian financial services group VTB Group is looking to expand in Asia and the Middle East as an advisor to Russian companies.
VTB Capital, a 500-strong firm, received US$500 million in new capital early last year from its parent so it could increase its market share in those regions by advising Russian companies on merger opportunities and initial public offerings, as well as facilitating investments into Russia, senior executives said. The firm, which already has a London office, has an Asian office in Singapore and is planning to open one in Dubai later this year - its first in the Middle East.
"Places like Asia are emerging (as an economic powerhouse), and we are here to be part of that capital flow intermediation," VTB Capital PLC's Chief Executive Officer Herbert Moos said in an interview with Dow Jones Newswires. "We are not competing with the local houses - we are selling Russian opportunities," Moos said.
Moos was a 14-year veteran at Lehman Brothers Holdings Inc. (LEH), most recently as its chief financial officer in Asia Pacific ex-Japan before joining VTB in August 2008.
He said he expects Asian financial and industrial groups, especially out of China, to be "interested in taking assets, setting up joint ventures, and buying stakes in Russian corporates."
China has been active as an acquirer of Asian assets, accounting for 25% of the US$54.5 billion deal flow in the region so far this year, according to data provider mergermarket. As the world's most populous nation makes securing sources of natural resources a priority, resource-rich Russia is a natural destination, Moos said.
China National Petroleum Corp. said earlier this month it will import 15 million metric tons of crude annually for 20 years in exchange for Chinese banks lending $25 billion to Russia's state-owned oil producer OAO Rosneft (ROSN.RS) and pipeline operator Transneft (TRNFP.RS).
Russia's top nickel producer, Norilsk Nickel (GMKN.RS), has also said it will explore joint venture opportunities with Chinese firms.
IPOs are another market where Russian companies can make an entry. Alexey Yakovitsky, VTB Capital's general director, said that as the appetite for new issues returns, Hong Kong will likely overtake London as the overseas listing ground of choice for Russian companies.
"Companies don't want to list in a place where the market is affected by its own domestic problems," said Yakovitsky.
London had been the venue of choice for overseas listings by Russian companies in 2006 and 2007, with 16 companies netting a total of US$30 billion, according to data provider Dealogic.
The flow of Russian listings in London has slowed to just one IPO in 2008, raising US$470 million and none so far this year.
But as China's economy continues to weather the downturn, Russian companies are increasingly planning to raise capital closer to the mainland to tap the flush liquidity there and to be closer to users of its products, Moos said.
Molybdenum company Strikeforce Mining & Resources Ltd., one of the world's biggest aluminium producers by output, had planned to raise US$200 million in what would have been the first Russian listing in Hong Kong late last year. It went so far as to appoint BOC International Holdings Ltd. and Morgan Stanley (MS) as underwriters, a person familiar with the situation said earlier. But the plan was later shelved as the as the market turned more volatile.
Launched in March 2008 as VTB Bank Europe PLC, the firm was renamed VTB Capital in January. It provides investment banking operations for the VTB Group as well as Russian companies, advising in debt and equity markets, mergers & acquisitions in Russia and internationally, and also has private equity operations, commodities trading and asset management. It ranked sixth in secondary stock trading in the Russian Trading System Stock Exchange in February, with increasing market share as rivals scale back.
"The foreign houses are still there (in Russia) but they don't commit capital. They barely trade, they have cut their personnel and cover Russia out of London, which is the wrong idea if you want to tap local markets," said Yakovitsky. He said many Russian brokers, on the other hand, have lost money in speculative transactions or had taken on too much leverage.
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