Table-topping VTB moves to a new phase
VTB Capital has built a powerhouse capital markets business in Russia. Can it become just as influential elsewhere?
by Dominic O'Neill (Euromoney)
A doctored version of a 1920s, Red Army recruitment poster is plastered on Andrey Solovyev's door. A Soviet soldier points his finger out sternly at the viewer. In the background, lines of factories billow with smoke.
In the amended version, however, VTB Capital's head of DCM does not seek enlistment (or at least, not in the army). Instead, the soldier demands of the visit or to Solovyev's office, in one of Moscow's newest skyscrapers: "Have you brought the mandate?"
Luckily for Solovyev, most of the time these days, the answer seems to be yes. In its four-year history, VTB Capital has soared up the league tables in Russia, particularly in Eurobonds and equity capital markets. In 2011, the DCM team alone closed 13 Eurobond deals and 45 domestic bonds in the year to November 30, according to Dealogic.
Having gone from around 100 employees in 2008 to around 1,000 today, VTB Capital is now number one in the league table for Russian domestic debt, with more than twice the number and volume of deals as its nearest rival. It is a close number two in international Russian debt issuance, after JPMorgan.
In the league table for international and local Russia equity issuance, it ranks first – just above Deutsche Bank. Among its deals in 2011: a $787 million London share sale for Russian miner Polymetal; a two-tranche local-currency Russia sovereign bond for the equivalent of$2.9 billion; a $566 million 20-year sterling bond for Russian Railways. The firm is also a top-three player in Russia M&A.
VTB's group CEO, Andrey Kostin, stepped up efforts in investment banking in 2008. At the time, Russia-focused bankers could be hired "for a bowl of soup", as one insider puts it. The bank hired people such as George Niedringhaus, former head of emerging-market syndicate at ABN Amro, and a former US carrier jet pilot.
But the biggest coup came later in 2008 as Yuri Soloviev, one of Deutsche Bank's top Russia bankers, came across – bringing a large part of his team with him. DCM head Andrey Solovyev was one of that team, as was Elena Khisamova, now head of ECM.
Bringing across a partially intact team helped mitigate risks that individual hires might not gel. It meant clients abroad and in Russia were more at ease with the previously unknown out?t. VTB branded its investment-banking unit as VTB Capital only in 2008.
Back then – as now – rival banks were retrenching in Russia. State-owned firms such as VTB increasingly find themselves with a more stable and cheaper funding base than international banks, and they are winning more corporate business as a result. VTB Capital is, in part, the means by which VTB tries to keep revenue from these clients when crisis-era loans are refinanced in the capital markets.
It tries not to be too pushy. For example, it is not its policy, as a matter of course, to make loans conditional on the client signing a right of first refusal with VTB for capital markets mandates.
Nevertheless, the bank pools client relationships between the corporate and investment bank. Yuri Soloviev, in fact, is now the number two at group level after Kostin.
Origination is not everything. "You need not to only originate the mandate but also to deliver successfully on the execution, or you won't get the follow-on mandates," says Khisamova. Among the most important deals in building the reputation at the beginning, Khisamova mentions the $526 million SPO for Russian retailer Magnit, in 2009 – a client that has mandated VTB on subsequent capital markets deals.
At the time the Magnit SPO was the largest Russian equity issue since the collapse of Lehman Brothers. VTB Capital was mandated as joint global coordinator and bookrunner. "It was an excellent example of how we gathered momentum to make VTB Capital a success, right from the beginning," says Khisamova.
By the end of2010, VTB Capital was already top of the league tables in equity and number three in Eurobonds. The investment banking unit posted a pre-tax pro?t of an equivalent of around $800 million in 2010.
With momentum, the franchise has got stronger. Its predominance is such, says a banker at a different firm, that banks try to win favour with VTB by buying up less-demanded issues in order to get a higher allocation in oversubscribed deals.
The bank estimates that it now has a market share of around 12% in trading for Russian risk, across products. Indeed, bankers at other ?rms say VTB Capital is not unknown now to outperform such ?rms as JPMorgan and Goldman Sachs in internationally syndicated deals.
Now the focus is winning over institutional investors that have never previously worked with Russian brokers. With the eurozone crisis in some respects bringing a repeat of the 2008 crisis, VTB Capital is hoping to repeat its ascent in Russia in the emerging markets surrounding Russia: central Europe, and beyond.
Stage one after 2008 was to build global equity and ?xed-income distribution for Russia issuers. Stage two, as the London-based head of international business Atanas Bostandjiev describes it, is advising non-Russian clients on deals: often but not exclusively ?rms outside Russia with trade and investment relationships in Russia.
"The second phase is to become a global emerging markets-focused bank, specializing in particular on intermediating trade and investment ?ows between Russia and the CIS, and the rest of the emerging world. That second phase is happening now," says Bostandjiev.
And it could happen quickly: at the start of 2012, VTB Capital announced that it had hired former star Merrill Lynch banker Damian Chunilal as the head of its Asian investment banking operations.