VTB will renew focus on the Middle East, says regional CEO
Makram Abboud is CEO Middle East and Africa for VTB Capital plc and Vice Chairman of VTB Capital International. Dan Alderson spoke with him about how the bank is carving out its niche in these regions, which have become big focus areas for Western banks with the shut out of the Russian loan market in 2014. Abbod also discussed challenges and opportunities in the year ahead and the prospect of VTB Capital issuing its first sukuk.
What are your main goals for 2015?
VTB Capital’s 2015 strategy will focus heavily on improving and building strategic partnerships in the Middle East. These partnerships will not only extend our reach within the Middle East but will also attract more business from a dynamic and prosperous market. Through these partnerships, we hope to attract more Middle East investors to our existing markets of operation, including Russia, the CIS, Africa and Asia. However, our key focus will be using this regional growth to expand further into Africa particularly and improve our capability to do more deals on the continent.
What has driven VTB Capital’s involvement in the Middle East and Africa?
VTB Capital began this phase of its international expansion over five years ago. Our strategy from the outset was to target emerging markets, such as Africa and the Middle East, which may have not been fully developed at the time, but provided an opportunity for us to add value. That is why we strategically decided not to invest our resources in already mature markets, but rather focus on those markets with untapped potential.
How has that gone?
Our work, particularly in Africa, has produced some significant successes and we have closed a number of transactions over the past few years on the continent. Most notable has been our work in Angola and Mozambique. We were one of a select group of Russian lenders to provide $278m of loans to Angola in 2011, and later provided a $1 bn loan to Angolan government and a follow-up loan of $750m. In Mozambique, we have done a number of public and private transactions, including a bond for $850m.
At the moment, we are discussing deals in Nigeria, Ghana and Tanzania – some of which have already been signed and are in the final funding stages. We are also active in the Democratic Republic of Congo and Equatorial Guinea. We will continue to expand our presence in Africa and identify new investment opportunities throughout 2015.
In the Middle East, we have also seen a number of successes in recent years. In 2013, VTB Capital launched for the first time US dollar Participatory Notes in Saudi Arabia. As a result, international investors were finally given access to the Saudi equity market without bearing the exposure to a bank sponsor.
VTB Capital also raised TL300m ($126m) through a two year bond in 2013. This was the second Turkish lira issue for VTB Capital. In April 2012 we had successfully placed a three year TL300m bond, becoming the first foreign entity to issue a local currency bond in the Turkish market.
Why did VTB Capital first get involved in Africa?
A key component of our international expansion strategy is on emerging rather than developing markets. We saw in Africa a market with untapped potential where VTB Capital could add value, not only as a leading international investment bank, but as a bank with roots in a key emerging market, Russia. In addition, there has been a long-standing relationship between Russia and Africa, which also made Africa an attractive investment destination for VTB Capital.
How does VTB Capital set itself apart from the other internationals lenders in Africa?
Firstly, most of the transactions we have done have been bilateral. In Africa, most of our business so far has been done with African governments. We have been able to achieve success in these African transactions because – unlike other major investment banks – we have the ability, the appetite and the risk profile to successfully manage these transactions. VTB Capital has managed, in a short period of time, to quickly and effectively pick up market share in Africa, working on transactions worth a minimum of $500m and reaching up to $2bn. We are unique in that we have the capacity and the expertise to work with these types of figures, unlike many of our competitors in the market.
Are there any plans to do club deals in Africa with Western banks?
We are not currently looking to do club deals with other Western banks. We prefer to manage the process ourselves, which – in my opinion – allows not only more pricing power and flexibility, but also the ability to manage the transaction quickly and efficiently. However, this can only be done by an investment bank with the balance sheet and the risk appetite to do so.That’s where VTB Capital stands out among its competitors.
Additionally, in my experience, clients aren’t always keen to liaise with and cater to the demands of multiple banks. Through working with one bank directly, I have found that deals tend to move more quickly and ensure better communication with the client.
Is VTB Capital mainly focused on sovereign lending in Africa then?
Sovereign lending, while a key part of our work in Africa, is certainly not the only focus of our expansion strategy on the continent. At the moment, our skillset and expertise has lent itself to providing better value for African governments, which is why we have seen such success in sovereign lending in recent years. However, we are certainly working with corporate clients, particularly in Nigeria. VTB Capital is committed to maintaining its opportunistic and open-minded outlook as we continue to develop our offering and expertise in Africa.
How amenable is VTB Capital to longer tenor lending in Africa?
We are more flexible on tenors than other banks in the region, but this is not an open-ended issue. The average loans we provide range from three to seven years. However, as the market develops, I do see borrowers moving to longer tenors. From a capital perspective, this does make it more expensive, and clients may move to shorter tenors as the cost of longer tenors increases. But this is a trend that will evolve and develop over time.
Anything exciting coming up in the pipeline?
Our strategy is not centred on specific African countries, but rather is focused on the continent as a whole. VTB Capital is proud to be a fast-moving and dynamic global investment bank. When the demand arises for our skillset and expertise, we are quick to react.
Our growth strategy is built upon a large appetite for investment and growth in Africa. While credit profiles and investment opportunities vary from country to country, we are committed to an African-wide strategy, and will continue to identify where we can best add value and expand our presence throughout Africa in 2015.
A lot of Western banks are trying to shift their weight to African loans, particularly with the shutdown of the Russian loans market. How challenging will this be?
This isn’t a short term issue, and it’s certainly a difficult one. However, VTB Capital is confident that our diversified investment strategy will allow us to continue to grow despite the current conditions. Through our investments and transactions in markets including Asia, Africa, the Middle East and the CIS, we can protect our overall interests despite obstacles in individual markets.
What is your outlook for the coming year in Africa?
We don’t have a predefined plan – and recent events illustrate why we have decided to maintain a degree of flexibility in our work in Africa. The fall in oil prices has changed the landscape significantly in terms of the credit worthiness of certain African countries. As a result, any plan would have required complete revision given the last three or four weeks.
Tell us about your Middle East strategy
Our Middle East business is very different to our African business, both in approach and value added. Our strategy is to target Middle East banks, accounts and clients to become investors and partners with us in various transactions – and hopefully some of our African transactions.
Another key component of our strategy in the Middle East is to bring opportunities to the region from our backyard, Russia and the CIS. We will also be approaching local partners in the Middle East to work together on transactions in Asian markets. These local partnerships will be a cornerstone to our 2015 strategy in the Middle East.
What has happened to VTB Capital’s plans for a debut sukuk?
A sukuk is definitely in VTB Capital’s future plans. We are enthusiastic to expand our investor base and include Islamic investors. While the timing hasn’t been right with volatile markets, we are still interested in pursuing this plan.
When will you know the time is right?
We have been waiting for the market to have the breadth and appetite for our product. We are willing to proceed when the demand is there.
There are still very few international players involved and very little diversification. So it’s still far from being as developed as we would ideally like it to be.
Is there a bigger focus on attracting Middle East and Asian investment because of the Russia-West standoff?
In terms of attracting investors, our growth in Asia and the Middle East has been the plan from day one. That’s why Qatar and China are anchor investors in the bank’s capital. So we are continuing along the same path we began years ago.
In the meantime, we hope that some of the volatility that we have seen – not only in Russia, but in the oil markets and in Africa – will begin to stabilise so we can better predict how we will approach our various target markets for the most effective growth possible.
What are your plans to hire or cut staff in areas of operation outside of Russia?
I am proud of the quality of our teams in London and Dubai. The team we currently have in place is responsible for the many successes we have had, which is quite a feat, given market instability, and we do not see the need to change the size of our operations.