Banking: VTB Capital revs up for international drive

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Dominic O’Neill
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Hires Dubai Credit Suisse team; CEE special situations push

VTB, Russia’s second-biggest bank, is stepping up hiring efforts for non-Russia investment banking, with a particular drive in emerging Europe and the Middle East.

Atanas Bostandjiev, chief executive of the international investment banking unit, based in London, tells Euromoney he will hire another 50 front-office bankers in the coming two years, with at least half of these dedicated to EEMEA ex-Russia. The firm hired about 25 front-office bankers for its non-Russia investment banking business in 2011.

“VTB Capital is becoming a global emerging markets investment bank, rather than just a Russia-focused one,” says Bostandjiev.

Most recently, according to a source familiar with the matter, in late 2011 the state-owned bank hired up to five people from Credit Suisse’s Dubai-based Middle East equities team. Makram Abboud, formerly managing director at Nomura’s emerging markets business, is expected to head the overall team in Dubai. VTB Capital first opened an office in Dubai in 2009.

Global investment banks including Citi and Deutsche Bank pulled senior ECM bankers out of Dubai in 2011, amid fears that the three-year Middle East IPO drought might continue, thanks to the Arab Spring and global market volatility.

Liberalization play

However, the region’s biggest equity market, Saudi Arabia, has made preparations to open up its stock market via a Chinese-style qualified foreign institutional investor scheme. If that happens, observers reckon it could revive the market’s fortunes.

“We’re taking a view that Saudi Arabia could loosen restrictions against foreigners taking direct equity investments,” Bostandjiev acknowledges.

Bostandjiev reckons VTB would have at least one competitive advantage in the Middle East given that its home market, Russia, is similarly rich in oil and gas. But he says another head start – as in other emerging market regions – will be the links the bank has already forged with global emerging market investors, thanks to its dominance in the international capital market for Russian names.

Partly because Russian firms are increasingly issuing bonds marketable in the US, Bostandjiev is hoping to strengthen VTB’s global distribution capacity further with more hires in 2011 in New York. The firm won regulatory approval for a New York office in the autumn.

First focus

“VTB Capital is becoming a global emerging markets investment bank, rather than just a Russia-focused one”

Atanas Bostandjiev, VTB Capital

 

Bostandjiev says the initial focus of the investment bank’s pan-emerging market business will be EEMEA, particularly Central and Eastern Europe and the former Soviet Union, where the firm has already executed deals, including in Georgia and elsewhere. He says the bank will look to build its franchise much more selectively in Asia (he is particularly hesitant to hire in Asian markets where the competition is already very strong).

“First we have to prove we can originate and execute successfully in the emerging markets closest to Russia. After that, we can look more closely at Asia, and eventually perhaps Latin America,” he says.

VTB Capital opened an office in Hong Kong in November. It is expected to open an office in Bulgaria, Bostandjiev’s home country, in early 2012 (the bank bought an 80% stake in Bulgarian state tobacco firm Bulgartabak for $145 million last year).

More heads

Bostandjiev joined VTB Capital from Goldman Sachs in May. He says the headcount in London, already VTB Capital’s biggest base outside Moscow, rose by a third to around 350 people in 2011. Bostandjiev is now looking to hire more London-based bankers to originate deals in Central and Eastern Europe outside Russia, particularly in Central and South East Europe, including Turkey, and possibly in Israel.

Ozan Ozkural, formerly an emerging markets debt and structured finance banker at Bank of America Merrill Lynch, is to join VTB Capital as director responsible for Turkey, initially based in London. The bank is also looking for coverage bankers for sub-Saharan African markets, including Angola, Ghana and Nigeria (again initially to be based in London).

Bostandjiev says VTB Capital’s core niche will still be intermediating investment flows between Russia and other emerging markets. But he says bankers focused on the Gulf, Turkey or elsewhere will inevitably originate mandates unrelated to Russia, particularly in commodities.

VTB Capital acted as mandated lead arranger and bookrunner alongside BNP Paribas in one such deal in November. This was a $200 million senior-secured loan for Africa-focused and London-listed oil firm Afren. The deal gives recourse to existing oil fields in Africa and was partly to finance acquisitions in Iraqi Kurdistan.

Bostandjiev concedes that profits might be constrained by a potential lack of activity and relatively low margins in DCM and public equities in the countries in which the bank hopes to specialize. But he says arranging private equity buyouts and special situations financing in Central and Eastern European countries that eurozone banks are exiting might be an alternative driver of revenue, at least in the short term – and particularly for energy firms, or those with trading links to Russia.

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