Russia’s capital markets are at a crossroads. Volumes have been squeezed this year by a localised slowdown, as well as a broader backdrop of financial and economic turmoil in developed and emerging markets alike.
|Riccardo Orcel, VTB Capital|
According to data provider Thomson Reuters, Russian debt capital market (DCM) issuance slowed to $7.5 billion in the first nine months of the year, down from $15.9 billion in the same period a year ago. Equity capital market (ECM) activity has also decelerated, along with the regularity and scale of M&A transactions.
That isn’t to say that issuance has halted entirely. In fact, considering the stress being heaped on capital markets both in Russia and across the emerging and developed worlds, domestic deal-flow has held up remarkably well.
True, few major Russian corporates have issued debt securities since the early months of 2014, but a slew of major international bond sales are being eyed in the weeks ahead from the likes of mining giant Norilsk Nickel and natural gas major Gazprom – and others will follow.
Moreover, the market is proving to be less painful for influential and diversified domestic financial services players.
Riccardo Orcel, deputy CEO of VTB Group and head of global banking at VTB Capital, says the institution is performing well this year, in what is a challenging market.
“While the Russian investment banking feel pool has declined sharply, our share of the market has broken all records and this, together with increased international business, has protected our profitability,” he says.
According to Thomson Reuters data, VTB Capital comfortably leads all of its domestic peers in terms of investment banking fee revenues. Half of all domestic ECM and DCM deals completed in Russia so far this year have involved VTB Capital. The institution also has a 40% share of the M&A space through the first nine months of 2015, having completed 10 transactions worth $9.1 billion, five times the number of the second-ranked institution, Lazard.
“We are the top M&A house not only in Russia but across all of Eastern Europe,” notes Orcel. “But more importantly than the league table positions, I feel very excited about the quality of transactions executed, and with our growing list of cross-border successes.”
|There are a number of deals that we are proud to have executed this year, many of which are outside of Russia|
Riccardo Orcel, VTB Capital
It is here that VTB Capital’s ability to adapt to changing internal and external market conditions has really come to the fore. Indeed, the bank’s global contacts list has proven a huge benefit.
Other investment banks have scaled back or abandoned their local operations in the face of sanctions and a slowing economy. Yet this has opened the door to VTB Capital, allowing it to grab market share across the capital markets space. While others went into retreat, it wisely looked at Russia’s long-term growth potential, opting to expand its domestic investment banking franchise, while building new relationships with local and foreign clients.
Russia’s economy is on track to return to growth in the full year 2015, as oil prices inch up and inflation ticks down, highlighting a view – now increasingly shared across the global investment community – that the economy is past the worst and on the mend.
Clients have taken note of the investment bank’s willingness to put its money to good use, notes Orcel.
“More companies are turning to VTB Capital, as they see that our platform was kept stable, that the quality of our services is still first class, and that our ability to commit to our clients remains unmatched,” he says.
In this context it is sometimes easy, given the institution’s rapid rise, to forget that VTB Capital was created just eight years ago, having been forged in one of the most challenging global capital market environments in modern financial history.
Yet VTB Group is now a powerhouse both at home and increasingly abroad, notes Orcel, where it is busy advising clients in countries ranging from China to India to Turkey, and raising financing for clients in countries ranging from Angola to Mozambique, and Ghana to the United Kingdom.
Rapid growth has in turn fomented genuinely world-class internal expertise: VTB Capital has become adept, for instance, at helping take even the largest and most complex global corporates private.
Many of the year’s bigger M&A deals have involved VTB Capital in a lead advisory role. In the final week of September, the investment bank advised Yilport Holding on its takeover of ports operator Tertir-Terminais de Portugal, the largest-ever investment by a Turkish firm in the Iberian nation.
VTB Capital is advising ChemChina, a subsidiary of China National Petroleum Corporation, on a series of asset-swap and supply agreements with Russian energy giant Rosneft. Another landmark deal involves VTB Capital advising on a pending $5.4 billion internal buyout of Polyus Gold, a deal that would also involve the delisting of the Russian gold producer’s shares in London.
ECM deals have been thin on the ground in recent months, but where they exist, VTB Capital has often been involved.
In April, rail holding company United Wagon sold $225 million-worth of shares in an initial Moscow stock listing. Credit Bank of Moscow followed suit in the first week of July, issuing $238 million-worth of securities in the largest initial public offering in Russia in more than a year.
VTB Capital was also selected as preferred bidder for the construction of a landmark $3 billion oil refinery project in Uganda, and completed two multi-billion-dollar share buybacks for the world’s largest potash producer, Uralkali.
“There are a number of deals that we are proud to have executed this year, many of which are outside of Russia,” says Orcel, who adds, rightly and correctly, that the financial services powerhouse has “significantly contributed to the development of Russia’s capital markets”.
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