Acting in compliance with the terms and conditions of Eurobonds and on the instruction of the Russian Ministry of Finance, State Corporation “Bank for Development and Foreign Economic Affairs (Vnesheconombank)” transferred to Citibank N.A., London Office USD 159,365,437.50 worth of funds in payment for interest on the USD 2.5 billion bonds issued by the Russian Government in 1998 and maturing in 2028.

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On 21 December, Vnesheconombank's Supervisory Board approved the Bank's strategy to 2021. According to it, the Bank is to focus on five core priorities:

• financing high value added manufacturing projects;
• developing infrastructure;
• supporting non-commodity export;
• contributing to the use of defense technologies in civil manufacturing;
• backing innovation and projects under the National Technology Initiative.

Vnesheconombank will operate on a new level: it will search for projects that comply with priorities of the government, provide a deep analysis of business projects in cooperation with clients, attract direct co-financing to projects, monitor project progress using cutting-edge technologies.

During the meeting, the Supervisory Board considered Vnesheconombank's participation in the Ivanovo Region Polyether Plant Project. The total project value is over RUB 25 bn, it is aimed at import substitution in the consumer goods industry. The project is implemented in Vichuga, a single industry town. The capacity of the plant is expected to reach 175,000 tons of polyester fiber per year and 30,000 tons of polyester chips per year.

The Board members also discussed the setting of new sovereign risk limits for the Socialist Republic of Vietnam. This will allow to effect the transaction involving financing of Russian power equipment supplies as part of implementation of Power Plant Project in Vietnam.

The Supervisory Board decided to suspend the consideration of charity and sponsorship issues until the end of 2017.

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On 16 December 2016, Vnesheconombank and Japan Bank for International Cooperation (JBIC) entered into a memorandum of understanding in Tokyo (Japan) to establish closer economic cooperation between Russia and Japan. The document was signed during a Russia-Japan Summit.

The parties are to provide joint financing for projects in the Russian Federation, primarily in the Eastern Siberia and Far East, and for foreign trade contracts between Russian and Japanese companies. The document sets out a list of sectoral priorities. Particularly, these include projects in infrastructure, energy, energy efficiency, high value added manufacturing in the petrochemical industry, wood processing and machine building.

Also Vnesheconombank, Japan Bank for International Cooperation (JBIC) and CJSC Nakhodka Mineral Fertilizer Factory entered into a memorandum of understanding about the Nakhodka Mineral Fertilizer Plant Project (Primorsky Krai). The document was signed during a Russia-Japan Summit.

The Nakhodka Mineral Fertilizer Plant Project includes construction of a complex with an annual capacity of 2.2 mn t ammonia, 2 mn t carbamide and 1 mn t methanol. The full design capacity is to be reached in 2022. Total project costs are estimated at USD 6.3 bn. The plant will create up to 2000 new jobs, allow to launch a new professional training programme at the Far East Federal University and generate taxes receipts of RUB 11 bn p.a. to the budgets of different levels.

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The VEB Group’s key performance indicators are as follows:

In the nine-month period of 2016 the VEB’s Group equity increased by RUB 68.8 billion (+14,3%) to reach RUB 549.6 billion as at 30.09.2016. Alongside with the subsidies from the federal budget provided in the nine-month period in the amount of RUB 150 billion as compensation of costs related to servicing foreign capital markets borrowings, and the recognition as additional paid-in capital of a subsidy of RUB 1.6 billion for the implementation of priority investment projects in the Far East and Baikal region, positive balance of an unrealized revaluation of securities had a positive effect on the VEB’s equity. VEB’s capital adequacy ratio (RAS) as at 30.09.2016 amounted to 12.7%.

In the nine months of 2016 net interest income went up by 40,6% reaching RUB 69,6 billion as compared with the same period in 2015 against RUB 49,5 billion. The rise is accounted for by an increase in interest income, as well as decrease in interest expense.

Throughout 2016 the Group’s financial results have demonstrated positive dynamics:

• in Q3 2016 the Group improved its financial result almost 18 times compared to the result in the corresponding period of 2015, decreasing a loss of RUB 59,5 billion to RUB 3,4 billion.
• In Q3 2016 the loss decreased more than 7 times as compared to the result of Q2 2016 (from RUB 24.5 billion to RUB 3.4 billion correspondingly).
• The financial result of nine months of 2016 also significantly improved as compared to the respective period of 2015: a loss of RUB 86,2 billion (largely attributable to the considerable provisioning in Q1 2016) versus the loss of RUB 133 billion correspondingly.
• Allowance for impairment of loans to customers for Q3 2016 decreased almost nine times versus provisioning in Q1 2016: RUB19.2 billion in Q3 against RUB 172.3 billion in Q1.

The major drivers for the Group’s changing assets (-13.3%) and liabilities (-16.7%) in the nine-month period of 2016 were the following: a decline in the currency rates against the ruble, creation of allowance for impairment of assets and a timely repayment of the maturing debt to the Group’s lenders and investors. Thus, the Group’s assets decreased by RUB 584.7 billion to RUB 3 797.7 billion as at 30.09.2016. Total liabilities went down by RUB 653.5 billion to RUB 3 248.1 billion as at 30.09.2016.

In the nine-month period of 2016 the Group followed a conservative lending policy, primarily focusing on the “last mile^*” “Last mile” projects - projects already financed up to 80-85%, that could be commissioned in the next two years. The projects include those in power generation, metallurgy, machine building, agribusiness, pharmaceuticals, and chemicals.projects , with the pace of loan repayments slightly exceeding the pace of new lending. Alongside with the Group concentrating on the “last mile” projects, the nine-month period of 2016 saw the commissioning of the following facilities: CSKA football stadium in Moscow, household gas stoves production in Orsk, a wood processing complex in Krasnoyarsk region, etc. The Group is also actively widening the export global coverage, expanding the geography of Sukhoi Superjet 100 civil aircraft deliveries from Latin America and South-East Asia to Europe. For instance, VEB financed a delivery of SSJ 100 to an Irish carrier CityJet, which brought a national Irish football team to the EURO 2016 competition.

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