Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24
Host: Evelina Zakamskaya
HOST: Good evening, Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good evening.
HOST: I am glad to see you, thank you for finding time for us. The Russian economy is said to have come out of the crisis. Is this really the case and what impact did it have on Vnesheconombank’s operation?
Vladimir DMITRIEV: Not all crisis developments have been overcome, a lot of problems still remain. But as far as Vnesheconombank is concerned, we are confidently moving from taking crisis management measures to undertaking our core activity as a Bank for Development. We have new projects, new borrowers, and new ambitious plans. To tell you the truth, we didn’t actually stop operating as a Bank for Development even in the time of the crisis but undoubtedly a top priority was given to engaging the Bank into taking crisis management measures.
HOST: So, you’ve stopped acting as a red knob and started operating on a routine basis?
Vladimir DMITRIEV: To a large extent we are still taking anti-crisis measures. We shouldn’t forget about subordinated loans which we extended for a period of 10 years. We should keep in mind that we are reorganizing two large commercial banks; we became “happy” owners of a number of non-core assets: Amurmetal and the Traktornye Zavody Concern. To this end, we have the VEB Capital Company that helps us to manage these diverse business entities thus performing functions not always typical for the Bank.
HOST: The Russian Economic Development Ministry proposed to develop a program of privatizing non-core assets did you agree upon this program with the Ministry and what do you think on this account?
Vladimir DMITRIEV: We agreed upon this program as far back as last year when decisions on reorganizing Globex Bank and Svyaz-Bank and on working with their assets were being taken. At present, these banks are in safe hands but all this required strenuous efforts and considerable financial resources. In order to settle Globex Bank’s problem debts we received a deposit worth 87 billion rubles from the Central Bank and we have to repay the deposit. Clearly, at the moment we can’t sell our non-core assets by which I also mean commercial banks because the market is undervalued. We discussed this issue at our meetings of the Bank’s Supervisory Board and in our conversations with its members including the Economic Development Minister and we arrived at a conclusion that these assets could be sold in a few years when Globex Bank is well capitalized. And we can count on applying pre-crisis ratios or at least close to them when a bank’s capital is multiplied by several times. We also include in these non-core assets the property, incompleted constructions and facilities we received from Globex Bank. They include the former Slava watch factory. There are a number of operating construction projects but we have to complete them before talking about selling them.
HOST: As to development projects supported by Vnesheconombank we should single out modernization projects. What projects would you describe as truly state-of-the-art ones?
Vladimir DMITRIEV: At present, about 15% of our loan portfolio accounts for innovation projects but as far as modernization projects are concerned the percentage is a lot higher. We are actively searching for innovation and modernization projects. One of our lines of activity is related to supporting Russian shipbuilding; here we have brand new projects that have no analogues in our country and in the world in the shipbuilding sector. We provided financing for Sovcomflot to construct two high-powered icebreakers with deadweight of 70 thousand tons each. These heavy-duty oil-carrying vessels transported oil through Northern Sea Route to South-East Asian countries. As to modernization and innovations our Management Board and Supervisory Board made a decision to finance a company which will be responsible for implementing a project aimed at creating supercomputers and their software. This is T-Platforms Company. It is energetically tapping into European markets and leading companies in the computer and supercomputer sector are interested in entering this company’s capital. We pride ourselves on launching two significant projects this year. The projects are aimed at modernizing our oil-refining sector and they are implemented by Tobolsk-Polymer Ltd. This was a very large transaction, a very complicated one in terms of financing its financial model, in which the largest European banks as well as banks from other continents and leading insurance agencies participated. Our participation share is about one and a half billion dollars.
HOST: Vladimir Alexandrovich, this is a question most frequently asked by experts when they discuss the future of the Russian economy: where to get money for innovations? What are Vnesheconombank’s capabilities in this respect and what new instruments for financing new projects are under discussion?
Vladimir DMITRIEV: Here we can’t come up with something new, we have to raise money in the market. This year we have completed several transactions, with some of them being truly breakthrough deals. None of Russian borrowers, and the more so, after the crisis, borrowed money for such a long period of time and made so many investors from various countries purchase bonds issued by Vnesheconombank or participate in tied transactions where we are supported by foreign state insurance agencies and banks that engage in supporting national industrial exports. By our estimates, only this year alone we have raised about 9 billion dollars including three tranches of eurobonds. The latest tranche is a fifteen-year bond issue. No one has ever raised such a big amount of funds for such long periods of time. And this is not the most important thing. The most important thing is that we have raised financial resources this year and this means that foreign investors started to regard Russia as being solvent and creditworthy and they believe that there are reliable borrowers in Russia and they trust not only state banks but also banks with private stock capital. Surely, it is important for investors that the state backs this sort of placements.
HOST: And what about a proposal to invest pension savings funds in innovation projects?
Vladimir DMITRIEV: This is a special interesting issue but in its capacity of the trust management company Vnesheconombank adopts a conservative approach to managing pension savings funds. We should have a clear idea as to what risks exist because innovation business is highly risky. Recently I have participated in international and Russian forums and discussions on providing support for innovation business. Nowadays everybody believes that innovations are risky. And out of ten projects only two or three could prove to be successful but it is their success that justifies investments in innovation business. That is why it is theoretically possible especially when projects are not at a start-up stage but at a more advanced stage and when it is evident that these projects could be commercialized we can think of using pension savings funds. But we should keep in mind that in accordance with our expanded declaration we can purchase debt instruments secured by state guarantees. And to my mind this mechanism is to be used to consider an issue of using pension savings funds to finance innovation business.
HOST: What are this year’s results of managing pension savings funds in a conservative way?
Vladimir DMITRIEV: According to established practice, we are to make public information on our performance. Unfortunately, but this is beyond our control, the total return on pension funds investments is most likely a bit lower than inflation rate due to the significant price growth in the third and fourth quarters. But this results from the fact that actually we have started to form our investment portfolio in accordance with the expanded declaration. A lot of funds were invested, for understandable reasons, in government bonds and they didn’t perform the way we expected. But it was not worthwhile withdrawing from these bonds without having an alternative. Nevertheless, we hope that government-guaranteed bonds issued by Rusnanotech, the United Aircraft Construction Corporation and a number other reliable borrowers would help us to balance investment yields and achieve acceptable results.
HOST: Economic modernization, among other things, in the risky high technology sector is not possible without developing small and medium-sized enterprises (SMEs). Aren’t you afraid of running risks here? And what SME projects do you finance today?
Vladimir DMITRIEV: Fortunately, small and medium-sized enterprises demonstrate positive dynamics. This year alone the banking system extended funds to small and medium-sized enterprises in the amount that exceeds last years’ sum by 1 trillion rubles.
HOST: And this supply exceeds the demand?
Vladimir DMITRIEV: The demand is enormous as is the demand for credits. Still, we are well aware that we have to make targeted systemic efforts to support small and medium-sized enterprises. In this respect, there is a program of supporting small and medium sized enterprises. We are implementing this program through the Russian Development Bank. A credit worth 30 billion rubles was extended to the Russian Development Bank to support small and medium-sized enterprises. Credits to SMEs are also refinanced through the Central Bank. There are also programs of co-financing SMEs under which regional banks participate in supporting SMEs. The program of supporting SMEs is to amount to a hundred billion rubles by the year-end. With our subsidiary banks namely, Globex Bank and Svyaz-Bank we expect the total amount to reach 125 billion rubles. By our estimates, this amount would reach up to 250 billion rubles till 2015. There are various programs but it should be stressed that we extend long-term credits to SMEs. The most important thing is that about 60 percent is linked to the real economy. I’ve been talking about financing, haven’t I? Financial resources to support SMEs are extended not only by our Banks but also by banks participating in the program. In this case, we reduce interest rates and increase credit periods. We have launched programs aimed at financing innovations and modernization where interest rates are a lot lower. As a whole, we managed to reduce interest rates to about 12 percent and this to a great extent helps to promote the development of SMEs against the backdrop of 25-30 percent interest rates in the crisis years.
HOST: I can’t help asking you a question about Vnesheconombank’s support for the mortgage market. How is this market going to develop in the future? And how large is this market now?
Vladimir DMITRIEV: It is well known that Vnesheconombank commits 250 billion rubles to implement the program of supporting the mortgage market. Here we use the Bank’s own funds generated from our transactions on the stock market. One part of this income was committed to implement Olympic projects and the other in the amount of 50 billion rubles to support mortgage lending. The National Wealth Fund is also involved in this program. It committed 40 billion rubles to the Housing Mortgage Lending Agency. We also use the funded portion of pension savings funds to finance the program of supporting mortgage lending. So, we employed all the instruments and I am glad to say that commercial banks have already extended credits worth nine billion rubles. We have applications for all 150 billion rubles intended for these purposes. I’ve already mentioned 40 billion rubles committed to support the Housing Mortgage Lending Agency. 50 billion rubles out of the Bank’s own funds will be used to buy out three-percent bonds. For this money to start working even now our Supervisory Board took a decision to use it to refinance credits to be extended by commercial banks to their borrowers for economy-class housing construction. The problem is that a pool of credits to be used to lay the basis for issuing bonds is being formed only now. So we expect the program to be fully launched next year and here I mean a buyout of bonds. But I’d like to stress it once more that we have received applications from commercial banks for an amount of 150 billion rubles and the program is being unfolded.
HOST: And Olympic construction projects. Construction projects in Sochi. Furthermore, the 2018 Soccer World Cup in Russia. And here they have to rely on VEB support?
Vladimir DMITRIEV: The Sochi Olympics put us to a serious test. But to my own satisfaction I’d like to underline my employees’ contribution and close interaction with Olympstroi and our investors as a result of which we managed to do a lot. Even now the amount of Vnesheconombank’s credits approved by our bodies of corporate governance has in reality approached to 70 billion rubles. And another several new projects are on the way. These Olympic facilities taught us a lot; we learnt a lot useful things and gained valuable experience in cooperating with investors. And there is no doubt this experience is the best precondition for us to participate in financing 2018 Soccer World Cup projects.
HOST: As you can see Vladimir Alexandrovich, Vnesheconombank is at all times and in all places: innovations, small and medium-sized enterprises, Olympic construction projects, mortgage lending. Your Bank was called a Rescue Bank in the time of the crisis. Do you know the most frequently asked question about Vnesheconombank? The question is: when will Vnesheconombank run out of money?
Vladimir DMITRIEV: In fact, VEB’s capital is formed through budgetary contributions alone as opposed to commercial banks which are in a position to enter the market and conduct IPOs. We belong to a different category just like our partners from other countries. For example, the German Bank for Development raises annually about 60 billion euros to finance its projects. This year we have raised a much lesser amount of 9 billion dollars on the market. And market is above all trust. Here I mean trust in a bank, trust in Russia, our country’s investment appeal. If the overall situation remains favorable the market is going to be huge. At present, we are seriously working on regional projects, establishing a fund of direct investments for the Far East and the Baikal region. Our fund of infrastructure investments started to operate together with the Macquarie Renaissance Company. As soon as we completed a transaction to purchase a transport company VTB Capital and another investment company followed the suit. At present we are seriously considering an issue of engaging major foreign investors in both sovereign funds and companies of private direct investments to participate in large-scale projects in Russia. And we can see a growing interest to invest in Russia on the part Europeans, Persian Gulf countries, South-East Asia and America. And this is a genuine interest. And we should to capitalize on this situation by all means.
HOST: I wish you every success. Thank you.
Vladimir DMITRIEV: Thank you.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
The TV Channel Russia 24
HOST: Good evening! Our guest today is Vnesheconombank Chairman Vladimir Dmitriev. Good evening Vladimir Alexandrovich!
Vladimir DMITRIEV, Vnesheconombank Chairman: Good evening!
HOST: This Forum is not the first for you. Vnesheconombank invests actively in this sort of events. What’s new, what contracts have you concluded this year?
Vladimir DMITRIEV: You are right, the Kuban International Economic Forum, which is going to mark its anniversary next year, gives us a unique chance to talk with our partners, sum up the results of cooperation and map out plans for the future. And this Forum isn’t an exception. We have signed a whole range of agreements including general ones on cooperation as well as specific ones concerning specific projects. To my mind, the Forum, at least its first full day, proved to be successful. I like the first event organized by Sberbank and devoted to providing support for small and medium-sized enterprises. And of course, today’s plenary meeting was memorable and important as it confirmed that the Forum is a Prime-Minister level gathering. Today, the Prime Minister described the current state of the Russian economy, gave us reasons for optimism, and the most important thing was that answering a ten-year-old question about what kind of Russia he would like to see he said that he would like to see a happy Russia. And I think that in this respect, we are all happy about Russia’s development dynamics in the past ten years. This forum is in essence an international event. There are a lot of foreign guests, including our partners, Vnesheconombank’s partners. They participate in plenary meetings and we hold talks with them on the sidelines of the Forum.
HOST: Vladimir Alexandrovich, you invest heavily, as I’ve already mentioned, in this region. I know that you you’ve signed several agreements today. Could you tell us a few words about them?
Vladimir DMITRIEV: As far as our involvement in the Krasnodar region and in the region as a whole is concerned, it’s worth mentioning the fact that yesterday a ceremony of opening of the Sochi International Airport was held in Sochi. It was Vnesheconombank that financed the construction and modernization of the Sochi Airport and it was our first project as part of Vnesheconombank’s participation in funding the construction of Olympic facilities. We discussed this line of our activity in the course of talks and it was also partially reflected in the agreements we have signed today. What is really important is Vnesheconombank’s increased cooperation with North-Caucasus republics. You know there is an order by both the President and the Prime Minister to establish a North-Caucasus Development Corporation. I think it will start operating in November. And today’s agreements on building the Arkhyz tourist cluster in the Karachaevo-Cherkessia, development of agro-industrial complex in Kabardino-Balkaria, supporting the construction materials manufacturing sector in Dagestan are witness to the fact that the region’s potential is pretty large. And I think that Vnesheconombank and other banks including those with state’s participation have all the chances of making large investments in the region thus improving the socio-economic situation here dramatically.
HOST: Vladimir Alexandrovich, what amounts of money do you mean? Do you mean tens of billions of rubles?
Vladimir DMITRIEV: If we mean a tourist recreational cluster in the Northern Caucasus, it includes almost all republics of the Northern Caucasus, it’s a matter of 450 billion rubles. The cluster is comprised of mountain ski resorts and infrastructure. It’s important that these projects are being implemented on the principles of public private partnership. The important thing is that the Investment Fund, special economic zones, private investors and, of course, Vnesheconombank participate in these projects. Vnesheconombank is glad that Sberbank of Russia would and not for the first time participate in these projects. So, the sums are pretty impressive. And if we mean Sochi, about 150 billion rubles are earmarked for Olympic facilities alone, with Vnesheconombank’s participation being 80 billion rubles. We’ve already started to fund 6 projects worth 15 billion rubles. And in general, comparable amounts of investments may be channeled to the republics of the North-Caucasus Federal District.
HOST: And now about another line of Vnesheconombank’s activity. In particular, you are actively supporting small and medium-sized enterprises. This issue has been also given much attention today. And it’s not a secret that there are some problems in this sector. What’s Vnesheconombank doing to support SMEs?
Vladimir DMITRIEV: We believe and today’s morning discussion confirms it that both Kuban and the North Caucasus are quite promising for developing small and medium-sized enterprises on a large scale, given Russian commercial banks’ and Vnesheconombank’s support. This, of course requires using the region’s potential to the full. The region is a breadbasket and a health center.
HOST: And a talent foundry.
Vladimir DMITRIEV: If we mean a talent foundry, we should say that training specialists is a very important task. We need specialists for hotel and tourist business, we also need them for sports clusters. They are also needed in the agriculture sector. Unfortunately, we have lost competence in some sectors and we have never had one in several others. Here I mean mountain ski resorts. So we have a lot of work to do in this respect. There are many major production facilities and commercial entities in the region. The main thing in supporting SMEs is not just establish them from scratch but to rely on the existing industrial and agricultural infrastructure. This is what we are supposed to do. And a large-scale program we have launched through the Russian Development Bank relies among other things on the potential of Kuban and the North Caucasus.
HOST: Vladimir Alexandrovich, I’d like to ask you a few questions not related to the Forum. What’s the situation with regard to the creation of a Postal Bank? Are there any changes in your position on this issue?
Vladimir DMITRIEV: Our position hasn’t changed at all. We are doing our best in this respect. On September 15, two candidate banks, namely Nomos Bank a Russian Standard Bank submitted financial plans updated in accordance with Vnesheconombank’s and Svyaz-Bank’s requirements as well as business-plans and business-models. We’ve got enough time to examine them thoroughly once more and if, required, we are ready to hold talks on adjusting them. We are keeping to schedule and hope that we’ll start to rebrand Svyaz-Bank starting next year and a process of denationalizing the Post of Russia is to be also launched. Of course, an investor is also to be chosen and then we’ll be able to get down to implementing this program.
HOST: One more question. Vnesheconombank extended credits to large Russian banks at the time of crisis. Many banks have already repaid them. But there are some problems here, for example with Rusal. How is the situation with Rusal developing and what is going to happen to the mining and smelting company’s blocking stake?
Vladimir DMITRIEV: You are quite right. During the crisis Vnesheconombank relied on the state’s support, specifically on the Central Bank’s support and used funds it received from the Central Bank to refinance major Russian borrowers’ foreign debts. We used a little more than 11 billion dollars to refinance the said debts. By now, all the credits except for one extended to Rusal had been repaid. This shows that borrowers are doing well financially and can either repay credits on their own or obtain long-term credits from commercial banks and this was the main goal of the Russian Government. At the time of the crisis, both our corporate partners and Russian banks except for Vnesheconombank supported by the state were in a critical situation and they didn’t any sources to refinance those foreign debts. At present, the situation in the banking system and borrowers’ financial standing allow them to refinance the said foreign debts on the terms that are not worse compared to those of Vnesheconombank’s credits. I wouldn’t describe the situation with Rusal as problematic. It’s going according to schedule.
HOST: It’s developing normally.
Vladimir DMITRIEV: The situation is developing normally. Rusal is ready to repay the debt by way of using Sberbank’s credit resources. We held talks both with Rusal and Sberbank on working out a refinancing model acceptable for all parties. A key element in this model and in the pattern of this transaction is that the mining and smelting company’s collateral is not to be alienated from the state under no circumstances. It goes without saying that if Rusal fulfils all its obligations under a new refinancing agreement on settling the debt ,an issue of Nornickel’s blocking stake will be removed from the agenda.
HOST: Thank you, Vladimir Alexandrovich, thank you for finding time for us today. I’d like remind you that our guest was Vnesheconombank Chairman Vladimir Dmitriev
Vladimir DMITRIEV: Thank you.
We Welcome Projects where Enthusiasts Try to Retain Competitive Edge
Vnesheconombank has been energetically carrying out crisis-management measures for already two years. This, to a certain extent, slowed down the implementation of investment projects as the Bank’s employees had to perform additional functions besides their main ones. Nevertheless, VEB continued to build up its loan portfolio as a Bank for Development. Vnesheconombank Deputy Chairman Anatoly Ballo told Interfax-AFI about new investment projects financed by VEB, the BEMO project, a project to build a furniture production facility and innovations.
- Vnesheconombank has been implementing crisis-management measures for already two years. What impact did it have on its activity as a Bank for Development?
- Since 2008, Vnesheconombank has been the Government’s instrument in implementing crisis-management measures. In the last months of 2008 and in early 2009, the Bank’s priorities were shifted towards supporting the financial system and this slowed down the implementation of investment projects because the Bank’s specialists involved in examining investment projects had at the same time to be engaged in restructuring credits as part of crisis-management measures. They had to perform additional functions besides their main ones. I’d like to remind you that the amount of financial support provided by Vnesheconombank as part of crisis-management measures was 964 billion rubles. These funds were used to refinance Russian companies’ foreign debts, extend subordinated loans and reorganize Globex Bank and Svyaz-Bank. Moreover, under certain decisions made by the Bank’s Supervisory Board we rendered assistance to such system-forming companies such as OJSC Amurmetall, Tractornye Zavody Corporation and OJSC Sevmash.
- Did all this have any impact on financing investment projects? How many investment projects have appeared in VEB’s loan portfolio this year?
- Yes, to some extent, because the same specialists were responsible for implementing crisis management measures and investment projects. All the lines of activity I mentioned above were not included in our original priorities.
Nevertheless, in 2009 we participated in implementing 78 investment projects and at the beginning of 2010, the Bank’s governance bodies made decisions on participating in funding another 20 new projects. The Bank’s participation amount in them is about 144 billion rubles. And we have already started to finance some of them. The amount of funds made already available is in excess of 41 billion rubles, but we have long periods of using resources, we do not provide the whole sum at once. On the one hand one can say that 20 new projects are not many but on the other one should not forget that it often takes no less than a year to prepare a project. The amount of our investment, credit and guarantee activity is about 360 billion rubles. We have already formed a loan portfolio with regard to more than 100 projects. And more than 200 projects are at various stages of expert examination.
- These are large figures. What’s the effect on the economy?
- Operating in this field, we are playing an important institutional role because in the long run we form Russian clientele, which is seeking to implement long-term projects, for example on the principles of project financing. It can be said that VEB is not only a pioneer of classical project financing when credit resources are made available without a burden on other assets or a parent company but also an instrument for implementing public private partnership projects (for example concession projects and BOT (BUILD-Operate-Transfer) projects).
As a whole, in our estimate, tax revenues from implementing investment projects in the budgets of various levels would amount to 222billion rubles for a period of their implementation and more than 60 thousand new jobs would be created.
- By the way, BEMO project will be implemented on the principles of budget financing. In late July, VEB’s Supervisory Board made a decision to finance it while RusGidro and RusAl had been waiting for this sort of decision since March. Why did it take so much time?
- The Boguchan Hydroelectric Power Station is a unique project. This sort of projects have always been funded by way of using budgetary funds. This is the first experience of project financing in Russia in hydropower engineering. It takes about a year in any bank to examine a project of such magnitude, the more so, a project structured on the principles of project financing. We have tested the project’s financing model several times. At present, almost all the issues have been settled.
- Providing funds for this project VEB is to receive engineering companies’ shares as collateral. Are there any other forms of collateral?
- This is a project financing and the Bank is to receive engineering companies’ shares but as far as the Boguchan Hydroelectric c Power Station is concerned we are also supposed to receive RusGidro’s limited surety (in the capacity of a company responsible for constructing and operating the hydroelectric power station). It is to come into effect only if there are changes in the schedule, construction budget or in case of improper operation of the hydroelectric power station’s operation. The only reason for it is that we have never had project financing in the hydroelectric power engineering. We don’t have any surety with regard to the aluminum plant.
- What’s the total cost of building the hydroelectric power station and the aluminum plant? What amount of funds is VEB supposed to provide?
- The total cost of building the hydroelectric power station is 72.5 billion rubles out of which Vnesheconombank is to provide about 28 billion rubles. The Bank is to provide 22 billion rubles for the construction of the aluminum plant, with the total cost of the project being 33 billion rubles.
In fact, under the investment program “A Comprehensive Development of the Lower Angara Region” the Bank finances three large-scale projects. One of them is Construction of the Boguchan Integrated Timber Processing Facility. We are planning to provide 40billion rubles to build the facility. All these projects are being implemented on the principles of public private partnership. The state provides 30 billion rubles from the Investment Fund to build infrastructure while private investors together with VEB’s funds provide about 150 billion rubles.
- At what stage is the project to build the Boguchan Integrated Timber Processing Facility?
- The Kraslesinvest Company acts as this project’s investor. It’s a very complicated project because new full-cycle pulp-and-paper plants haven’t been built in our country since the Soviet times. At present, we are seeking the help of the world’s leading pulp producer, Sweden’s Company Sodra, to develop a final concept of this timber processing facility. The deep timber processing project has already been launched. The “pulp component” is to be launched next year after completing a comprehensive mechanical timber processing stage. The Bank has started to finance the project and has already provided 2 billion rubles.
- When Vnesheconombank’s Supervisory Board made a decision to fund the BEMO project it also approved refinancing of RusAl credit worth 4.5 billion dollars obtained from Vnesheconombank by Sberbank. What’s the situation with unpaid credits obtained from VEB to refinance debts to foreign creditors?
- All companies except for RusAl have repaid their debts. Our representatives have withdrawn from all borrower-companies’ boards of directors but for RusAl‘s board of directors. The aluminum company is to repay its debt until October 29, and we do not expect any problems with the debt repayment.
- Not long ago, VEB signed an agreement on extending credits worth 1.4 billion dollars to Tobolsk-Polymer. Western banks and export agencies participated in the transaction. On what terms are these funds provided? How are the credits secured?
- It took us a year to make a positive decision on this project. The polypropylene complex with a capacity of 500 thousand tons per year will become the world’s largest plant of this kind. As to this project, VEB used only raised funds and didn’t use its own capital. All the funds were made available by foreign export agencies and banks. And it should be said that in our opinion credits are extended on very good terms. Interest rates are lower than mid-market rates on short-term borrowings.
It’s important that this project comprises a number of unique subprojects. For example, special vessels are being built and docking facilities are being expanded on the Tobol river to supply equipment of non-standard sizes. Moreover, the project’s implementation will require 4.5 thousand workers at the construction stage. 3.5 thousand new jobs will be created. Tax revenues during the project’s implementation are expected to amount to 45.5 billion rubles.
- VEB is also to provide funds to Mekran company for building a furniture production facility. What are the specific features of this project? What’s the credit period?
- The Bank has already started to finance the project. The total value of the project is 5.6 billion rubles, with our participation share being 4.3 billion rubles. The credit period is more than 10 years so the company is given a chance to repay the credit through its operating activity.
It’s important for us to boost domestic producers’ competitive edge. Do you see a lot Russian-made furniture in our shops? In order to get Russian people to buy less foreign-made furniture we should launch deep timber processing. In general, we welcome projects where Russian enthusiasts try to retain competitive edge.
- The Russian Government gives high priority to the development of the Northern Caucasus. What projects is VEB planning to finance this year in this region? Did the Bank receive any investment applications from project initiators?
- The Northern Caucasus is an absolute priority for us now; we are opening our representative office in the Northern Caucasus. We have more than 10 projects at various stages of implementation, the total amount of which is in excess of 60 billion rubles.
I’d like to specially stress the project to build the Arkhyz all-season mountain-climatic resort in Karachaevo-Cherkessia, which was initiated by Sinara Company. The project’s general concept provides for the construction of four village-complexes to accommodate more than 25 thousand people and a network of 69 ski lifts and cableways. We engaged French Bank CDC for this project.
- VEB has repeatedly said that it would increase a share of innovation projects in its loan portfolio. How many innovation projects is VEB funding today? What sort of projects are they?
- Most of our projects are of innovative nature - be it a cement plant construction project or a turkey-growing industrial complex project.
To tell you the truth, it’s pretty difficult to implement high-technology projects. One of such projects was the one aimed at building a submicron semiconductor production faculty. We also planned to participate in the project aimed at manufacturing Glonass/GPS navigation receivers. M2M Telematica was responsible for implementing the project. We were ready to start financing the project, when corporate changes took place in the company. The project’s structure has changed now –it incorporated AFK Sistema. Thus, we are examining a large-scale, updated ERA Glonass project being implemented by the Navigation Innovation Systems Company. The project provides for creating Glonass/GPS navigation receivers and user terminals as well as creating an emergency urgent response system on their basis. A requested amount of financing is 3.1 billion rubles
In the near future, we are supposed to submit a project to create supercomputers to consideration by the Bank’s Supervisory Board. I wouldn’t disclose the name of the company responsible for implementing this project but I can say that it is a leading player on the Russian market.
Vnesheconombank Deputy Chairman Mikhail Kopeikin’s Interview to TV Channel Russia-24
HOST: Why are small and medium-sized enterprises so poorly developed in Russia, why do banks extend credits to businessmen at such high interest rates, how is the state going to support businessmen – this what Vnesheconombank Deputy Chairman Mikhail Kopeikin told my colleague Irina Matjushenko about in his interview.
Reported by Irina Matjushenko
CORR: At present, the share of small and medium-sized enterprises (SMEs) in the Russian economy is evidently insufficient. For example, in European countries 60 and even 80 percent of budget revenues might be generated by small and medium-sized enterprises. Tell us why small and medium-sized enterprises are so poorly developed in our country?
Mikhail KOPEIKIN, Vnesheconombank Deputy Chairman: The main reason is that our small business is only 22 years old. I’d like to remind you that in 1988 a law on cooperatives was passed, which made it possible for cooperative movement and then small and medium-sized enterprises to develop. Over these 22 years the number of small and medium-sized enterprises as well as individual enterprises amounted to more than 5 million 600 thousand. Thus, their total number increased by more than 40 times. As far as this period is concerned, it’s a pretty good dynamics.
CORR: Vnesheconombank commits money to support small and medium-sized enterprises including monetary funds from the National Wealth Fund. Will you tell us how much money will be provided to small and medium-sized enterprises in 2010?
Mikhail KOPEIKIN: I’d like to start with the year 2009 because in terms of supporting small and medium-sized enterprises it was a critical year and the state committed a significant amount of funds to finance programs of supporting small and medium-sized enterprises. In particular, Vnesheconombank received 30 billion rubles from the National Wealth Fund, and moreover, Vnesheconombank contributed another 10 billion rubles to the Russian Development Bank’s charter capital. 30 billion rubles were also provided to the Russian Development Bank to implement the program of supporting small and medium-sized enterprises. So, 40 billion rubles were committed for supporting small and medium-sized enterprises.
CORR: And if we mean 2010?
Mikhail KOPEIKIN: We plan that only under the program of providing the state’s support for SMEs 55 billion rubles will be committed by the end of 2010. The total amount of funds to be provided to SMEs is scheduled to reach 100 billion rubles by the end of 2010.
CORR: You’ve said 100 billion rubles. Is this a large or a small sum of money on the national scale?
Mikhail KOPEIKIN: Compared with the year before last, or two, three years ago this is a huge sum of money, many times more than in the past. But if we mean support for SMEs in general this is a small sum. By various estimates, it’s about 2-3% of the amount of funds used to finance SMEs. In my opinion, a development institution’s goal is not to take the whole market or a significant part of it but, for example, to encourage those sectors of SMEs, which are not attractive for commercial banks and where risks are high. So, one of the most important lines of activity now is to provide support for SMEs operating in the innovative and high-technology sector.
CORR: Which companies are supposed to receive the said money in the final analysis? You’ve mentioned innovation business. And if we talk in general terms, which SMEs can receive the money in the first place? Are they trade or construction companies?
Mikhail KOPEIKIN: As far as SMEs are concerned, most of the funds are intended for wholesale and retail trade. Over the recent years about 40-42 percent of total credit resources have been committed for this sector. And I’d like to stress that 3.5 million people work in it. The manufacturing sector accounts for about 10 percent of funds. Two million people work in this sector. This is a structure that has remained unchanged for several years and banks lend to it.
CORR: At what interest rate are credits extended to businessmen?
Mikhail KOPEIKIN: I can say that two years ago an interest rate for the end borrower was about 19 percent, last year it was 17 percent and this year the interest rate ranges from 13 to 15 percent for a number of regions but not for individual borrowers and, of course, we are quite aware that SMEs, which start new businesses or implement projects related to innovations, high technologies or to monitoring these projects, run the highest risks. For this reason, we commit a part of funds to finance this sort of projects. We have already prepared several banking products. One of them is called “Innovation and Modernization”. To my mind, it is a very attractive banking product. The product provides for extending credits at an interest rate of 10 percent per annum. I’d like to draw your attention to the fact that there is a high demand for this product because credits are extended for a period of up to 5 years. This is a pretty long period of time, which creates favorable conditions for SMEs to develop successfully in the innovation sector.
CORR: 15 percent - this is a very high interest rate, isn’t it?
Mikhail KOPEIKIN: I think that a rate of 15 percent is pretty high. But I can say that a lot depends not only on Vnesheconombank but also on a specific region, borrower and many other conditions. As far as we are concerned, we firstly recommend the Russian Development Bank to set a minimum margin that is largely linked to monitoring a credit product. On the other hand, we limit regional banks’ margin to about 3-4 percent when we provide credit resources to them to support SMEs financially.
CORR: Business community has its own view on lending. For example, such organizations as Delovaya Rossia or OPORA ROSSII have repeatedly said that commercial banks are reluctant to lend to SMEs and even if they do, they extend credits to SMEs at extortionate interest rates and maybe it makes sense not to commit huge sums of money to fund SMEs but create a mild tax climate by way of reducing tax rates for businessmen?
Mikhail KOPEIKIN: To a large extent, a lot depends on the borrower’s financial standing. You’ve just mentioned the point of view of Delovaya Rossia and OPORA because they promote interests of SMEs. And I can express banks’ viewpoint. Banks would like very much to extend credits to a great number of borrowers on very favorable terms. But they believe that there are no good borrowers. And in many cases it’s not a matter of a bank that sets a margin of 25-30 percent it’s first of all a matter of the borrower’s quality. If it’s not clear if the borrower will return the money or not it will be refused a loan. But if there is a chance that the borrower will fail to repay a credit, a credit might be extended to it at a high interest rate.
CORR: This means that banks believe that risks are very high and credits might not be repaid?
Mikhail KOPEIKIN: Yes, risks are rather high especially in a period of crisis. Moreover, things associated with modernization and for the most part with innovations carry high risks. As I’ve already said, credits are extended for a period of up to 5 years and it’s not always clear what is going to happen to a certain project in 3-4 years and whether products to be manufactured by an innovation company will be in demand in the long run.
CORR: When do you think we’ll have interest rates on credits of 3-4 percent like, for example, in Europe? And what conditions should we create to this end?
Mikhail KOPEIKIN: In my opinion, we’ll be able to extend credits to SMEs at European interest rates when we have the same conditions like in Europe.
CORR: Mikhail Yurjevich, thank you very much for your interview.
Mikhail KOPEIKIN: Thank you.
Magazine DF, July 7 (44),
Objectives set in the programs of support for Vnesheconombank’s innovative projects go in line with the priorities of the government policy
Attention to the activities of Vnesheconombank in investment and innovation policy is well-timed not only because the bank has top rating positions on the market. Today, Vnesheconombank is one of the national development institutions, having received an official acknowledgement a few years ago when pursuant to the Federal Law «On the Bank for Development» it was granted a special status and became the State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’. Programs of support for small and medium-sized enterprises (SMEs) have been carried out for several years through the involvement of the Russian Development Bank (RDB), a subsidiary of Vnesheconombank. Recently, the Bank’s new programs of support for innovative projects have come to light. In addition, the announcement has been made about a new innovation and high-tech department that will operate within Vnesheconombank. The DF editors asked Mikhail Kopeikin, the Management Board Member and Vnesheconombank’s Deputy Chairman, to make a comment on the Bank’s innovation policies.
- Due to its program aimed at supporting small and medium-sized enterprises, Vnesheconombank has actually confirmed its status as a bank for development. VEB is viewed now not only as an institution involved in large-scale investment projects, interstate economic agreements but also as a crisis-management instrument for supporting the domestic economy as a whole including small and medium-sized enterprises. Are you ready to sum up the results of the activity in supporting SMEs for 2009 and specify plans for 2010? What’s the amount of financing already made and scheduled to be made? How many SMEs have received financing through Vnesheconombank’s schemes in cooperation with its subsidiary banks and regional partners?
-We were most active in our traditional work on supporting SMEs through the Russian Development Banks’ partner banks. For a period of one year 91 banks joined our program and as a result agreements were concluded for a total amount of 25.3 billion rubles. Up until now, SMEs have obtained 3 278 credits through banks.
The Russian Development Bank’s new line of activity aimed at supporting SMEs through infrastructure organizations yielded good results: 66 infrastructure organizations have become our partners and the value of agreements made is 8.7 billion rubles. Due to our active joint efforts infrastructure organizations entered into 1 390 agreements with SMEs.
Taking into account the objectives of promoting the development of the innovation sector set by the Russian Government, the Program of providing financial support for SMEs is scheduled to be increased to 100 billion rubles and instruments for providing financial support are also scheduled to be upgraded to transfer the Russian economy to the innovation and modernization path of development.
-As it became known, in its new strategy for 2010-2014 Vnesheconombank is to fundamentally change its attitude to modernization and innovation-oriented projects. Special emphasis is to be placed not only on projects linked to modernization of production facilities and import substitution but also on those, which are directly related to innovations. Do you also mean SMEs operating in the innovation sector? How is VEB going to draw up schemes of financing the said projects – would you like to use the existing channels by working with your subsidiary banks and regional partner-banks or would you like to devise a new scheme?
-This year Vnesheconombank’s subsidiary bank – the Russian Development Bank launched a Program “Financing for Innovations and Modernization”. Under this program, financing will be provided for both innovation projects (projects related to commercialization of SMEs’ own developments) and modernization projects (those providing for upgrading and renewing machinery, equipment and technological processes).
The Program is to be implemented by way of a two-tier scheme – through a network of the Russian Development Bank’s partner-banks. The information about the Program was communicated to all 97 partner-banks. At the moment, we are examining partner-banks’ proposals for implementing concrete projects.
As of today, we have received replies from 40% of banks and only 46% of banks that replied said that they were considering appropriate projects or that they were ready to submit them in the near future. Most of the projects submitted (all in all we received 71 project applications) are modernization projects, for which partner-banks would like to receive preferential terms of refinancing. Only 8 projects were innovation-oriented ones, that is, in line with the selection criteria. This fact reveals a serious problem Russian commercial banks are faced with: so far, they don’t have sufficient customer and credit technologies to finance innovation projects.
-What are the main objectives of the Program “Financing for Innovations and Modernization”? What terms of financing innovation projects do you mean?
-The Program “Financing for Innovations and Modernization” focuses on supporting small and medium-sized enterprises whose activities are in sync with top-priority development lines of science, technologies and machinery or top-priority lines of economic modernization.
In order to avoid financing perpetuum mobiles and various idealistic schemes we should select projects, which are at least moving from a startup stage to an expansion and growth stage. A criterion for innovation here is taken to be the availability of applicable patents, test data proving economic feasibility, ecological properties, energy efficiency and safety of technologies and products.
A two-tier financing scheme provides for funds to be made available to SMEs through partner-banks, which receive financial resources from the Russian Development Bank at an interest rate which is equivalent to ѕ of the Russian Central Bank’s refinancing rate (now it’s a bit less than 6% per annum) for a period of up to seven years. And pilot innovation projects could even be financed at an interest rate, which is equivalent to Ѕ of a refinancing rate.
Financial ratios of a project are as follows: the Russian Development Bank fully refinances a partner-bank’s credit to an SME provided that co-financing of the project through using the SME’s own funds should be no less than 15% thus being a guarantee that the borrower is serious in its intentions.
And in this situation, the Russian Development Bank works for the future: Russian banks, which are accustomed to taking real estate as security will gradually get used to working with more complex security for loans, for example, such as intellectual property.
Bank lending is of great importance for SMEs because it enables them to market their products faster, and given a significantly reduced new products development cycle in the world, it might prove to be critically important not only for identifying priorities but also for ensuring an enterprise’s survival.
-Another initiative by the Russian Development Bank is to set up a Fund of Direct Investments, which would enable the Bank to be directly involved in SMEs’ projects in the innovation sector thus minimizing risks and making these projects more attractive for investors. What resources are you going to raise for this Fund and how do you plan to operate this Fund?
-The Russian Development Bank’s strategy provided for establishing the said Fund of Direct Investments in order to provide non-credit support for innovation SMEs. This Fund’s competitive edge is in its close contacts with the Russian Development Bank’s partner banks in search for and monitoring investment projects. The Fund will be responsible for making long-term investments in innovation and modernization projects for a period of 5-7 years and as part of its current business among other things it will be also responsible for forming tier 2 capital. Under the existing terms, a partner-bank is to provide debt financing to the Fund’s customer throughout a period of investments (until the Fund exits from the capital of an innovation SME) in the amount of up to 60%of a project’s value. Financial ratios of a project also include the Fund’s investments in the amount of up to 25% of a project’s value. The amount of funds to be invested by a project’s initiator should be no less than 15%. The Russian Development Bank may consider participating in the capital and at the same time providing a partner-bank with financial resources to extend a long-term credit to an innovation SME.
The Fund’s size is scheduled to amount to 600 million rubles including 260 million to be invested by the Russian Development Bank. Organizational arrangements are to be completed and the Fund is to be launched till the end of 2010.
-What innovation fields does the Russian Development Bank regard as the most important ones? What requirements for projects does the Bank make when applying a credit financing scheme and upon financing through the Fund of Direct Investments?
-At the current stage of the Program’s implementation we are not planning to impose any strict sectoral restrictions. The main criterion for classifying a project as innovative is, as I’ve said before, the fact that an enterprise has applicable patents on the basis of which a batch production is planned to be launched. As far as modernization projects are concerned, top priority is to be given to projects designed to bring technological processes and equipment in line with the world’s standards and quality indexes for example ISO and GMP (Good Manufacturing Practice) standards.
Lending is designed to finance the set-up of batch production, purchase of new equipment, technologies as well as certification of products to bring them in line with the said standards.
A preferable stage of a project’s implementation is its transfer from a startup stage to an expansion and growth stage. An average amount of financing a project is 70-100 million rubles, given that the project’s initiator should invest no less than 15% of the project’s total value using its own funds.
As of today, the Russian Development Bank got down to implementing the first pilot projects of a number of mid-sized regional banks’ innovation and modernization customers in Voronezh, Chuvashia, Yakutia, Togliatti, Bashkortostan and Tatarstan. At present three first projects have approved for financing and another 16 projects are under consideration.
-What interest rate can we expect for final borrowers?
-We expect an interest rate for final borrowers to be no higher than 10% per annum in rubles. But to achieve this goal we have to resolve an issue of funding transactions within the Program. The Program “Financing for Innovations and Modernization” creates favorable conditions for improving quality of labor and productivity in the real SME sector. Thus, SMEs start to compete against foreign producers – importers. In order to encourage projects the Russian Development Bank should provide credit resources at minimum interest rates because innovation projects are very sensitive to the cost of funding.
-It’s also known that in its activity to support the innovation sector Vnesheconombank cooperates with other development institutions both financial and industrial ones. They include Rosnano, the Russian Venture Company, the Fund to Support Small Enterprises in the Scientific and Technological Sphere, the Federal Agency for the Youth Affairs, the Moscow Interbank Currency Exchange and OPORA Rossii – they are all in one form or the other involved in supporting small and medium-sized enterprises in the innovation sector. What is the agreement they signed aimed at? What objectives are they supposed to achieve at their working group’s meetings, the first of which was held this May?
-The agreement signed aims to set up an organizational mechanism that would make it possible to promptly exchange information on the projects being implemented and chose a support instrument for each project that is best suited for a given stage of an innovation company’s development.
This sort of cooperation is underway now – many parties to the agreement cooperate with each other on a bilateral basis. The agreement would enable us to systematize this work, establish optimal procedures for cooperation and develop unified approaches to selecting, examining and structuring innovation projects.
The working group was formed from representatives of the parties to the agreement to promptly coordinate the parties’ efforts. The working group’s first meeting discussed issues of ensuring a prompt exchange of information between the organizations, which are parties to the agreement. The meeting’s participants reached an understanding on making a list of pilot projects that would be supported financially as part of implementing the agreement.
We plan to hold the working group’s meetings on a monthly basis. We are going to discuss issues of “transferring” specific projects from one development institution to the other, given the available support instruments, and we are also going to discuss issues of joint participation in implementing projects.