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.