Evgeniya Pismennaya
Vedomosti
03.06.2010, 100 (2618)

“We can’t satisfy everybody”, - Vladimir Dmitriev, Chairman of Bank for Development and Foreign Economic Affairs (Vnesheconombank)

How did Vnesheconombank change after the crisis? Why did the Bank buy UC Rusal’s shares? Is it going to retain its status as a state corporation? Vnesheconombank Chairman Vladimir Dmitriev told Vedomosti about all this.

In May, Vnesheconombank marked a university: three years ago the Law on the Bank for Development was passed. Under this Law the successor of Vnesheconombank of the USSR was transformed into a state corporation. At the beginning of his interview to Vedomosti Vladimir Dmitriev mentioned the recent anniversary. The truth is that according to him they didn’t hold any special celebrations: “Our life is so dynamic that we start forgetting about celebrations. There are so many problems and new tasks… So, we marked the anniversary in a simple, family manner without any pathos”.

-The crisis made your life very dynamic. But now the Bank appears to be waiting for a reverse reincarnation from a rescue bank into a bank for development. These changes are sure to require you to work out a new strategy?

-Indeed, the crisis pressure is falling, VEB is becoming less relevant as a crisis management instrument and we are just implementing the measures which were taken earlier. We keep on working with our borrowers US Rusal, ECO Telecom and Gazprom Neft as part of refinancing their foreign debts. Subordinated loans in the total amount of 404 billion rubles were extended by VEB to 17 banks and the Mortgage Housing Lending Agency for a period of up to 2019 and 2020. We continue to participate in the program for extending state guarantees to banks for credits to top-priority enterprises. Their amount has increased from 100 billion to 175 billion rubles. We also carry on increasing the capitalization of Globex Bank and Svyaz-Bank which we have already put on a break-even level of development. We still act as the creditor of subordinated loans and the participant in the mortgage lending program of the Housing Lending Agency. But you are right; we have been thinking about adjusting our activity and have started preparing a new strategy of our corporation.

-Are you going to include crisis management functions in the new strategy?

-Of course, we’ll include some crisis management functions. But this is not the most important thing. The crisis put many programs of our potential borrowers in jeopardy. The Investment Fund’s financing amounts are falling including for the projects we are supposed to co-finance. So, we are going to reconsider our previous priorities and determine new ones.

-New priorities, you mean innovations? Last week you told the President about them.

-Our current strategy expires in 2012 and we want our new strategy to be used until 2014. And we’ll place special emphasis in our new strategy on modernization and innovations. We’ll change strategic indicators of performance. We are going to reduce the number of indicators and introduce two new indicators – an amount of funds to support the national economy and a share of innovation projects in our Bank’s loan portfolio.

Moreover, during the crisis we acquired many subsidiary banks and not only Globex Bank and Svyaz-Bank but also VEB Engineering, VEB Capital and Prominvestbank. Our special department, which is called the Department of Subsidiary Banks, is responsible for monitoring if our six subsidiary banks fulfill their plans and comply with the strategy of development.

VEB has acquired a new function – engineering. Jointly with the Canadian engineering company, SNC-Lavalin, we set up a joint company VEB-Engineering, in which we own a 51% stake. Our business has expanded and at the same time the Bank’s objectives have become more complicated. We are going to be responsible for monitoring investment projects, and we are also going to upgrade monitoring for the proper use of funds and technological compliance.

VEB’s new strategy is to outline the state corporation’s completely new level of strategic development in the former Soviet republics with due regard to the fact that we are in control of system-forming banks of Belarus and Ukraine. We have to rethink our role in terms of integration processes. VEB establishes interstate relations in the SCO zone.

-The crisis hardened VEB. The talk is that in the most difficult crisis periods your employees spent sleepless nights dealing with credits. But you benefited from this challenge. You are emerging stronger, more powerful and richer from the crisis.

-You are quite right; we are emerging a lot stronger from the crisis. When the Bank for Development was established in June of 2007 its charter capital was 180 billion rubles. Since then the bank’s charter capital has been replenished by the Government five times and now it is 383.5 billion rubles. According to preliminary estimates net profit amounted to 31 billion rubles for the last year, more than thrice the figure for 2008. And for the first quarter of the current year our net profit was 23.1 billion rubles - 20 times higher from the same period of 2009.

Of course, when our Bank was being established we didn’t think that we would be responsible for implementing crisis management measures and at that time nobody knew that a crisis of such magnitude would break out. But during the crisis life showed that if there had been no VEB it should have been set up.

-VEB was the Government’s fast response instrument.

-We proved to be in demand but the most important thing is that we became a credible bank. We were in demand and we were up to the task set before us. Fortunately, our Bank’s employees confirmed their professionalism.

- Have you increased your staff?

-No, we haven’t. In 2008, our Supervisory Board decided against increasing the number of employees. For the most part we addressed our human resources problems through regrouping our personnel inside the corporation. Only now we say that we have to hire people for working in our new lines of activity. For example, we have set up a new innovation and high-technology department.

-Did you find it hard to say no to wealthy and well-known businessmen who formed queues for your credits during the crisis?

-In this sense, my task was made easier. Everything is to be in line with Federal Law № 173 “On Additional Measures for Supporting the Financial System of the Russian Federation”, the Law “On the Bank for Development” and the Memorandum. It’s very easy to say no referring to these documents. Moreover, all the decisions on crisis management measures were taken collegially by employees of line ministries and departments, commercial banks, independent experts, professional auditors. Only after such a thorough examination, decisions were submitted to consideration by the Supervisory Board.

-And those whose applications were not accepted talked about injustice. Some developers complained that PIK was authorized for credits and they were not. A huge credit was extended to US Rusal despite the fact that it was registered in the offshore zone and other companies’ applications were not accepted because of their foreign jurisdiction.

-We can’t satisfy everybody. And it’s no big deal that those who failed to obtain credits got hurt. All decisions were based on clear-cut criteria approved by the Supervisory Board: a threat of losing an asset, damage to regional economies. This list of criteria is sacred for us.

-VEB has an established reputation of the Government’s purse. Bureaucrats told you what projects you should finance and they don’t care if you want to fund them or not. It’s worth mentioning the way you opposed a forced offer to buy out AvtoVAZ’s convertible bonds worth 40 billion rubles.

-Unfortunately, we receive this kind of offers. I must admit that it’s very tempting to regard VEB as a sort of quasibudget. But it is quite safe to say that this sort of offers tend not to be submitted to consideration by the Supervisory Board. Any participation in capital whether it be a direct participation or a debt equity swap is an issue within the Supervisory Board’s competence. All proposals are subject to a thorough expert’s examination as early as at a discussion stage. The Supervisory Board just can’t approve doubtful projects because its members realize that any diversion of VEB’s resources to finance such transactions would impede the Bank’s capability to finance its core activity.

-And what about the case with the United Aviation Corporation when VEB bought out an additional share issue worth 21 billion rubles? Isn’t it an example when VEB acted as a quasibudget?

-No, it isn’t. It was a direct budgetary support and VEB acted as an intermediary. The Government was looking for ways to settle debts and decided that an additional capitalization of the company would benefit it. So, our capital was increased by 21 billion rubles and we, in our turn, bought out the United Aviation Corporation’s additional share issue.

-Do you mean that VEB does not fund transactions lobbied by officials and their attempts are nipped in the bud?

-I would say that in any case common sense and economic feasibility gain the upper hand over individuals’ wishes.

-What about capital adequacy ratio in your Bank?

-Everything is O’K here, it’s 20% and the capital adequacy requirement is 10%.

-Now you are active in taking foreign exchange credits. But in the current unstable economic situation it’s quite a risky business. The fact is that you take credits in foreign currency and extend them in rubles and for long periods. How do you insure risks?

-You are quite right; our Bank is an active borrower in terms of club transactions, bilateral credits and syndicated loans. Our foreign exchange credits are in line with foreign currency credits we tend to extend to export-oriented companies. By the way, but to a lesser extent, we hedge our risks by way of making foreign exchange swaps. We are also borrowing actively in rubles. We hope that a new program of ruble borrowings will be approved soon. This program is to be implemented through several bond tranches.

-And what about international placements? We know that you are going to place eurobonds following the Russian Federation. The country floated its bonds pretty well giving you a good benchmark. But judging by the situation in the world market, Russia boarded the last carriage of the departing train while floating its bonds. Sberbank appears to be going to wait for a better situation to float its bonds. And what about you?

-When making a decision to enter the market, an issuer looks at its current condition. If there is no strong need for borrowing an issuer decides whether it’s worth making a borrowing: it makes no sense at all to enter the market with a premium of several hundreds of basis points to the sovereign issue.

-Why did VEB participate in UC Rusal’s IPO in January and became the largest investor in this transaction (it purchased 30% of the shares floated, 3.15% of the company’s shares for 663 million dollars, the second largest purchaser was Libyan Investment Authority, it purchased 1.43% of the shares for 300 million dollars)? Who initiated this decision – VEB itself or was it UC Rusal’s proposal? Why did you buy such a big stake?

For what period was the investment made? Aren’t you afraid that you will have to work with US Rusal for a long time and in a serious way as the company’s shares price fell 1.5 times since the date of floatation?

-In fact, it was the company that offered such a big stake. We regarded this stake as a pretty balanced one. In doesn’t really guarantee our Bank’s representative’s participation in UC Rusal’s governance bodies, but we have a current credit agreement with the company that provides for our Bank’s representative to be included in the company’s Board of Directors

As far as the fall in the shares quoted prices is concerned, after their floatation, we have a sober view of the situation. The fact that the company’s shares got cheaper since the IPO does not mean that our investment in UC Rusal’s shares was a wrong decision. The current situation is linked not with particular shares but with the general situation on the market. The current fluctuations in share prices are not indicative. We view the current and above all mid and long-term situation as being not bad, we see clearly what processes are taking place in the company and that the situation is improving as a whole.

-Last year VEB established a specialized company VEB-Capital to manage its assets. How is this company doing?

-Some time ago we set up a company VEB-Invest to work with the assets we bought out from Globex during its reorganization. VEB owns a 19% stake in this company. The reason for establishing this company was to restructure problem credits in the construction and development sectors. For example, quite a large facility on the territory of the former Slava Watch Factory, the Zolotye Kupola Cottage Township in the Solnechnogorsk district of the Moscow region and several facilities in Novosibirsk. But as VEB went deeper into implementing crisis management measures, we started to receive various pledges and began to buy out significant industrial assets on the REPO terms, for example, Amurmetall, we became aware that we needed a complex asset management system. Moreover, our subsidiary banks (for the most part Svyaz-Bank) had industrial assets besides their construction projects either in the form of pledges or in the form of credits that required great attention and restructuring. Management of these assets is not a core line of activity for banks. VEB is ready to pass over a number of stakes to VEB-Capital.

-What stakes?

-For example, our stake in the Illyushin Finance Corporation. We might hand over not only our stake in this company but also raise the question of consolidating the entire leasing activity. There are also a number of core and non-core assets that should be managed by professionals.

-Who is going to manage them?

-We are going to recruit a team of managers including those from the market. About 100 people will work in the team. The company’s management team has been already put together and main divisions have been formed. There will be a construction division, which will incorporate VEB-Invest. There will be an industrial division too. The latter might be divided into several branches.

-How much is VEB-Capital worth?

-400 million rubles were committed to the company for it to start its activity. We are now completing the valuation of assets to be either purchased or transferred under VEB-Capital’s management. Subject to the Supervisory Board’s decision of March 31, a number of assets worth more than 7 billion rubles are planned to be transferred to VEB-Capital. At present, a legal registration of the transfer of assets is taking place.  These assets include industrial enterprises’ shares, real estate assets and financial instruments. We must admit that so far we don’t even know what we should do with some assets. For example, we should put Tractornye Zavody Concern into normal operational condition. The Concern has huge debts which are to be restructured and its assets should be upgraded. But Tractonye Zavody Concern incorporates hundreds of enterprises and not only in Russia but also in Europe and South-East Asia. We have to valuate all the assets, put them in order and then decide on the date of sale.

-Is VEB-Capital going to sell assets?

-VEB-Capital’s activity is designed to professionally manage these assets, increase their capitalization and dispose of them in the long run.

-This means that they won’t be sold soon.

-No, they won’t, of course. Only in the mid and long-term. Let’s for example look at the project on the territory of the former Slava Watch Factory: first, we have to demolish the existing production facilities under the town planning design, then develop a new project , get it approved by the Moscow government, build new facilities and only after all this sell it favorably.

-Maybe, it’s better to sell the faculty on the Slava territory right away without searching for profits?

-The fact is that we discussed this issue in the context of reorganizing Globex Bank. I’d like to remind you that 212 billion rubles were made available for reorganizing Globex and Svyaz-Bank for the most part, by way of raising deposits of the Central Bank of Russia and we are supposed to return them. We spend more than 10 billion rubles to serve them annually. So, our aim is to increase Globex Bank’s capitalization and sell it a few years from now either to a strategic investor or through IPO disposing of construction assets at the same time. By our estimate this would enable us to return deposits to the Central Bank We have to maximally capitalize the assets, which will be managed or owned by VEB-Capital, in order to close the balance sheet then.

-This means that you are not going to sell Globex now?

-We proceed from the Supervisory Board’s decision to reorganize subsidiary banks and get them to subsequently enter the market. The decision provides for a five-year horizon. Over this period of time we hope to significantly enhance the banks’ capital base. At present, Globex’s capital is 17.5 billion rubles. In the current complicated market situation no mergers, takeovers and to say nothing of acquisitions are taking place.

-You don’t even consider buyers’ proposals?

-No, we don’t. There are no proposals. By the way, I believe that in the current situation any bank would be undervaluated. We can’t apply pre-crisis multipliers to capital now. But we have grounds to believe that the situation would get back or become similar to the pre-crisis one. And then it would be a lot more profitable to sell the commercial banks. And now we are going to simply strengthen Globex and build up its branch network, capital and customer base. Our task is to transform it into its former position of a strong player on the market for banking services. It makes no sense to talk of selling Globex without returning the deposits to the Central Bank.

-How are things with Svyaz-Bank, which is to be transformed into a Postal Bank in cooperation with the Post of Russia?

-So far, we are waiting for June 15, when Russkii Standard, UniCredit Bank and Nomos are to submit their revised business plans in which they are to determine the format and scope of their participation in the project. They were selected among five participants. I should say that there were no ideal proposals.

-The word is that the two participants, UniCredit and Nomos with HKF Bank have already fallen out of the race. And the reason for this is their foreign roots. They say that such a strategically important entity as the Post of Russia should not be handed over to foreigners. Is this really true?

-No, it isn’t. Although I don’t rule out that their foreign roots are taken into consideration. But on the other hand, no Russian banks are experienced in establishing a postal bank. I’m sure that a favorite will not be chosen until July. A great amount of work is being done on this issue, a special working group has been set up, and we have meetings with the banks on a constant basis.

-Has the concept of establishing a postal bank changed during this period of time?

-The concept has remained unchanged. The Post of Russia is to become a shareholder of a Postal Bank. But the Federal State Unitary Enterprise (the Post of Russia) should either become a joint stock company or be granted the right to participate in the capital of other organizations. 40,000 thousand post offices make it possible to increase the amount banking services and earnings. To this end, we should differentiate the product line depending on the format of post office and in a number of cases we should involve personnel of post offices in selling banking services on commercial terms. We have to perform a great deal of technological work and create an advanced IT-platform and ensure maximum IT monitoring of banking services.

-How did you benefit from participating in the capital of Prominvestbank and Belvnesheconombank?

-Systematically speaking, both banks are pivotal for the banking systems of their countries. Both Belvnesheconombank and Prominvestbank are among six largest banks in their countries in terms of basic indicators. But as opposed to Belvnehseconombank, Prominvestbank was hit harder by the crisis. In summer and autumn of 2008, the bank was subjected to a serious raider attack in Ukraine. It can be said that Russia’s intervention rescued not only Prominvestbank itself but to a great extent ensured the stability of Ukraine’s banking system.

-I wonder why you decided to buy Prominvestbank. Did Ukrainians ask you or did the Supervisory Board make a decision to buy the bank on its own?

-I won’t give you any surnames. Our colleagues from Prominvestbank made a proposal to us. We found this proposal pretty attractive. In order to purchase a stake in Prominvestbank and to subsequently reorganize it we spent 750 million dollars last year. The bank’s solvency was restored, since the middle of 2009; the bank has been meeting all the regulations of the Ukraine National Bank. But we purchased Prominvestbank out of pragmatic considerations. Many Russian industrial enterprises have long-time partners in Ukraine and significant commercial interests. And they find it safer to conduct transactions through a bank with Russian participation. In order to enhance Prominvestbank’s positions we extended a credit worth 1 billion dollars to it. Today, the bank is the sixth largest bank in terms of capital size and in terms of assets amount among Ukrainian banks.

-Now, Russia and Ukraine are going through a period of political revival. Does it mean that VEB will step up its activity in Ukraine?

-There is no doubt about it. We have been given a clear political vector and we view it as a guide for action. Of course, we are happy that Ukraine’s leaders have in fact radically changed their attitude to Russia, Russian-Ukrainian relations, Russia’s business participation in the investment activity in Ukraine. Compared with the attitudes of the country’s former leaders it’s a day and night difference.  The situation has changed dramatically and the role of banks has increased.

-Ukraine’s former leaders appear to have viewed VEB as a double agent and the current leaders – as an instrument for economic development.

-Ukrainian leaders’ attitude to banks and companies with Russian capital is a litmus test for both countries’ intentions to improve relations and encourage mutual investments. By the way, we are now making strenuous efforts to improve Prominvestbank’s technological base. For example, we have introduced a book-entry payment system. In the long run this helps to accomplish a primary objective of moving to payments in national currencies. Some Russian and Ukrainian companies have already moved to offering banking services through Prominvestbank in national currencies – above all in rubles because they are more stable than grivnas. Promnvestank extends guarantees in rubles. As far as Belarus is concerned, VEB has an agreement with the Cabinet of Ministers. The agreement provides for transferring to payments in national currencies. It’s a very important step on the way of establishing an international financial center in Moscow. By creating payment mechanisms in rubles, we are making the ruble more attractive as such and increasing the appeal of Moscow as an international financial center, above all, by way of connecting neighboring countries to it.

-What’s the percentage of payments made in these banks in rubles?

-We have just started making payments in rubles. The amount of such payments is quite limited. To increase the amount of such payments we need to create a significant infrastructure. This is a reason for establishing an interstate bank which could act as a clearing center and service trade between CIS countries in rubles. Belvnesheconombank and Prominvestbank could be driving forces for such a mechanism.

-How do you feel about a possible reduction in the interest rate on subordinated loans? The Government appears to be ready to reduce the rate but we don’t know by how much it wants to reduce the rate.

- I don’t know by how much either. There is an example when the interest on the credit of the Housing Mortgage Agency was reduced – in that case our credit margin was reduced from 1 to 0.25%. How can I feel about it? VEB is a bank responsible for performing state functions and tasks. If the state deems it necessary to reduce interest rates including our credit margin then we should do it. Therefore our income would fall.

-By the way, one option is to reduce VEB’s credit margin from 1 to 0.25%.

-I know. This means that our income would diminish by 3 billion rubles.

-Aren’t you going to struggle for your income?

-One percentage point of income on subordinated loans included risks of that period of time when nobody knew how the economic situation would develop. In particular, we included administrative costs in this percentage point. They were associated with the presence of our employees in boards of directors, the monitoring of appropriate obligations assumed by the banks, including the maintaining of interest rates on credits extended to the real sector of the economy at a level no higher than 3 percentage points to the refinancing rate. Undoubtedly, the situation has changed - credits have become more affordable, banks have high liquidity levels, the Central Bank has reduced the refinancing rate to 8%. To tell you the truth, this is short money, but banks are capable of raising it. I think that it’s quite understandable that banks call for reducing interest rates on subordinated loans, especially with regard to mortgage lending where final borrowers should pay no more that 11%. Of course, we would like VEB’s credit margin to remain unchanged but if the analysis shows that reduced interest rates will help increase the amount of credits in top-priority sectors we would say “Yes”, of course.

-Why haven’t you established an export insurance agency? All the deadlines have already passed. At first, they said that it would be set up at the end of 2009, then in March, April.

- As for this agency, there are two approaches. The first approach is to set up a comprehensive export support system. This means that along with a banking institution there also should be an export credit insurance agency. Basically, these two institutions perform different functions. A bank (Roseximbank in our case) is to become an agent bank responsible for servicing state guarantees used by commercial banks. The agency operates on the insurance market and its activity is based on market laws. The agency is responsible for insuring risks rather than insuring credits. In many countries they have a two-tier export support system. And in our practical activity we are coming up against problems caused by the absence of an export insurance agency. For example, in the well-known Sukhoi Superjet project more than half of components are supplied from abroad and manufactured in joint ventures. The partners in this project are Italian and French companies. We agreed with them to promote the jet on the markets of third countries and it’s not possible to export to third countries without the state’s support. We are told by our Italian and French partners that their export insurance agencies work only with identical institutions responsible for insuring against commercial and political risks. And we don’t have such an institution.  Italian and French institutions signed of course a memorandum of understanding but they continue to insist on the need to work with an export insurance agency rather than VEB or Roseximbank.

-You’ve mentioned the second approach. Can you specify it?

-Yes, of course. It’s very simple. Roseximbank should be tasked with performing the agent’s functions to provide export guarantee support, and nothing more is needed.

-Minister of Economic Development Elvira Nabiullina has said recently that the regulations on the agency have been prepared. This means that she is in favor of the first approach.

-We share her opinion.

-And Prime Minister Vladimir Putin called on taking a decision on the agency as soon as possible.

-It is of primary importance that the Chairman of the Supervisory Board, the Prime Minister is of the opinion that we should set up an integrated system of supporting industrial exports that is comprised of a bank and an export credit insurance agency.

-Does this mean that the Supervisory Board should approve this concept at its next meeting?

-This issue is not to be discussed at the Supervisory Board’s next meeting. But we continue to work with interested ministries to agree upon a common position. And it should be noted that funds for setting up and launching this agency are allowed for in VEB’s budget and agreed upon with the Supervisory Board.

-Subject to the schedule of the Economic Development Ministry, VEB is to change the pattern of ownership. You are to turn into a legal entity of public law. In the past, you were skeptical about such a change. Have you changed your stand now?

-As part of carrying out the government instructions we sent our opinion about turning VEB into a joint stock company. Our stand remains unchanged: if a decision on changing the pattern of ownership is taken we’ll abide by it. And in this case, in addition to changing the form of incorporation we’ll have to make serious transformations. We’ll have to decide what we should do with many of our divisions. If VEB is turned into a joint stock company it will have to meet Central Bank regulations. We depart from certain regulations significantly for example, in case of one–borrower limit regulations. Furthermore, we are also performing crisis management functions and these functions are not typical for commercial banks. For example, we extend subordinated credits for as many as 10 years.  On the basis of figures we can say that the Bank might be turned into a joint stock company but only on certain terms. Our Bank finances long-term projects and thus it’s not worth turning it into a joint stock company in the short term. The APEC summit is to be held in 2012 and the Olympic projects will take more years to implement. VEB also performs some agent’s functions for example it acts as a state trust management company responsible for managing pension funds, it is also responsible for managing domestic and foreign government debts. Under the Government’s resolutions these functions are to be transferred in 2014 and 2015 respectively. So, we have to decide as to whom we should transfer these functions as well as change regulations and set up new institutions. So, the issue of reorganizing VEB is not as simple as it may seem. For example, the China State Development Bank was transformed into a joint stock company some time ago. It functioned as a sort of special institution for several years and now it has been operating for two years as a joint stock company with 100% state participation.

-So, you need 1 trillion in your charter capital?

- Yes, something close to this figure.

- Now that the Government is tackling the budget deficit it’s not in a position to provide such a huge sum of money. But if you received the money how long would it take you to make transformations?

- It would take a year to make transformations given that some of VEB’s functions were transferred to other institutions. But there is another scenario. The Ministry of Economic Development says that VEB and the Deposit Insurance Agency are special institutions, which might be transformed into legal entities of public law. This scenario requires changes in applicable legislation.

-This means you’ve got a chance to remain a state corporation?

-In any case as long as they determine what a legal entity of public law is.

-At its last meeting the Supervisory Board approved a new remuneration system and bonuses for VEB’s employees. Will you tell us about it?

-The new system provides for a fixed and bonus part of salary. The first depends on the position grading and on the place of an employee’s position in the hierarchy of positions. Basic salary will be positioned at a level of the reference labor market median. The second part is an annual bonus. Its size depends on key performance indicators. An annual bonus will be positioned at a lower level of annual bonus offered by commercial banks.

-JSFC  Sistema signed an agreement on selling 25% plus 1 share of Svyazinvest to Rostelecom. Earlier, VEB was expected to buy this stake. Why didn’t it happen? Is VEB interested in purchasing Svyazinvest’s blocking stake?

-Thank goodness that it didn’t happen.  If it had we would have spent 26 billion rubles for a non-core activity.

-In 2008, VEB opened a credit line for the Zelinograd microelectronics manufacturer Angstrem-T for an amount of 815 million euros out of which the company made use of 292 million euros. Then the crisis broke out and Angstrem-T failed to service the credit. As a result VEB started to explore the possibility of taking over ownership of Angstrem-T’s shares (pledged against the credit). How would you describe the situation?

-We’ll take over ownership of the shares. We have appropriate meetings with the Government where a decision was made that VEB would become a shareholder to salvage and consolidate the project. Factually, VEB will be an owner of the project. The project is emblematic and ambitious. It was delayed because of the crisis. Now we are in active talks with Angstrem-T but it’s hard to say when the issue would be settled.

-Svyazinvest and VEB, the two largest co-owners of Rostelecom, are in talks on signing a shareholder agreement under which Svyazinvest would buy out VEB’s stake (9.8%) at a price of no lower than 230 rubles per share and in its turn VEB would vote on key issues in consolidation with Svyazinvest. Have you reached an understanding? If you have then at what price and when will VEB’s stake in Rostelecom be bought out? And on what issues did VEB and Svyazinvest agree to vote in consolidation?

-So far, we haven’t reached such an agreement. But do not forget that the Law provides for VEB to operate on a break-even basis. So, the shares we bought for 230 rubles per share should be sold so that the transaction is break even.

-Why do almost all pension funds remain in government bonds after the pension investment declaration was expanded half a year ago?

-The proportion of government bonds in our expanded portfolio as you can see it in our quarterly financial statements fell from more than 90 to 61%. As far as corporate and mortgage-backed bonds are concerned, we have our own strategy with regard to them and we don’t hurry to invest all funds right away, we try to take substantiated balanced investment decisions. Moreover, we have investment obligations under the program approved by the Supervisory Board which provides for investing Vnesheconombank’s funds in the mortgage lending projects and projects aimed at building affordable housing  in 2010-2012and this is 160 billion rubles. Moreover, in this half a year we participated in almost all issuers’ IPOs that were in line with the investment declaration requirements and our risk management system and such IPOs were not numerous. I hope that in the second half of the year the number and the amount of IPOs will increase significantly and we’ll be able to increase the proportion of new instruments ensuring decent yield rates upon investing citizens’ pension savings funds.