Vnesheconombank Deputy Chairman Anatoly Tikhonov’s Interview to Rossiiskaya Gazeta
Federal issue № 4858
February 27, 2009
Vnesheconombank is now tasked both with financing sports facilities and exercising control over their construction
State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’has assumed new functions. It will be responsible not only for financing Olympic facilities but also for inspecting work progress at construction sites.
VEB’s Management Board Member, Vnesheconombank First Deputy Chairman Anatoly Tikhonov told Rossiiskaya Gazeta about why this decision was taken and what was going to happen to the Bank’s other projects.
Rossiiskaya Gazeta: New functions with regard to the Olympics have been transferred to VEB quite recently. Earlier, expenses on the 2014 Olympics were supposed to be divided equally between the state and business. Is now the state going to incur all expenses?
Anatoly Tikhonov: In fact, the state’s role in the Olympic construction is on the rise. But the private public partnership scheme is still in place. So, Vnesheconombank is not supposed to replace private investors, it is becoming their investor. As a result of the world financial crisis, many investors came up against objective difficulties. As early as a year ago, all Olympic projects were seen optimistically and many banks were happy to lend companies. But today these projects do not look as attractive as they did before and, above all, because of long payback periods. That was the reason why a decision was made to include Vnesheconombank into the Olympic scheme.
But our participation is provided for by certain terms and conditions. First, the Bank is to extend credits (from its own and raised funds) only for projects of national significance. We are not to finance commercial-only projects – building of entertainment or shopping malls and hotels. Second, we have to observe the following proportion: 70 percent of Vnesheconombank’s borrowed funds, 30 percent of investors’ funds. And finally, VEB will control not only financial flows but also physical construction volumes. We should be well aware that earmarked money would make it possible to meet deadlines set by the Olympic calendar and won’t, figuratively speaking, go down the drain. Basically, we are going to perform functions that used to be performed in the Soviet times by Promstroibank. In the history of modern Russia this is the first case when financing and inspection functions are performed by one and the same institution.
Rossiiskaya Gazeta: Have you already determined the amount of your “Olympic portfolio” and loan rate?
Tikhonov: This year, financing amount for Olympic facilities is expected to be 29 billion rubles. For the most part this is transport, power engineering infrastructure, sports facilities, for example such facilities as the Roza Khutor Alpine Ski Complex, a port in Imeretin, the Sochi airport. As far as a loan rate is concerned, in each case it will be set on an individual basis with due regard to specifics and significance of a project. Our principle is that a project should be beak-even and the Bank’s operational margin will be minimal.
Rossiiskaya Gazeta: It was not only investors who came up against problems. What’s the future of the Investment Fund’s projects in which VEB participates, did some investors refuse to participate in them?
Tikhonov: We haven’t had such precedents so far and we hope we won’t have them. Nevertheless, in some cases the situation forces us to reschedule dates of projects implementation. For example, the program of the Lower Angara Area Development provides for the construction of an aluminium factory. But aluminium prices fell and it makes no sense to speed up the construction of the factory. A decision was made to move its commissioning dates from 2010 to 2012 although its construction is not to be frozen. The Orlov tunnel in Saint Petersburg is also to be commissioned later than planned; this tunnel is to be built on concession principles. The project’s financing is to begin in 2011 rather than in 2009.
At the end of the last year, we inventoried 21 projects of the Investment Fund, which had already been approved by the Government. We don’t have any doubts about 15 projects. They are sure to be implemented in 2009. They will carry on implementing projects where construction work has already begun and investors have confirmed their obligations. These are, above all, infrastructure projects that besides purely economic objectives also address employment problems. For example, the implementation of the selected projects will make it possible to create up to 20 thousand jobs for a period of construction. And ten out of these projects will be implemented in the regions where the situation on the labor market has already deteriorated.
All this does not mean that other projects won’t be implemented. They are very important and work on them is in progress. But the current situation makes us reconsider their formats. We have to reconfigure each of these projects, reschedule their construction and commissioning date in order to leave financial burden till later without sacrificing the main objective.
Rossiiskaya Gazeta: Has the crisis changed principles VEB adheres to in working with the Investment Fund
Tikhonov: Up until now Vnesheconombank has participated in some of the Investment Fund’s projects as an investor and consultant. Lately a decision has been made that in order to support business within the Investment Fund, we can also use a scheme similar to the Olympic one, under which Vnesheconombank lends investors. But in this case, a total amount of funds of the Bank and the Investment Fund should not exceed 75 percent. I think this is a reasonable limitation. Otherwise we’ll have “public-public” partnership rather than private-public partnership.
I’d like to remind you that at the end of the last year Vnesheconombank was appointed as a consultant to the Government on the Investment Fund’s projects. We are responsible for examining and monitoring how investors fulfill their obligations. Besides, a decision was made that all investors should open their accounts intended for financing projects with Vnesheconombank. On the basis of data on cash flow in investors’ settlement accounts we’ll be responsible for monitoring the spending of money and submit financial statements to the Ministry of Regional Development. This decision, by the way, is not related to the crisis, it was made to secure transparent relations between the state and business.
Rosiiskaya Gazeta: Has the crisis had a considerable impact on Vnesheconombank’s loan portfolio?
Tikhonov: Our loan portfolio was planned to amount to 270 billion rubles by the beginning of 2009. The crisis made it more difficult for us to operate but now we are close to this amount. More than 70% of our loan portfolio accounts for mid and long-term credits and most of them are intended for the development of innovations and infrastructure. Unfortunately, we had to leave some projects till better times but at the same we made a decision to expand some programs and introduce new lines of activity.
Our brand new line of activity is to provide support for agriculture. At the moment, we are considering projects worth more than 100 billion rubles and the amount needed to finance them in the year 2009 is 60 billion rubles. We have already started to finance some of them and we are going to start financing other projects in the near future. These projects are based on advanced technologies with long payback periods. They provide for creating a single processing flow from manufacturing products to their final processing.
Rossiiskaya Gazeta: Traditionally, Vnesheconombank cooperates with foreign banks. Has the crisis closed this niche?
Tikhonov: Even today we maintain partner relations with foreign financial institutions. At the end of the last year we entered into an agreement with a number of leading international banks on raising a syndicated loan of 335 million euros. Japanese banks expressed their readiness to lend the construction of mineral fertilizers manufacturing complex in Tatarstan worth 800 million dollars. We have also signed an agreement with the China State Development Bank and the German Bank KfW. This sort of cooperation allows us to raise not only money but also receive new technologies and equipment, which have no analogs in Russia.
We are also starting to work with international financial institutions including a group from the World Bank. We hope that they will help us to raise “long” money for regions to finance water supple, energy efficiency, ecology and waste recycling projects.
Rosiiskaya Gazeta: An economic forum opens today in Krasnoyarsk. Its participant will, among other things, will look for an answer to the following question: who and how are we supposed to rescue with the help of the state’s money. How would you answer this question?
Tikhonov: We should stake on promoting new projects and new sectors and on highly efficient companies. It’s very important today that anti-crisis measures should not hinder development. The Bank should not finance “catching up” projects. We’ll give top priority to unique, niche projects that would allow us to make a real breakthrough. And we can find them in virtually all economic sectors.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to Russian Information Channel Vesti
The Vesti TV Channel, INTERVIEW, 29.12.2008
Host - Ekaterina Grinchevskaya
HOST: Despite a complicated economic situation, the amount of support for small and medium-sized business in the current year will exceed the planned 9 billion rubles. Next year, this sector won’t be left without support either. Vnesheconombank Chairman Vladimir Dmitriev told about this and many other things in his interview to our television channel.
Correspondent - Evelina Zakamskaya
CORR: Vladimir Alexandrovich, good afternoon. Thank you very much for finding time for us. Over the last months, Vnesheconombank has had to make strenuous efforts to stabilize the financial system but basically Vnesheconombank is a development institution responsible for major investment projects. Please tell us how you manage to perform all these functions and how would you assess the outgoing year?
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Of course, in the outgoing 2008, we had more positive things and the main positive thing is that in the current year our Bank as the Bank for Development and the largest financial institution owned by the state started to operate in a format set forth by the Law on the Bank for Development and the Memorandum on our Financial Policies. The Supervisory Board of our Bank did a lot to consider and make specific decisions on major investment projects and our Bank started to finance a number of them this year.
CORR: What projects do you mean?
Vladimir DMITRIEV: These are important infrastructural projects in line with Vnesheconombank’s core activity as a development institution including those in communal and housing services infrastructure. Suffice it to say about a project to fundamentally modernize the water supply and drainage systems and to construct sewage treatment facilities in the Rostov region. The project would make it possible to provide housing to 150 thousand people through building new housing. As a whole, these are also efforts to modernize sewage treatment facilities, which are now in critical condition in the South of Russia (Novorossiisk, Anapa, Gelendjik). These are also projects in the microelectronics sector.
Of course, I must mention a project worth several hundreds of millions of euros. The project is aimed at building a major production facility outside Moscow in Zelenograd to manufacture microelectronic components with a nanometer resolution of about 10 nanometers. Nowadays, none of Russian companies manufacture components with such resolution and quality characteristics of products to be manufactured are planned to be improved.
This is Sheremetjevo infrastructure, the construction of the third terminal. This is also power engineering. Our Bank participates in InterRAO’s investment projects. InterRao is one of the largest Russian companies operating both in Russia and abroad. This is also export promotion, delivery of aircraft to Cuba. This is the support for prospective exports; the Sukhoi Company and here I mean our cooperation with the Sukhoi Company in manufacturing and further export of Sukhoi-Superjets 100, mid-range passenger aircraft. And a variety of other projects.
All in all, we are involved in projects worth 750 billion rubles.
CORR: What additional powers does Vnesheconombank need today, what should be done to increase Vnesheconombank’s charter capital? This, in my opinion, would make certain funds available and increase your institution’s leverage.
Vladimir DMITRIEV: In fact, we are considering an issue of Vnesheconombank’s additional capitalization with the Ministry of Economic Development, the Finance Ministry and with the RF Government Office. First, a decision was made and implemented on allocating 75 billion rubles to Vnesheconombank this year. The funds are to be used to support financial sustainability including that of Russian commercial banks. A decision was also made to contribute 30 billion rubles to Vnesheconombank’s capital to be used to carry out programs of supporting small and medium-sized business. And we hope we’ll be able to make this happen because there aren’t any technical problems in this respect and this will help us minimize problems emerging in our balance sheet. This situation is associated with the reduction in the Bank’s capital due to conducting transactions in extending subordinated loans, building up reserves under the program of refinancing Russian companies’ and banks’ foreign debts and operations on the stock market. We can minimize the negative impacts of the above said either through delegating some of the functions using a trust management mechanism or through the State’s guarantees mechanism. Now, we are close to adopting an agreed stance that if the Bank’s capital is increased it will be increased by an amount which is needed for implementing projects on which decisions have been already made and which can’t be postponed, as well as on projects that the Bank has started to finance. Given the liquidity crunch both on Russian and foreign borrowing markets, we are not in a position to close this gap using foreign borrowing sources.
CORR: I’d like to get one thing straight. Does Vnesheconombank need a formal decision on increasing its capital?
Vladimir DMITRIEV: Yes, of course, because it is supposed to go through required procedures including budgetary ones.
CORR: Would you tell us in more detail about Vnesheconombank’s support for small and medium-sized business.
Vladimir DMITRIEV: It is safe to say that this year we have implemented projects aimed at supporting small and medium-sized business in the amount far in excess of 9 billion rubles which were made available through the Russian Development Bank.
CORR: In excess of how much?
Vladimir DMITRIEV: By a factor of times. The fact is that by law we are not entitled to work directly with small and medium-sized businesses but it is our aim to create infrastructure to support small and medium-sized business. That is why we are implementing a major infrastructural project using our credit resources – the construction of technopark and business incubator in the Nagatino flood plain.
CORR: What is meant by this infrastructure, what is it comprised of?
Vladimir DMITRIEV: By this infrastructure we mean the said technoparks, business incubators, which provide jobs and, more important, provide the system with support infrastructure. These are buildings, telecommunications and administration facilities, that is, everything that small and medium-sized businessmen need to start operating locally and it is of overriding importance, otherwise we have to turn to leasing or to buyout. Here I mean the so-called one-window system – he comes, he gets registered, he works.
CORR: Is he supposed to get a place of employment?
Vladimir DMITRIEV: He gets a place of employment and he is offered preferential terms with respect to rental payments and a number of other preferences which otherwise would be difficult to find on the market.
CORR: Is the amount of financing these projects going to remain intact next year?
Vladimir DMITRIEV: First, the amount of support provided through the Russian Development Bank and now through a number of Vnesheconombank’s subsidiary banks, which we had to support on the Government’s instructions, is to be increased. Instead of 9 billion rubles we hope to spend 30 billion rubles due to an increase in our charter capital. But it is safe to say that this amount is going to be much greater as it is this year.
CORR: What sectors is Vnesheconombank giving top priority to? To my best knowledge, Vnesheconombank is getting an opportunity to finance agro-industrial complex, to be more exact, agro-industrial complex is getting an opportunity to obtain credits from Vnesheconombank.
Vladimir DMITRIEV: You are absolutely right. And I’d like to add that agro-industrial complex has become a sort of testing ground that the Government is using to test joint actions taken by state-owned and commercial banks. As early as a month ago, a program was adopted (we met with first vice premier Victor Zubkov, held meetings with agroindustrialists, representatives of the agroindustrial complex association), we agreed upon measures for supporting agroindustrial complex through the banking system for the next year in the amount of about 800 billion rubles. The participants here are Rosselkhozbank, Bank VTB, Sberbank, Gazprombank, MDM and, of course, Vnesheconombank. Moreover, at the end of the current year the Government passed a resolution to introduce changes to our financial declaration or the memorandum on our financial policies. Agroindustrial complex is now included in our sectoral priorities.
CORR: This is happening at a time that regional banks are scaling down their credit lines in agroindustrial complex. Does this mean that working directly with major institutions agrarians will be able to obtain credits at lower loan rates?
Vladimir DMITRIEV: We lend not only the agricultural but also the real sector of the economy as a whole at rates, which are in line with our credit policy and this policy specifies that Vnesheconombank is not an institution designed to generate profits. We operate at a small margin of profit, which makes it possible to cover our administrative costs, taking into account, of course, borrower risk. But as a whole, Vnesheconombank’s loan rates are lower than commercial ones and here you shouldn’t overlook the fact that by law Vnesheconombank is exempt from profit tax.
CORR: Vladimir Alexandrovich, let’s talk about the now so-called system-forming enterprises. Under the Government’s resolution 1.5 thousand enterprises are planned to be supported, so far 500 enterprises. What role is Vnesheconombank going to play to provide support to these enterprises?
Vladimir DMITRIEV: We are directly participating in the program of supporting system-forming enterprises, the more so; we have already established strong ties with many of them. They are our borrowers and they implement their investment projects through us. And senior executives of three major state banks, namely, Sberban, Bank VTB and Vnesheconombank are incorporated into the commission headed by Ivan Shuvalov. It is within the framework of this commission that we are working out measures for supporting system-forming enterprises. Undoubtedly, our mission should be limited (and we have agreed upon this approach) to those enterprises and projects, which are in line with activities provided for by Vnesheconombank’s charter. These are investment projects whose termination or freeze could have negative impacts on both enterprises and industries in terms of macroeconomic effect. By the way, other state banks, for example, Gazprombank and a number of commercial banks are also involved in implementing measures for supporting system-forming enterprises because all these enterprises are as a rule customers of major commercial and also state banks and maybe, above all, of state banks. We are operating on the basis of consolidated approach, that is, everyone identifies his own specific niche agreed upon with all others. If there is a need for helping hand other banks are ready to do it. But I can tell you confidently that we are in a good and creative mood. We work with the Ministry of Economic Development and they are our good partners.
CORR: And what niche does Vnesheconombank prefer?
Vladimir DMITRIEV: As a matter of fact, we don’t have any preferences here with the exception of those set forth by law and the memorandum on our financial policies.
CORR: Do you have any plans to support the domestic infrastructure with pension funds?
Vladimir DMITRIEV: Now a bill has been introduced into the State Duma supplementing our financial declaration and expanding the101st law on the state trust management company. In accordance with these amendments we’ll be able to invest funds in sub-federal bonds, corporate and mortgage securities without the state’s guarantees. That is why if the state supports bonds issued to finance specific projects including infrastructural ones, it would make it possible for a state trust management company and Vnesheconombank is such a company to move these funds back into the economy as agreed upon with the Government.
CORR: And to what extent is a conservative policy of managing pension funds justifiable? Tell us about the results of the year and pension funds’ rate of return?
Vladimir DMITRIEV: Fortunately, these year’s results show that we happened to be among few trust management companies out of 60 ones responsible for managing the funded portion of pensions which ended 9 months or 3-d quarter of this year with positive results. Our rate of margin is rather small but I’d like to stress it once more that given the fact that our rate of return is about 2 percent, most trust management companies showed negative results. In such crisis periods, that is, periods of sharp fluctuations in stock market quotations, a conservative approach justifies itself.
CORR: Vnesheconombank intends to continue its policy of supporting the stock market, to what extent is this policy appropriate and don’t you think that it might be better for the stock market to hit the bottom?
Vladimir DMITRIEV: In fact, this is not our super objective. Our single objective is to manage the National Wealth Fund. The Bank’s function to manage financial resources of the National Wealth Fund through placing them on the Russian stock market was basically limited to diversifying the portfolio, withdrawing it from abroad and place on the stock market, among other things, to support quotations of Russian blue chips. During certain periods the bank’s presence was tangible and had a positive impact not only on blue chips’ quotations but also on investors’ mood and the situation on the stock market as a whole. To this end, 175 billion rubles are envisaged to be allocated. We have already placed the bulk of these funds on the stock market. We believe that these stock market transactions would increase the National Wealth Fund. A rate of return is going to be appropriate and the amount of funds to be returned to the National Wealth Fund would exceed the one we are entitled to place on the stock market.
CORR: Do you have a forecast about how long you should support quotations?
Vladimir DMITRIEV: We are also pursuing a pretty conservative policy here and are not engaged in stock market speculations. 175 billion rubles have been made available to us and they were made available at a critical moment when a stock market crash was a real threat. Fortunately, we are not the only player on this market and the market responds not only to the presence of a serious player but also to a macroeconomic situation, oil prices, the dollar’s exchange rate and etc. So far, no decisions have been made on increasing this amount from the National Wealth Fund. I think that all actions would be adequate to a situation that is going to develop next year.
CORR: Vladimir Alexandrovich, is there any cure for the crisis?
Vladimir DMITRIEV: Yes, there is. It’s a New Year.
CORR: And if joking apart?
Vladimir DMITRIEV: The most important thing is to have a good and enjoyable holiday and then start to address new objectives and problems with new strength.
CORR: Are you sure that everything is going to work out well?
Vladimir DMITRIEV: At least historical experience shows that sooner or later all managed, to a different extent, to overcome crises and some used them to fundamentally overhaul their economies and undertake institutional reforms.
CORR: A Happy New Year to you!
Vladimir DMITRIEV: Thank you. The same to you. All the best to you.
CORR: Thank you.
It is topical to assign ratings to projects and identify their priority
Gazeta, N 247
December 26, 2008
- In the conditions of the financial crisis Vnesheconombank’s active involvement in implementing measures for supporting Russia’s financial system can’t help influencing the Bank’s activity as a development institution. How would you assess VEB’s performance?
- In the conditions of the financial crisis Vnesheconombank’s active involvement in implementing measures for supporting Russia’s financial system can’t help influencing the Bank’s activity as a development institution. How would you assess VEB’s performance?
- I find it difficult to assess our Bank’s performance. Even before Vnesheconombank was transformed into the Bank for Development, it placed much emphasis on supporting investment projects aimed at developing the most important sectors of the Russian economy. I hope we succeeded in establishing ourselves as a development institution, that is, an efficient instrument for supporting projects of high priority for the Russian economy.
Economist, banker, investor
Ballo Anatoly Borisovich was born in April 18, 1961 in Moscow. In 1983 he graduated from the Moscow Finance Institute, his specialty was International Economic Relations. In 1983-1991 – economist, researcher, Research Institute of Scientific and Technical Information and Construction Materials Industry Management, USSR Construction Materials Ministry. In 1991 - 1992 – lead expert, Gosbank of the USSR. In 1992 – chief expert, the Central Bank of Russia. In 1992-2000 – lead expert, manager, executive of the board, executive director, financial director, Russian Project Financing Bank (from 2000 – Small Business Lending Bank). In 2000-2002 – consultant to Vnesheconombank of the USSR. In 2002-2005 – deputy department head, Foreign Trade Bank (JSC). In 2005-2007 – department director, directorate director, Vnesheconombank of the USSR. From 2007 – Management Board Member, State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’, Deputy Chairman, Vnesheconombank
- Vnesheconombank’s loan portfolio under the Federal Law “On the Bank for Development” amounted to about 255 billion rubles, with more than 80% of credits being mid and long-term ones (for the most part they are long-term credits with a tenor of more than three years). But for the crisis, we would not only have achieved our loan portfolio planned target of 270 billion rubles but we would also have far surpassed this figure.
Since the establishment of the Bank for Development a year and a half ago more than 70 investment projects worth about 750 billon rubles with the Bank’s participation share in excess of 400 billion rubles have undergone expert’s examination and have been approved by Vnesheconombank for financing. Investment projects account for a better part of these projects. They are designed to enhance the development of innovations and infrastructure (more than 80%). They include OJSC Terminal’s project to construct the Sheremetjevo 3 air-terminal complex, OJSC RZHD’s project to develop the infrastructure of the Kuzbass-Far Eastern Transport Hub, OJSC the Kaluga Region Development Corporation’s project aimed at building infrastructure of industrial parks: forming a cluster to manufacture automobiles and auto components. Vnesheconombank also participates in carrying out investment programs of OJSC Inter RAO EES and OJSC United Aircraft Building Company.
With our Bank’s support, OJSC Angstrem-T is building the first Russian production facility to manufacture sub-micron semiconductor components and OJSC Helicopters of Russia has launched serial production of the Ka-226T helicopter.
- How are you searching for new projects?
Our Bank is not a customer-oriented but a project- oriented bank and we are not searching for customers on the market. Business experience shows that companies interested in implementing projects tend to turn for help to regional authorities and to core ministries. We are working with regions especially with those where regional development institutions are in place and these institutions are responsible for generating projects and submitting the most interesting and well-prepared ones to us for consideration. If a regional administration is interested in implementing a project and invests funds in its preparation, then everything is going fast and well. The best example is the Kaluga region.
- What are the most interesting newly approved projects, which are not well-known so far?
In my opinion, the project to construct the Roza Khutor complex is very demonstrative. Under this project a sports and tourist complex is to be built in the Krasnaya Polyana district. This complex is going to be one of the most important facilities at the 2014 Winter Olympics. This Alpine ski resort is to be built and operated on public private partnership principles under the program of building Olympic facilities and developing Sochi as a mountain and climate resort. The total value of the project is about 38.5 billion rubles. Vnesheconombank intends to make credit resources available within the established limit of 21 billion rubles for a period of 15 years and the remaining amount of investments is to be financed by a private investor.
Another interesting project is to build a gasochemical production facility in Tatarstan. In mid October Tatarstan’s President Mintimer Shaimiev and Vnesheconombank’s Chairman Vladimir Dmitriev encased a capsule in the foundation stone of a unique for Russia mineral fertilizer integrated production complex worth 1.5 billion US dollars in the city of Mendeleevsk. The production facility is planned to be built for 36 months and launched into production in the first quarter of the year 2012. The project’s payback period is 6-7 years. The gasochemical complex will be the first modern production facility in the past 25 years to manufacture ammonia in Russia and the CIS. A distinguishing feature of the factory is that there will be no carbon dioxide emissions and that carbon dioxide will be entirely utilized to manufacture carbamite and methanol. Japan’s company Mitsubishi Heavy Industries has been selected as a contractor and another Japan’s company Sojitz Corporation has been selected as the project’s coordinator. Tatarstan’s government represented by the Investment – Venture Fund and Vnesheconombank act as the project’s investors. Under the project, debt financing is to amount to 870 million US dollars, which will be entirely refinanced in the conditions of the crisis by a syndicate of Japanese banks.
- Would you tell us about Vnesheconombank’s new anti-crisis functions? To what extent did the Bank prove to be prepared to carry out anti-crisis measures?
Even a few months ago, we were not aware that any different functions other than financing of major investment projects would be assigned to us. But the government provided us with an active, to be more precise, key role in stabilizing economic and financial situation in the country, and we started to act without any delay. Our considerable experience and our employees’ professional expertise helped us to launch the process almost immediately.
I would like to remind you that the Law “On Additional Measures for Supporting the Financial System of the Russian Federation” was passed on October 13, 2008 and on the same day the procedure for implementing the measures provided by the law was published and the first monetary funds were made available as early as October 30!
And we managed to do it despite the fact that the procedure for processing applications for refinancing borrowers’ debt obligations to foreign financial institutions provides for five decision-making levels and also for numerous mandatory criteria and requirements for documents. The Bank proved to be prepared to act quickly and decisively to overcome the crisis situation in the Russian economy. To my mind, the important thing was that we were not developing the techniques of considering and examining applications from the scratch, we already had a well-proven procedure for conducting expert’s examination of investment projects. We understood general techniques and adapted the bank’s staff for addressing new challenges. Otherwise we wouldn’t have been able to develop and implement the whole system of anti-crisis measures so rapidly.
- The current crisis makes the largest Russian companies to review their investment plans. Is Vnesheconombank going to change anything in its activity in terms of priorities and selection of projects?
Yes, it is. The situation forces us into making certain corrections. Responding to the realities, we might suspend consideration of certain projects as agreed upon with core ministries and departments. In doing so, we’ll carry on performing our main functions to assist in enhancing the development of the Russian economy. All the projects that are already being financed and have passed the point of no return are bound to be implemented. But a number of projects will be suspended. Nevertheless, the number of proposals coming from companies is on the rise. And as a result, it is becoming increasingly topical to assign ratings to and identify the priority of projects. Vnesheconombank initiated to expand the list of sectoral investment projects. Agroindustrial complex has been already included in this list. Proposals to introduce changes and additions to the Memorandum on Vnesheconombank’s Financial Policies are under preparation. Their adoption would make it possible for us to engage in financing projects in the pharmaceutical and construction materials industries. We are well aware that the Bank cannot and must not operate in all economic sectors and we offer to include strategic industries in the list of our priorities. In particular, we are planning to focus on the cement industry. The Government is making strenuous efforts to involve Vnesheconombank in working out the state’s support measures including those aimed at making it possible to finance the largest investment projects in the cement industry. These are projects aimed at constructing cement factories in the Kaluga, Leningrad, Penza and Tambov regions. We have a lack of production facilities and growing prices in the construction materials industry. Many infrastructural projects can’t be implemented if there isn’t a cement or brick factory nearby. So we are facing a paradoxical situation when we are allowed to finance infrastructure but are not allowed to finance the construction of a factory needed to build this infrastructure.
In a word, we’ve got a lot of proposals for new lines of activity and we are ready to act. But financing remains to be an open-ended question. The crisis reduced Vnesheconombank’s capital significantly and there is no reason to explain why. Naturally, we had to review our loan portfolio as a part of funds were used to implement anti-crisis measures and despite the fact that at the end of October we obtained a syndicated loan of 335 billion euros from a pool of the largest world banks at a rather attractive rate, we have to forecast difficulties in raising funds on world markets in the future. To my best knowledge, this was the last syndicated loan extended to Russia’s borrower on the foreign market.
It’s quite evident that in the current situation there is a need for increasing the Bank’s capital significantly if the Bank is to continue its activity on supporting economically important and socially meaningful projects in full. At the moment, there remains a need for financing not only the projects approved by Vnesheconombank’s collegial governance bodies, which are going through a stage of executing credit documentation and are worth 300 billion rubles but also projects undergoing a complex expert examination. And here we mean 60 projects, with the Bank’s expected participation share in them being 600 billion rubles.
I would like to stress it once more that we are talking about the possibility of implementing large-scale infrastructural and innovation projects. Given this possibility, we would be able to keep private business interested in financing projects and also create preconditions for stimulating economic growth. By analyzing our foreign colleagues’ business experience, we can see that they are keen to speed up their efforts to finance infrastructure and other crucial development projects. I think that Vnesheconombank’s first-year experience as the Bank for Development testifies to the fact that we are ready and competent enough to address the most challenging problems we are facing.
Maxim Rubchenko, economics section editor of Expert Magazine
From the next year, Russian exporters of non-raw materials products will be able to have their political and commercial risks insured at Vnesheconombank.
Photo: Oleg Serdechnikov
Despite the crisis, the Government approved Russia’s Foreign Economic Strategy up to the year 2020. The document, in particular, calls for implementing a major program designed to provide the state support for non-raw materials exports. VEB was assigned a key role in providing this sort of support. Management Board Member – Vnesheconombank Deputy Chairman Petr Fradkov told Expert Magazine about what kind of assistance and on what terms Russian exporters would be able to receive.
- Actually, Vnesheconombank has now become a key instrument in implementing the Government’s anti-crisis measures. Does VEB, in the current situation, carry on undertaking its traditional activity on financing long-term projects in the economy?
- Of course, new responsibilities for supporting the economy placed on the Bank by the Government take us a lot of time and effort. But despite our efforts to respond to the crisis, we continue operating as a bank for development undertaking our core activities on investing in infrastructure and industrial projects. In spite of the crisis, we give to priority to thee lines of our activities.
Specifically, there are a number of projects in power engineering equipment industry and transport sector, which involve European partners and have to be financed in euros to pay for equipment deliveries from Europe. In order to finance these projects, we raised a syndicated loan of 335 million euros in early November. This is rather unusual, because in the past we raised syndicated loans in dollars. But in this case we chose euros, as we had to finance the above-mentioned projects in this currency. As far as the amount of this syndicated loan is concerned we did not seek to raise a record loan because we needed money to finance specific projects.
In the past years, when the market was positive, it was pretty common practice to raise syndicated loans. Since the crisis started, Sberbank (Savings Bank of the Russian Federation) was one of the last Russian banks to raise a syndicated loan. We closed the said syndicated loan facility in the first days of November when loan market terms became stricter and this testifies to the fact that our country is still enjoying high confidence abroad.
A number of major banks from Europe, Japan and the US participated in the syndicated loan facility transaction. So, it proved to be very interesting even in terms of geography. This transaction is extremely important, as it is a signal to the market that it is still alive and that public transactions can be closed in today’s complicated market conditions. A loan interest rate is a different story. The loan facility has a three-year tenor and the floating loan interest rate is EURIBOR +075% per annum. Actually, this is a pre-crisis loan rate. For example, in 2006, we raised a syndicated loan at a rate of LIBOR + 035 percent and in 2005 we raised our first syndicated loan at a rate of LIBOR + 0.9 percent. Such rates are nonexistent now and the borrowing terms were unique for today’s situation.
- Why, at the height of the crisis, has an issue of supporting exports become so crucially important?
- Support for exports is a normal government policy throughout the world. And I am sure it should become more vital at the height of the crisis. The more so, there was no doubt long ago that we needed to promote non-raw materials exports because, in any case, economic development is based, to a large extent, on exports. Even at a time that our corporation was being established, an issue of providing the state support for industrial exports was high on the agenda. The fact is that in the past we had monopoly on foreign trade and in the conditions of large-scale liberalization a prevailing view was that there was no need for supporting and stimulating foreign trade and that business would sort everything out. But practice showed that this was not the case and business experience of even the most democratic countries demonstrates that under liberal domestic economic conditions, protectionism in foreign trade as well as administrative and financial support for exports tend to increase. Although inside the countries, competition and a level playground for all are in place.
Providing support for exports is extremely important from economic and geopolitical points of view and here the state should assist business and help it to address numerous problems. And, above all, it should be financial assistance but not only… So, while our corporation was being established t was obvious that the state could use various instruments to support exports.
Besides traditional transactions in providing pre-export financing, Vnesheconombank finances industrial exports in the form of extending “credits to the buyer” or “credits to the buyer’s bank, financing projects in partnership with contractors or equipment suppliers. This adds to the already existing export supporting instrument designed to extend the state’s guarantees. Guarantees are extended by Roseximbank incorporated in Vnesheconombank’s group.
In additional to this, a decision was made to establish a more flexible commercial mechanism, that is, a structure that would have enough resources to assume a part of the borrower’s sovereign risks. That was how we started working. And I should say that it was a difficult start.
By the present time, Vnesheconombank has signed a Framework Agreement worth 300 million dollars with the Kazakhstan Development Bank. We extend credits to this Bank under specific projects aimed at supplying various Russian industrial products, they, above all, include machinery and equipment, that is, high-value added products. The Bank entered into similar agreement with CIS countries such as Belarus and Central Asian countries.
- What kind of exports do you support?
- Under the Law “On the Bank for Development” Vnesheconombank is to be responsible for supporting industrial exports. We do not deal with raw materials; we have nothing to do with oil, grain and other commodity exchange goods. Our zone of responsibility includes only high-value added products.
The second line of our export-supporting activities deals with guaranties, which are not extended by the state but by our Bank. For example, advance-back (refund) guarantees: as a rule, the exporter is provided with an advance for an amount of 15 percent of a contract’s value and if the customer is dissatisfied with something and the advance is not refunded, we cover the costs. Or, for example, under the existing procedure the exporter is to issue a tender guarantee to participate in a tender. And if the exporter wins a tender, he is to provide a contract performance guarantee. We are responsible for providing these guarantees.
I’d like to say that in terms of banking practice there is nothing special in such documentary transactions, all banks conduct these transactions. The main idea here is not an instrument as such but terms. In case of standard documentary transactions, guarantees are extended for a period of one or at most two years we extend guarantees for a period of five or even ten years. Basically this is a serious alternative to standard long-term lending.
- Vnesheconombank is planning to launch another export supporting mechanism at the beginning of the next year. What sort of mechanism is it?
- It’s a completely new instrument for our country – export credits insurance against commercial and political risks. Up until now it hasn’t operated in our country because of the absence of required regulatory network. When the Law “On the Bank for Development “ was being prepared a decision was made that it was on its basis that a structure would be established responsible for insuring export credits.
We started to develop an internal regulatory network for insuring export credits but we soon understood that within our current corporate structure it would be extremely difficult to undertake this activity. Because banking and insurance activities are different types of business guided, to a large extent, by different laws and rules and requiring absolutely different methodologies and approaches. So, we decided that a specialized agency would deal with insuring export credits on the basis of our subsidiary banking institution. And this is, by the way, is in line with foreign business practice.
An objective of establishing an export credit and investment insurance agency was specified in “Russia’s Foreign Economic Strategy up to the Year 2020” approved by the Government at one of its recent meetings. We are planning to start conducting actively transactions in insuring export credits at the beginning of the next year.
To tell you the truth, if this mechanism is to function faultlessly and efficiently it will have to be improved and new laws and regulations will have to be passed. At present, we have already started to make necessary efforts but this work will take a lot of time.
The government has already passed a resolution providing for the procedure for and setting terms and conditions of insuring export credits by the Bank. The resolution sets forth everything rather clearly: Russian exporters’ risks are insured as well as risks of banks that extend credits to foreign legal persons and incur risks of these legal persons, risks of an enterprise itself are also insured if it exports its products on an installment payment plan without involving a bank. The resolution stipulates that insurance period may range from two weeks to fifteen years and it also specifies a list of insured commercial and political risks. It also stipulates that insured amount under commercial and insurance agreements is not to exceed 95 percent of an export credit amount and under political risks – 100 percent of an export credit amount. Vnesheconombank is to compensate for up to 95 percent of the exporter’s or creditor bank’s losses in case of occurrence of an insured event. One hundred percent is not to be compensated for, so that an enterprise or a bank should be economically stimulated to adequately assess risk, that is, act economically responsibly.
Pursuant to international practice, a credit insurance agency’s obligations under insurance agreements are to be guaranteed with federal budget funds. This practice will be adopted in Russia.
- Now Russia, for the most part, exports raw materials and our hope is to boost non-raw materials exports. Is it a realistic hope in the current situation?
- It’s an objective rather than a hope. Anyway, we have non-raw materials exports, namely, mechanical-engineering exports. I don’t mean that these are breakthrough innovative products. These are products of smelting, machine-tool building, aircraft construction, chemical, timber processing and heavy and power engineering industries – our traditional industries, which are not innovative ones but have always formed and I hope would form the basis of our non-raw materials sectors of economy. Anyway, we are well positioned in these sectors.
It’s not that these products are basically noncompetitive. The fact is that, today, technical characteristics are not regarded as the most important things on all world markets. The most important things today are financial terms and conditions offered by the supplier. And only a combination of products and terms of delivery can put together a competitive proposal. In fact, our products are often not worse and cost less than their foreign analogs but poorly worked out terms and conditions question our ability to win tenders. We are sure that there is a market for such products and therefore our task is to coordinate and organize everything.
- And what requirements do you make for borrowers, Russian exporters?
- Any Russian company can receive this sort of insurance and not only a single delivery of goods but also a whole project abroad, for example, a construction project can be insured and there are no limitations with regard to insurance amounts. We just examine an export contract as such, assess country risk, and project feasibility. We have already developed the procedure and rules for assessing risks, they occupy three thick volumes.
These rules, terms and conditions were developed a long time ago within the framework of the Organization for Economic Cooperation and Development (the OECD). The OECD Working Party on Export Credits and Credit Guarantees incorporates export agencies and banks of the largest OECD member countries, representatives of national finance or economics ministries. Not being a member of the OECD, Russia is a member of the Group as an observer and we have recently attended the Group’s meetings together with representatives of the Russian Finance Ministry and the Ministry of Economic Development.
Documents regulating guaranteeing and insurance of export credits were drawn up for years, many volumes are written so we should not re-invent the wheel we should adapt them to our specifics with due regard to our applicable legislation. This is what we are doing and we’ll be doing.
As far as our efforts to insure export credits are concerned, we are preparing the first project associated with putting on the market Russia’s new civil aircraft Sukhoi Superjet 100. This is an international project. Besides Russian companies Italian and French companies take an active part in it. The jet has good prospects not only in Russia but also in Europe, America and across the world. In order to guarantee global sales of this aircraft, our Bank, France’s foreign trade insurance company COFACE and Italy’s export credit agency SACE signed a joint trilateral statement on cooperation in launching a scheme for financing and insuring international sales of new generation civil aircraft – SSJ-100. I’d like to say it again that it would be the first practical step taken by our export agency.
- How are you going to set tariff rates? Won’t these rates be prohibitive for some companies?
- No, they won’t. Export credit insurance is a commercial activity. We are not going to regulate anything through tariffs – some companies can export their products and some can’t. We are going to take decisions on the basis of financial expediency assessing the supplier’s financial standing and ability to fulfill contractual obligations, products destination, contractual terms, and the contract’s potential to boost Russian companies influence on the world market.
Our tariff rates are based on existing world rates. Rate setting methods are well known: you need to know a cost of contract, assess risks mathematically and then apply various correction coefficients and taking into account market conditions. Insurance premium is determined on the basis of known and proven methods ant its amount is to be agreed upon with a customer.
It’s common knowledge that the most competent analysts - not only specialists in specific areas but also political scientists and economists- work for export agencies. Ideally, an export agency is a very powerful analytical private institution authorized by the state to operate.
- Are you sure that your plans will remain topical despite the growing crisis?
- Yes, I’m absolutely sure.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the Vesti TV Channel
The Vesti TV Channel VESTI/INTERVIEW, 29.10.2008, 14:43,18-35
HOST: The Federal Service for Financial Markets expects Vnesheconombank to assist it in normalizing the domestic stock market. Vnesheconombank Chairman Vladimir Dmitriev told our channel about the measures Vnesheconombank is going to take to this end.
Vladimir Alexandrovich, Good afternoon.
Vladimir DMITRIEV, Vnesheconombank’s Chairman: Good afternoon.
HOST: Vladimir Alexandrovich, you’ve said that today’s positive dynamics on the Russian stock market is a result of Vnesheconombank’s support. Would you elaborate on this further please?
Vladimir DMITRIEV: I don’t think we have been the only player at today’s trading session but our participation at the end of the business day demonstrates that such a strong player helps to strengthen the market and sustain its growth. Vnesheconombank has been conducting transactions on the Russian stock market for about 10 days using the funds it received from the National Wealth Fund. Every day we agree upon our actions with the Finance Ministry on the scale of our transactions, securities and borrowers in which we are investing funds. Thus, we diversify the National Welfare Fund, make it operate to benefit the Russian stock market and at the same time sustain the stability of the Russian stock market and the financial system as a whole.
On some days Vnesheconombank’s participation aimed at sustaining the said stability and growth of quotes made itself felt quite significantly.
HOST: Vladimir Alexandrovich, what’s the amount of your participation and whom do you support on the stock market?
Vladimir DMITRIEV: Out of 175 billion rubles allocated from the National Wealth fund and intended for conducting transactions on the Russian stock market we invested about 20 billion in shares and about 5 billion rubles in bonds of reliable Russian issuers.
HOST: This means that this is not a whim of speculators but a systematic support.
Vladimir DMITRIEV: Yes, our main principle is to operate on the stock market purposefully and consistently to sustain its stability.
HOST: I’d like to ask the following question: won’t additional functions assigned to Vnesheconombank and the actions you have to take in the situation of financial instability affect your main objective, here I mean, the development of key industries of the Russian economy? But judging by an agreement you have signed today with the United Shipbuilding Corporation there isn’t such a threat at the moment?
Vladimir DMITRIEV: In fact, our employees are working now under considerable pressure because of additional tasks, we didn’t use to perform before, have been assigned to us, of which the main task is to implement additional measures for sustaining the stability of the Russian financial system and that is why we have to operate on the stock market. But in doing so, we, of course, do not set aside our current core activity set forth by the Law and the Memorandum on the Bank’s Financial Policies. Today, we have signed an Agreement with the United Shipbuilding Corporation. This Agreement formalizes our relations and sets forth main lines of our joint efforts in upgrading our civilian and defense shipbuilding in carrying out programs of military-technical cooperation. This program of cooperation is multisectoral, but this Corporation is not, of course, our only partner from the key industries identified for our activity. They include aircraft construction, space industry, communications, high technologies, rational utilization of natural resources and infrastructure. It goes without saying that, given the volatile financial situation we are facing today and have to reckon with, some programs will be suspended temporarily. We have also to take into account the liquidity issues and difficulties our customers face in borrowing at acceptable rates.
HOST: What programs will be suspended at this stage?
Vladimir DMITRIEV: Above all, investment programs, which are at the initial preparation stage because the projects that have already been approved by the Bank’s Management Board and Supervisory Board in infrastructure, high technologies and rational utilization of natural resources are sure to be implemented. And they are funded by foreign creditors who take risks on projects themselves. These creditors include major Japanese and West European banks. This means that despite the crisis, the level of trust in Russia, Vnesheconombank, and reliable borrowers remains stable and this is a sure guarantee that many of the projects that were approved by our corporate governance bodies are bound to be implemented.
HOST: Another confirmation of this is the fact that you managed to raise a syndicated loan facility worth 335 million euros from a consortium of foreign banks. How did you manage to do it, and how are you going to use the money?
Vladimir DMITRIEV: We have been making efforts to raise this syndicated loan facility for several months. To tell you the truth, the borrowing amount could have been greater but for the liquidity crunch on the international markets as a whole. But in terms of transactions to be funded, this amount is optimal for us. We partially close the open euro position that emerged at the beginning of the year but the main objective of the borrowing is to finance the transactions I mentioned above.
HOST: You haven’t identified your main lines of activity, have you?
Vladimir DMITRIEV: Yes, we have identified our main lines of activity. They include, above all, infrastructural projects, and with due regard to the difficulties that metallurgical and construction companies are going through, the implementation of a number of projects aimed at developing transport would be financed at accelerated rates.
HOST: By what criteria are you going to distribute 50 billon dollars allocated to Vnesheconombank for refinancing Russian companies’ debts?
Vladimir DMITRIEV: The criteria have been established by the Bank’s Supervisory Board. And they are built into the procedure, which was also approved by the Supervisory Board and posted on Vnesheconombank’s website. Main criteria are comprised of both quantative and qualitative parameters. According to quantative parameters credits per one borrower are not to exceed 2.5 billion rubles but the Supervisory Board is also entitled to take different decisions. This refers to refinancing credits raised prior to this September and also debts to foreign creditors. And another key criterion stipulates that we are to refinance those debt liabilities, non-fulfillment of which threatens to cause serious economic and social consequences, here I mean adverse consequences to Russia’s system-forming companies.
Our Supervisory Board took a decision on a number of borrowers whose debts are to be refinanced; the amount of their debts is a little bit less than 10 billion dollars. They are prime borrowers who are confronted with a threat of losing their assets due to the unfavorable situation on the international financial markets.
HOST: These borrowers are the oil companies that initially turned for help?
Vladimir DMITRIEV: Yes, we give high priority to the borrowers whose obligations should be fulfilled in the most immediate future.
HOST: Vladimir Alexandrovich, what about providing financial assistance to banks? Vnesheconomank has already acquired Svyaz-Bank and yesterday the Supervisory Board approved the purchase of Globex. Are you going to acquire other banks as well, is this the Bank’s current policy and strategy?
Vladimir DMITRIEV: I would classify this activity as the Bank’s non-core activity but this is our institution’s destiny and even if our Bank didn’t exist we would have to establish it in case of emergency circumstances. As far as Svyaz-Bank is concerned we have fully secured this financial institution’s solvency and financial sustainability. We received financial resources from the Central Bank and we used our own liquid assets to assist Svyaz-Bank to restore payments.
And we can see that outflow of customers’ funds has stopped and that the bank’s is operating normally in all its traditional spheres of activity. And if 15 million pensioners receive their pensions through the bank, it’s no time for joking.
As to Globex-Bank, we also intend to get down to restoring its image and financial sustainability. We don’t think we’ll have any serious problem restoring trust in this bank, given of course, the Central Bank’s assistance but it is safe to say that the situation there is manageable.
HOST: And now my final question: what is going to happen to pension savings? Are they properly protected now?
Vladimir DMITRIEV: I am ready to answer only for the state management company…
HOST: Naturally. 90 percent.
Vladimir DMITRIEV: For Vnesheconombank. For the third quarter, we are of the few management companies, if not the only one, that produced positive results in terms of pension savings funds’ profitability. We had been making consistent efforts to get our investment declaration expanded so that we could invest pension funds in highly liquid and reliable bonds of Russian issuers, that is, blue chips. We really expect that our proposal for expanding our investment declaration would be accepted and backed in the long run by our legislators and we‘ll be also allowed to deposit available money, funds in the amount of up to 20 percent with banks and this on the one hand, will make it possible to increase profitability and on the other, to offer additional liquid assets to our interbank market. And today, we have discussed with our colleagues at a Russian-Chinese business meeting the possibility of investing pension funds or funded portion of pension funds in infrastructural bonds. They could be issued by Russian reliable borrowers such as Transneft and other companies that are in need of significant investments for a long period of time. We are sure that funds of would-be pensioners that they would start receiving in the year 2022 would be invested reliably, without any losses, with sufficient profitability.
HOST: Let’s hope. We wish you ever success. Thank you.
Vladimir DMITRIEV: Thank you. Thank you.