Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24,
HOST: What are the results of managing the funded portion of pensions, how is the investment climate developing in the Far East, how long will the program of stimulating mortgage lending last, how is the program of supporting automotive and other sectors coming along? Vnesheconombank Chairman Vladimir Dmitriev answered these and other questions in his exclusive interview to our TV channel.
Host Evelina Zakamskaya
HOST: Good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good afternoon.
HOST: Vnesheconombank’s scope of activities is Russia’s entire economy – almost all its sectors. What did the outgoing year show? What were the top-priority lines of activity? How many projects did you manage to fund?
Vladimir DMITRIEV: Our priorities are specified by law and the Memorandum on Vnesheconombank’s Financial Policies. And the number of top priority lines of activity is constantly on the rise. Quite recently, new changes have been introduced. They deal with lending to medium-sized enterprises and above all projects in multi-profile entities, mono-cities where a lending limit was reduced to half a billion rubles provided that a project is worth no less than one billion rubles, whereas we fund projects that are worth no less than two billion rubles and the Bank’s own participation share is a billion rubles. We still regard infrastructure in all sectors as our top priority; here I mean transport, energy, communal services and social infrastructure. And a whole number of infrastructure projects are already being implemented on the principles of public private partnership. Other top priority sectors are mechanical engineering, transport and aviation industries. We are actively funding such automakers as Ford Sollers, AvtoVAZ and KAMAZ. You know that at one of its recent meetings the Bank’s Supervisory Board approved a program of supporting AvtoVAZ investment activity in the amount of 60 billion rubles. We are also working actively with such aircraft manufacturers as Sukhoi and Irkut and Komsomolsk-on-Amur. It’s important that we provide support for aircraft manufacturers at a R&D stage. This was the case with the Sukhoi-35 advanced military plane. We provide support for Russia’s civil aviation industry. And we started to provide comprehensive support for exports of Russian aircraft abroad. We give top priority to comprehensive development of territories, creating
territorial-production clusters. We also make significant contribution to developing agriculture. These are the key lines of our activity including providing support for small and medium-sized enterprises through our subsidiary SME Bank.
HOST: Infrastructure projects should be advanced with the help of long-term money. And this money is in short supply in the Russian economy and their amount will decrease as the Government made a decision to reduce allocations to the funded portion of pensions. What does this mean for Vnesheconombank?
Vladimir DMITRIEV: Vnesheconombank is also a state managing company responsible for managing the funded portion of pension funds. There are about a trillion and a half rubles under our management. Unfortunately, sixty percent of these funds are invested in government bonds and only 17 percent is invested in the real economy here I mean investments in Russian issuers’ bonds. And these issuers are not numerous. And some funds – about 15 percent are placed on deposits in Russian banks. We can say that this money is also working for the economy although this is short-term money; we extend this money to banks for a period of one year. The fact that most of pension funds are invested in government bonds and that we can’t sell them at a good profit because of the market volatility and channel them to the real sector of the economy limits our maneuverability. But on the other hand we can invest our liquid resources in Russian issuers’ bonds. We realize that changes in contributions to the funded portion of pensions from six to two percent will significantly influence the amount of resources which Vnesheconombank and also nongovernmental pension funds and managing companies will be able to invest in the real sectors of the economy. We hope that people will make decisions in favor of forming long-term ruble resources which will be invested in the real sector of the economy. Working with nongovernmental pension funds we intend to mould mentality of our people. People should understand that it makes sense to make a decision in favor of six-percent contributions to the funded portion of pensions and that this money will be invested in the real sector of the economy.
HOST: Efficient management of pension funds will help Russians to make the right decision. What results does Vnesheconombank show?
Vladimir DMITRIEV: Vnesheconombank shows stable results above inflation. We are not so volatile as nongovernmental pension funds and managing companies. With our conservative approach to forming our investment portfolio and with most of our investments in government bonds we demonstrate stable yields above inflation. For nine months of this year the yield ratio with regard to the extended investment portfolio was 8.2 percent. And with regard to the portfolio formed from government bonds the yield ratio was also above inflation. This means that in general our yield ratios have been above inflation in the last years.
HOST: In 2012, the state acknowledged it necessary to develop the Far East as fast as possible and Vnesheconombank will take and is already taking an active part in it. You have approved the creation of agro-parks in the Far East and you intend to support infrastructure projects. Can we say that these investments are attractive? Do other investors besides Vnesheconombank show interest in them?
Vladimir DMITRIEV: I can’t tell you about other banks’ performance indicators. I know that they are actively operating in the Far East. We are already implementing projects in the Far East in the amount of about ninety billion rubles, with Vnesheconombank’s participation share in these projects being more than fifty billion rubles. Naturally, the Far East is an attractive region. But in order to ensure this region’s investment appeal for Russian and foreign investors, partners of Russian commercial banks should be convinced that the state shares or reduces their risks. And these risks can be reduced through creating infrastructure and favorable investment conditions including social ones. In this sense, it’s very important to create an appropriate institutional environment for investors. Here I mean the Far East and the Baikal Region Development Fund. We established this Fund at the end of the last year and it has already started operating. I’m also talking about the Russian Direct Investment Fund. When taking a decision to establish the Far East and the Baikal Region Development Fund we assumed that its capital would be formed in the amount of 500 million rubles and that Vnesheconombank would extend subordinated loans in the amount 70 billion rubles through using credit facilities thus engaging Russian commercial banks for investment projects in this region and making available financial resources in the total amount of 900 billion rubles. But the situation has changed fundamentally. A decision was made that the Finance Ministry would provide 15 billion rubles to the Bank’s capital to be used to capitalize the Far East and the Baikal Region Development Fund. We expect to receive these funds today. We are also working with foreign investors. And by the way, focusing on projects in the Far East and the Baikal region the Russian Direct Investment Fund has established jointly with the China Investment Corporation a Fund in the amount of two billion dollars. This Fund is designed to capitalize Russian companies in this region. So, the situation is developing dynamically and favorably.
HOST: There is another Russia trouble – the notorious housing problem. Will the state program of mortgage lending be prolonged? Vnesheconombank supported this program as not all banks can meet Vnesheconombank’s requirements and gain access to preferential financing.
Vladimir DMITRIEV: This is really the case, you are well informed. The program is advancing. We’ll have to prolong it as there is no other way out. The reason for it is that out of 50 billion rubles allocated to buy out bonds and extend credits to people, 80 % has been extended in the form of credits. But of 11 banks included in this program, only one bank, namely, VTB-24, and the Housing Mortgage Lending Agency managed to issue mortgage bonds thus securitizing the credit extended. What’s the problem? The problem is to register title to new housing.
The problem is to form a pool of homogeneous credits. The problem is to register title to housing which is built under this program and which becomes security of bonds being issued. So, we hope that the year 2013 will be a record one and we’ll have to prolong the program for a year. But the program is working and even if we have funds and do not use them to buy out bonds we extend preferential credits to commercial banks which are included in this program through using Vnesheconombank’s funds. You should remember that in 2009, when Vnesheconombank received 175 billion rubles on deposit from the National Wealth Fund to support the Russian stock market, we received a premium of 100 billion rubles. And sometimes I hear people say why the National Wealth Fund should give money to Vnesheconombank it earned a lot of money. But financial resources of the National Wealth Fund are designed for other purposes. We earned money but of 100 billion rubles we use 50 billion rubles to fund the mortgage lending program by extending credit facilities at a rate of 3% per annum. There are no such low rates on the Russian market. We used 30 billion rubles to capitalize the Export Credit Agency of Russia. We used the remaining money to support the programs aimed at supporting small and medium-sized enterprises. I think that in this sense it is appropriate to say that the state earned money thanks to professionalism of the Bank’s employees who managed to earn a lot of money in the unstable situation on the stock market and used it to achieve top-priority national objectives.
HOST: Thank you. I wish you every success.
Vladimir DMITRIEV: Thank you Evelina. All the best to you.
Alexandr Ivanov:VEB Launches Funding for the Export of SUKHOI SUPERJET-100
December 13, 2012 12:37:00
Russia is entering a competitive struggle on the civil aircraft global market. Vnesheconombank is ready to fund the export of the first six aircraft at a preferential rate to India and Laos. In his interview VEB Deputy Chairman Alexandr Ivanov told PRIME Agency about the State Corporation’s program to promote Russian high technology products exports. He was interviewed by Elena Fedorova.
Question: What’s the main objective of Vnesheconombank’s program to promote Russian high-technology products supplies to foreign markets?
Answer: The main idea is to optimize the mechanism for promoting high technology products exports – reduce time for application consideration, provide exporters with a competitive interest rate and coordinate the work of participants in VEB Group.
A mechanism for interacting Vnesheconombank Group’s participants upon funding high technology exports was approved at a meeting of VDEB’s Supervisory Board on October 29. Now we are at a final stage of working out procedures with regard to this program. I’d like to remind you that besides Vnesheconombank there are three more companies involved in promoting exports, namely EXIAR, Roseximbank (an agent bank responsible for providing guarantee support for exports) and VEB-Leasing (a special leasing company). Their activities should be coordinated. And our main objective is to assure the exporter that from the date he submits his application for supporting exports together with all required documents a maximum period needed to consider it and make a decision will be no more than 3 months. Such instruction was given to us by Economic Development Minister Andrey Belousov as the market for export supplies is highly competitive.
Question: What are the functions of Roseximbank and VEB-Leasing?
Answer: Roseximbank is the agent for the Finance Ministry in extending guarantees as part of the state’s exports promotion. State guarantees can be extended among other things for credits the borrowers of which are purchasers of Russian products with a higher risk level (for example, the the 7th group under the OECD classification). Now, Roseximbank is capable of extending such guarantees for a transitional period. Guarantees can be extended to funding banks – VEB or a syndicate of banks.
There are a number of questions about this instrument in connection with Russia’s entry into the WTO. There is no consensus if state guarantees can be used in the future because now they are free. And under OECD standards guarantees to exporters cannot be free. Maybe, this system will be reviewed but currently a transitional period is in force.
VEB Leasing acts as an operator in leasing schemes. For example when we sell Sukhoi Superjet aircraft we use for the most part credit-leasing schemes and in this case VEB-leasing is responsible structuring a leasing component of transaction that is for leasing out aircraft and establishing SPVs.
Question: What capabilities do Vnesheconombank and its subsidiaries have for providing financial support for high technology products exports?
Answer: At the first stage we work out the so called credit to purchaser mechanism. This is one of the most advanced and complicated form of funding exports when a non-resident purchaser of Russian products or its bank turns to us for a credit for the supply, for example, of Superjet. We consider an application, assess risks and extend a credit to a purchaser and EXIAR insures relevant risks. As to entrepreneurial risks they can insure up to 90% of a credit amount and as to political risks - up to 95%. And Vnesheconombank is ready to provide up to 85% of an export contract value. Remaining 15% is to be funded by the borrower from other sources largely through using its own funds. This is an OECD requirement. Sooner or later Russia will join this organization. In developing our instruments we focus on OECD member countries’ experience and the WTO. We have successful examples of extending a credit to purchaser. We don’t have a unified standard so far but we have already worked out a procedure and we’ll soon approve it at our Board meeting. We are going to develop other products in the future. These might be credits to purchasers and credit to a purchaser’s bank and various documentary credit and guarantee operations.
Question: Won’t VEB duplicate a similar program of Sberbank?
Answer: Under its Memorandum Vnesheconombank focuses on those projects which commercial banks are not ready to finance for various reasons. As a rule these are projects with long payback periods or projects with higher risks. It’s a good thing that Sberbank and other commercial banks are involved in funding exports. They should interact with EXIAR and receive from it insurance coverage for credits but at an initial stage or in high-risk projects these banks give high priority to generating profit and they are unlikely to be ready to fund the said projects. VEB’s mission is to launch this export promotion mechanism at an initial stage, give impetus and then if commercial banks are ready to replace us we’ll be quite happy.
Question: VEB is ready to extend credits to foreign purchasers of Sukhoi Superjet-100 for an amount of 2.5 billion dollars. How are you going to organize international sales of these Russian planes?
Answer: On October 29 this year, VEB’s Supervisory Board made a decision that Vnesheconombank was to open a credit line for foreign purchasers of Superjet-100 with a total drawdown limit of 2.5 billion dollars for a period of 12 years. The Supervisory Board decision specifies a maximum rate for a borrower with due regard to VEB’s interest margin and to EXIAR’s insurance premium. And each specific transaction under this limit is to be considered by governance bodies of Vnesheconombank and EXIAR and a relevant structure of transaction is to be offered and, above all, a credit-leasing scheme that will make it possible to minimize risks. It should be noted that the abovementioned decision made by the Supervisory Board does not mean that decisions will be taken automatically and Vnesheconombank can refuse to fund a borrower in case of increased risk with regard to a specific transaction.
EXIAR entered into an agreement on cooperation with insurance agencies of France and Italy, namely, Coface and SACE. In the Sukhoi Superjet-100 project France, Italy and Russia account for a third each. As soon as EXIAR receives a sovereign rating and is on par with these European agencies, most transactions will be structured in the following way: a syndicate of three agencies Coface, SACE and EXIAR will provide insurance coverage and a syndicate of Russian banks including VEB and foreign banks will provide appropriate financing to purchasers of Sukhoi Superjet-100 aircraft.
VEB is by no means seeking to cover all financing needs it will be physically impossible for us to do it. But conditions in a syndicate should be equal, that is, Russian banks are supposed to offer same conditions as French banks. It will be easy to agree terms with Italians because borrowing costs of the Italian state are higher than Russian ones but it will be more difficult to balance conditions with French banks.
Still, banks will be interested in funding export as EXIAR’s insurance police would allow them not to build reserves against credits.
According to Sukhoi Civil Aircraft Company they plan to manufacture more than 800 aircraft up to 2025. Naturally, a considerable part of them will be intended for export. And they are scheduled to be exported to European countries, the CIS, Asia and Latin America, that is, throughout the world.
Question: How long is Vnesheconombank going to extend credits at a preferential rate under a limit of 2.5 billion dollars for the supply of 11 aircraft?
Answer: As long as the decision made by VEB’s Supervisory Board is in force, a rate of the syndicated loan will not be higher than 6.5%. This rate was established because banks of Superjet main competitors - Embraer and Bombardier extend credits on similar terms to countries with a high level of risks.
Now the cost of raising funds by VEB is in line with the coupon rate of 10-year eurobonds placed this summer. It is 6.025% per annum. This means that our interest margin is minimal. VEB operates on a break-even basis and does not receive financial recourses to promote exports from the state; we raise all funds on the market. That is, we have market liabilities and not –quite market assets.
The following decision was made: a scheme of funding at a rate of 6.5% through using VEB’s own funds is limited either to 11 aircraft or to the end of 2013.
Question: What mechanism for supporting the export of Sukhoi Superjet-100 aircraft will be used in the future?
Answer: At present, a draft resolution and draft regulations have been sent to the Russian Government for approval. They deal with providing Vnesheconombank with subsidies to compensate for expenses incurred in connection with extending credit resources by Vnesheconombank to foreign purchasers of high technology products manufactured on the territory of Russia under credit agreement as well as in connection with paying for related works and services included in the said agreements. Above all, the said resolution and regulations would deal with subsidizing projects associated with funding international sales of Sukhoi Superjet-100 aircraft.
Question: Can you tell us about applications for funding supplies of Sukhoi Superjet aircraft to foreigners?
Answer: We have a number of applications. We received an application for funding the supply of three Sukhoi Superjet-100 aircraft to the Republic of Indonesia. Indonesia’s airline PT Sky Aviation plans to purchase them. We’ll use a credit-leasing scheme with engaging a special leasing company in the Swiss jurisdiction to lease out the planes to airline PT Sky Aviation for operation. Vnesheconombank will open a credit line for this leasing company for a period of 10 years. EXIAR is expected to participate in this scheme to insure a part of PT Sky Aviation’s obligations under a leasing contract.
The use of credit-leasing schemes in such kind of transactions is in line with world practice. Since an aircraft is the main collateral it should be owned by a company controlled by Vnesheconombank. An aircraft is not passed into the ownership of a borrower until it makes all leasing payments. So, in case of default, when a borrower can’t service obligations under a credit, an aircraft is to be seized and sold on the market. The main problem now is the absence of the market for Sukhoi Superjet-100 so it will be very difficult to sell it. That is why Vnesheconombank’s role is very important. It assumes this risk and supports Russian producers. We hope that in the course of time a market for these planes will be created and then commercial banks will be more interested to participate in such transactions.
We have another application: we are now exploring the possibility of funding the supply of three Sukhoi Superjet-100 aircraft to Laos where Lao Central Airline Public Company will operate them.
These two applications are at an advanced stage of preparation. They are being examined at full speed. We have a number of applications which are at an initial stage of preparation.
Question: Does VEB consider applications from foreign partners for funding supplies of other Russian planes?
Answer: We do not limit ourselves to Superjet-100; we are ready to support any Russian aircraft producers. Recently we have won the Finance Ministry’s tender in Indonesia for the supply of 6 Russian made SU-30MK2 fighters for Indonesia’s Defense Ministry. VEB is to fund the supplies; it will open a credit line for a period of 7 years. Besides planes they will also supply equipment and pilot training programs. We have won the tender and we have practically funded a credit agreement which we’ll to Indonesia’s Finance Ministry in the near future.
This is a landmark transaction because we fund the Republic of Indonesia without any state guarantees. In terms of credit rating this country is on par with Russia but its economy is growing faster. In our opinion this country is a prime borrower out of all countries that purchase our aircraft and maybe it’s the best in terms of creditworthiness. We are not working actively on any other applications from foreign states. We have of course received applications for other planes for example An-158, AN-148 but they are at an early stage of preparation.
Question: What planes do you think are most attractive in terms of exports?
Answer: Undoubtedly MS-21. We already have a preliminary agreement of intent on the purchase of this aircraft. It should replace ageing planes in Russia and other countries and for example in Indonesia.
I’m sure that Vnesheconombank will be ready to support this product of the United Aircraft Construction Corporation. Surely, it’s up to our Supervisory Board and the Government to make a final decision.
Question: Having subsidiary banks in Belarus and Ukraine how does Vnesheconombank support domestic exporters in these countries? Does your general program provide for promoting high technology products exports in these countries?
Answer: These countries are very important in terms of integration, so in the past a decision was made to purchase two banks – Belvnesheconombank and Prominvestbank. Our presence there aims to enhance foreign trade, integration and advance interests of Russian business largely in the form of exports and investments.
I’d like to remind you that in November of 2011 the Russian and Belarusian governments signed an agreement on extending a state export credit in the amount of up to 10 billion dollars to build a nuclear power station on the territory of Belarus. VEB acts here as an agent for the Russian Finance Ministry - a credit for the construction of this power station will be extended through our Bank.
At the same time, the Belarusian Finance Ministry appealed to Vnesheconombank for a credit to fund advance payments under this project in the amount up to 500million dollars for a period of 10 years. We have considered a credit application and taking into account this project’s great importance for Russia we have made a positive decision. A scheme looks as follows: we’ll fund this transaction together with Roseximbank. VEB’s participation share is 460 million dollars with Roseximbank’s share being 40 million dollars. There are plans to extend a state guarantee as collateral for this credit, this is Roseximbank’s responsibility. And payments under this credit and the project’s monitoring will be made through our subsidiary bank in Belarus – BelVEB.
We are preparing a similar transaction in Ukraine. Two Russian producers – the Novocherkassk Electric Locomotive Building Plant and the Urals Locomotives Company are planning to supply locomotives to Ukrainian railways. Here the transaction is at a middle stage of consideration because they plan to supply a great number of locomotives, moreover a great deal of money is involved and there are country risks. We are now trying to offer an optimal structure of the transaction to minimize these risks. Specifically, we are considering the opportunity to turn to EXIAR for it to work out a scheme to participate in this project. As far as this transaction is concerned, our subsidiary Prominvestbank is to be its security agent and settlement bank. Moreover, we’ll also engage VEB-Leasing for this transaction.
Question: Could you specify expected supply volumes and the sum of credit application?
Answer: A planned financing limit under the project is 2.2 billion dollars. It won’t be a lump sum but tranches depending on a specific supply. 350 locomotives are expected to be supplied plus an option for another 50 aircraft.
This transaction was discussed in summer at a meeting of the Prime Ministers, VEB has received certain instructions but no directives. We fund repayable projects we do not extend grants.
Answer: What projects aimed at promoting high technology exports are being considered besides funding the sales of Sukhoi Superjet aircraft?
Answer We have a number of transactions at an initial stage on promoting high technology services exports, specifically, the GLONASS project commercialization. There are a number of foreign customers who are ready to use GLONASS services both navigational ones and related services on geo positioning and cargo monitoring. The Russian company and prospective customers are at an initial stage of negotiations but we have already been involved in this process - we are considering payment clauses of would-be contracts. If they are signed VEB would be ready to explore the possibilities of providing financing. Here I mean customers from CIS countries.
Moreover we are actively working with a number of large-scale Russian companies both from manufacturing and raw-materials industries operating in African countries. I’m talking about access to raw materials sources and providing support for Russian companies operating on the African continent. About two years ago, Vnesheconombank established a Coordinating Committee for Economic Cooperation with Sub-Saharan Africa. Well-known Russian companies joined the Committee.
Now we are exploring the possibility of establishing a special fund that will provide financial support for Russian companies operating on the African continent. We haven’t made any decisions yet but we have received the Government’s instructions on this issue. We have plans to start working out a concept of such special fund.
VEB will be able to fund a certain part in this special fund and we are not going to be its only participant. We are in talks now with a number of major Russian banks that have customers in this region and with major Russian companies.
I’m not ready to specify the Fund’s scope of activity. We can enter into its charter capital, debt financing is possible, we can engage local investors, select potential projects, make monitoring and work with relevant authorities. We can expand this list after discussions with the Government.
Question: VEB raises funds for its programs on the market including in the form of syndicated loans. At what stage are you in raising syndicated loan worth 800 million dollars? Are you going to refinance a syndicated loan worth 2.45 billion euros?
Answer: We are raising a syndicated loan worth 800-850 million dollars to refinance the loan worth 700 million dollars and 100 million euros that we raised in 200o. We are at a final stage of preparing a loan facility agreement, that is, we have a pool of banks that are ready to support us. We plan to sign this agree till this year-end. Everything is going according to schedule. Funds are to be disbursed next year because the loan that we are refinancing expires right after the January holidays. And we’ll replace it with a new loan to a day but on better terms because the previous loan was raised against the backdrop of post-crisis consequences.
A large-scale loan worth 2.45 billion euros that we raised in April of 2011 on the terms unprecedented for the Russian market expires in 2014. We of course plan to refinance it but everything will depend on a market situation. VEB depends heavily on capital markets and if by a date of this credit repayment we see that we won’t be able to raise a loan on the same terms or will be able to raise a smaller loan we’ll replace the remaining part with some other instruments either eurobonds or domestic dollar-denominated bonds.
Question: Will there be any bilateral credits till this year-end?
Answer: There will be no large-scale credits. The process is naturally underway – we sign credit agreement every week but small ones. Markets are already closing pending Christmas.
Question: Do you still havel plans for ruble-denominated eurobonds?
Answer: Yes we do. Now there is a certain speculative demand for OFZs. In June, foreign investors are expected to get access not only to government bonds but also to corporate bonds. As foreigners now can invest only in OFZs a speculatively bloated demand is arising: yields on OFZs are somewhat reduced but it is more difficult for corporates and banks to get ruble liquidity.
We’ll be ready to make ruble borrowings on international markets if we see that given higher expenses on eurobonds, borrowings will be for us at least no more expensive than on the local market. And second, we realize that a volume really matters if a volume is insufficient it makes no sense to borrow on international markets with expensive lawyers, it’s easier to borrow on the local market.
When a speculative demand falls, when nonresidents stop buying OFZs in such large volumes and set their sights on corporates and banks, I think that terms of ruble borrowings are bound to improve.
Vnesheconombank Chairman V.A. Dmitriev’s Interview to TV Channel Russia 24 (Vladivostok – the APEC Business Summit)
TV Channel Russia 24,
HOST: Good morning Vladimir Alexandrovich. Thank you for finding time for us. Vladimir Alexandrovich, can we already sum up the results of the APEC Business Summit, how did Vnesheconombank benefit from it?
Vladimir DMITRIEV: Vnesheconombank’s Chairman: It’s too early to sum up the results at the moment as we’ll have business meetings and sign a whole number of agreements but in general, preliminary…
HOST: Do you already know what agreements you are supposed to sign?
Vladimir DMITRIEV: We know what we are going to sign, we know our partners and moreover we know what we have already signed and done. When I say “we” I mean Vnesheconombank Group. Perhaps, we have been represented so strongly for the first time and here I mean institutions that have been set up quite recently and that have been operating as VEB’s subsidiaries for several years. These are the SME Bank, the Russian Direct Investment Fund, the Export Insurance Agency of Russia and the Far East and the Baikal Region Development Fund. All these institutions are taking an active part in the APEC Summit, they sign agreements and meet their partners. It’s a good thing that Vnesheconombank and its subsidiaries are in demand in terms of cooperation with foreign partners.
HOST: Can you specify the agreements? Can you name the key ones, your partners, values of agreements?
Vladimir DMITRIEV: It’s important that we have signed agreements with specific partners who are ready to invest in this region and these agreements or memorandums are filled with real substance. I mean yesterday’s agreement with Summa Capital on the construction of a large terminal in the Far East to transship grain crops and soybean products with a capacity of 10 million tons per year which we are going to achieve together with them by 2017. These are significant investments of about 8 billion rubles. We signed an agreement with the Primorsky Territory. It provides for Vnesheconombank to support major investment projects including those in agriculture. This sector is underestimated but in general, has excellent prospects for development. We are going to sign an agreement with our Malaysian partners on providing support for small and medium-sized enterprises and on exchanging best practices in this sector and a whole number of other agreements directly related to Vnesheconombank and its subsidiaries. The Russian Direct Investment Fund has for the first time made public the first projects in which monetary resouces of the Russian Direct Investment Fund and he Fund set up together with the china Investment Corporation are to be invested (a project in the timber processing industry).
HOST: Vladimir Alexandrovich, how is VEB represented in the APEC and what are specifics of the Bank’s operation in this region?
Vladimir DMITRIEV: In my opinion, the region itself and Russia’s territory related to this region – our Far East are in great need of development institutions’ support. Relying on our cooperation with such regional development institutions as the China State Development Bank, the Asian Development Bank and development institutions in specific APEC countries, we look to a significant inflow of investments in the Russian Far Eastern region. And the agreement and specific projects I have already mentioned are very important for the region’s investment climate. Here I mean the Russian Direct Investment Fund and the China Investment Corporation that signed an agreement on providing support for SMEs.
HOST: The Far East is in great need of new infrastructure and transport infrastructure. And this will require long money which is in short supply in Russia and which VEB has. Is there a chance that some pension money will be used to build infrastructure and fund these projects?
Vladimir DMITRIEV: Undoubtedly, this is one of significant sources of long and pretty inexpensive money. We call for changing our investment declaration and a number of legislative regulations for a great amount of pension savings funds under the management of Vnesheconombank as a state managing company to be used for supporting and developing infrastructure in the region and implementing infrastructure projects. Here I above all mean an issuance of infrastructure bonds. In this respect, we have launched a whole number of initiatives. Fortunately, they were supported by the Pension Fund and the Finance Ministry. We hope that both at a legislative level and at a level of government regulatory documents our proposals would be backed and we’ll b e able to fund infrastructure in Russia as a whole and in the Far Eastern region in particular in great amounts.
HOST: What amounts do you have in mind? It’s quite clear that we can’t channel all pension funds to the Far East.
Vladimir DMITRIEV: There is no doubt about it but on the other hand we are responsible for managing funds worth more than1.5 trillion rubles. Out of them perhaps only 20 percent was used to fund projects in the real economy. So, we can’t say that these sums are sufficient to work for the development of the real economy and with profitability above inflation at that. We believe that several hundreds of billions of rubles might be in fact used to fund the development of several sectors of real economy and above all infrastructure. I think that the first projects will result from cooperation between Vnesheconombank and the Russian Railways.
HOST: How do you size up the Bank’s business activity in the Far East and its potential for developing programs to support small and medium-sized enterprises?
Vladimir DMITRIEV: WE must admit that business activity leaves much to be desired. And it is not because business is passive, it’s because in such remote regions with the infrastructure we know all about and environment conditions, business looks to the state for help. And it goes without saying that Russian business and the more so foreign one is ready to implement projects in the real economy in the Far Eastern region provided that the state shares risks typical of such regions with it on an equal basis. And in this respect, a proactive approach of the state and institutions created by it is of overriding importance. Here I mean the Investment Fund, Vnesheconombank with its subsidiaries and the Far East and the Baikal Region Development Fund which are supposed to effectively operate and effectively demonstrate that the state is ready to incur risks and share risks with investors and make strenuous efforts to support entrepreneurial and investment initiatives in these regions. To my mind, a pretty comfortable situation for investors is developing now and the current APEC Summit testifies to it. Yesterday we held a serious and informal meeting initiated by our President with business circles. The meeting’s participants showed their interest in making investments in this region. But at the same time, they made it clear that foreign business and foreign investors were ready to invest in this region and take risks together with the Russian state and institutions created to form a favorable investment climate.
HOST: And now just a few words Vladimir Alexandrovich. Do you plan in the near future to improve credit terms for your partners?
Vladimir DMITRIEV: It is extremely interesting question as it is addressed to Vnesheconombank as a development institution. I have already mentioned it several times and I’m ready to say it once more that credit terms and conditions for Vnesheconombank’s borrowers are directly linked to market conditions because market is our main if not the only source of funding our transactions. If market conditions change for the better or worse credit terms and conditions will change too. As opposed to many other development institutions, for example, in Germany all borrowings from the German Bank for Development are guaranteed by the state or, for example, the Brazil Development Bank is funded through using pension funds at preferential rates we rely on the market alone. And although some are tempted to regard us sometimes as a quasi-budgetary source of funding if not free but at least quite inexpensive the situation for our borrowers looks different. Therefore, we are going to change credit terms depending on the market conditions both in Russia and abroad.
HOST: We’ll hope that market conditions will be favorable for your borrowers. Thank you for your interview. I wish you every success.
Vladimir DMITRIDEV: Thank you.
In Order to Expand Russia’s Presence in APEC Markets We Need to Develop our Country’s Asian Part
Vnesheconombank Chairman Vladimir Dmitriev told Interfax about how VEB would be represented at the APEC 2012 Summit and what sort of agreement they planned to conclude
Moscow. August 28. INTERFAX.RU – Vnesheconombank acts as one of the APEC 2012 Summit’s organizers. The Summit is to be held in September in Vladivostok. On the threshold of the Summit Interfax asked VEB Chairman Vladimir Dmitriev several questions.
- How is VEB represented in the APEC space and what are the Bank’s further plans?
- VEB is implementing a whole range of projects with our partners from APEC countries. I believe that the Summit will become an important stage in expanding such cooperation.
At present, VEB is involved in implementing 17 investment projects with the participation of financial institutions and companies from APEC countries (Japan, China, South Korea, the US) whose total value exceeds $11 billion.
VEB’s objective as a bank for development is to boost Russia’s economy competitive edge, diversify it and encourage investment activity. We give high priority above all to implementing projects in Russia. These projects are aimed at developing infrastructure, innovations, special economic zones and environmental protection.
VEB has a high international standing, many development institutions from APEC member countries are our partners.
One of new mechanisms for co-investing is the Russian Direct Investment Fund (the RDIF) – VEB’s subsidiary. The Fund is designed to implement major investment projects together with foreign investors including those from APEC countries.
Last October, the RDIF and the China Investment Corporation (a sovereign welfare fund) with assets worth $410 billion) signed a memorandum of intent to establish a Russian-Chinese Investment Fund. The Fund is being established to make direct investments primarily on Russia’s territory and encourage economic development of constituent entities including regions of the Far East and the Baikal Territory. The Fund’s capital is to amount to $3-4 billion.
The recently established Agency – EXIAR gives high priority to the Asia-Pacific region. Even now, the region’s countries account for a significant share of total insurance obligations assumed by the Agency, and two of the first EXIAR’s transactions to insure the supply of Russian-made products were conducted with APEC member countries, that is, China and Vietnam.
- Russia’s role in APEC markets hasn’t been so far in line with its potential. What should be done to reverse the situation?
- A key factor in expanding Russia’s presence in APEC countries is an economic development of our country’s Asian part, above all, the Far East, the Baikal Territory and entire Siberia. Development of Siberian and Far Eastern transport-logistics infrastructure would help to increase Russia’s trade turnover with the APEC and raise additional foreign investments.
The region has a huge potential for creating clusters of economic development: substantial mineral resources, a large variety of bio resources, highly qualified personnel, the tourist and recreational potential. At the same time, despite its huge potential a task of this macro region’s development has not been accomplished. There are several objective obstacles: extreme nature and climate conditions, remoteness and poor accessibility of territories, non-developed infrastructure, multi-sectoral nature of industrial production, specific conditions of farming and sparse population settlement. Traditional nature management of Northern indigenous peoples is the basis of their life and their lifestyle.
VEB takes an active part in the development of territories. Even now, the total value of projects in which the Bank participates on the territory of the Far East Federal District exceeds 93 billion rubles and the amount of VEB’s investments is more than 57 billion rubles. The Bank implements projects in transport infrastructure, aircraft construction, petrochemical industry, timber processing and tourism.
To address main objectives of the macro region’s development we create a specialized development institution – OJSC the Far East and the Baikal Region Development Fund. As of today, the Fund has performed work on analyzing and systematizing investment initiatives of all 12 regions and made a preliminary list of investment projects.
By 2015, VEB’s loan portfolio with regard to projects with the Fund’s participation might grow to 70 billion rubles and this will result in forming and supporting projects by the Bank for a total amount of more than 350 billion rubles.
Territorial-production complexes are the only type of investment projects that can ensure development through using non-budgetary sources. In order to implement this approach we need appropriate political decisions.
It’s important to avoid a one-sided approach when high priority is given to the export of resources. We focus on projects aimed at creating export-oriented production facilities with a high level of processing and a significant proportion of value added. In the future, such production facilities might receive support from the Export Insurance Agency of Russia (EXIAR).
- Might the APEC become an instrument for transforming the region’s countries’ growing economic role into a political one?
- Since its inception the APEC has regarded itself as a free “aggregate of economies” rather than a politically well-consolidated group. This means that the organization gives high priority to economic rather than political issues. The organization’s long-term objective is to deepen intraregional relations through eliminating obstacles in trade-investment and technological interaction. Successful economic development and integration of APEC countries is sure to increase their influence on the world’s economic agenda. This is a natural process and there is no need to speed it up.
In terms of its geographical coverage and presidential format an APEC summit is the most representative and unparalleled business forum in the Asia-Pacific region where the world’s experts hold a multilateral dialogue and cooperate on key issues of trade, investments, economic and technical cooperation as we’ll on topical world problems and challenges.
Despite a mosaic nature of the APEC as an organization comprised of countries with incompatible levels of economic development and political systems it is a pretty homogeneous institution in terms of interests and development vector. Regionalization acts as a common denominator implying that high priority is given to intraregional cooperation and integration and to creating zones of free trade. This guarantees a strong consensus of opinion within the establishment of APEC member countries on key issues of intraregional trade and investment interaction as well as the world’s economic agenda. An APEC business summit has factually become a mechanism for drawing up regional rules on carrying on trade and undertaking investment activity and for formulating unified principles of doing business binding to all countries.
From the outset, one of APEC’s operating principles was to reach consensus through consultations. Success stories of neighbors act as powerful incentives.
- What agreements does Vnesheconombank Group plan to conclude in the course of the APEC 2012 Business Summit?
- On September 7, we plan to conclude an agreement with the Primorsky Territory Administration. This agreement provides for long-term cooperation in investment activity. We are to cooperate with the region in making arrangements for financing investment projects including those on PPP terms, work out schemes for their financing, participate in preparing project opinions and in raising funds to provide support for small and medium-sized enterprises. Currently VEB is already funding three investment projects in the region for an amount of 12.7 billion rubles (Vnesheconombank’s participation share is 7.6 billion rubles).
Moreover, our subsidiary bank – SME Bank plans to sign a memorandum of understanding with SME Bank Malaysia and with the Indonesian SME Development Ministry.
Russian Business-Gazeta (RBG)
№ 857 (28), 31.07.2012
About 40% of small and medium-sized enterprises complain of being underfunded
The International Entrepreneurship Support Fund is to start operating in the first quarter of 2013. Board Member, VEB Deputy Chairman Mikhail Kopeikin told RBG about the new institution’s objectives and missions.
- What’s behind the idea of creating the Fund?
- The Fund’s main objective is to provide additional financial resources and boost access to investment financing for above all medium-sized enterprises in the production sector. According to surveys about 40% of small and medium-sized enterprises’ executives complain of being underfunded or unacceptable terms on which commercial banks are ready to extend credits. This is particularly important for the production sector where there is a substantial gap between requirements for investment financing and potential for collateral security of such credits. And in the last years, the state has focused its efforts on developing small-sized enterprises and on large-scale infrastructure projects. Factually, medium-sized enterprises have been left without support.
- Why did such a situation develop?
-We are actively funding small-sized enterprises through the program of providing financial support for small and medium-sized enterprises (SMEs), the amount of support increased now to 185 billon rubles. But there is a regulatory limitation – under the program a maximum size of a credit is to be 150 million rubles. And the amount of VEB’s financing is to be no less than 1 billion rubles, with a project’s total amount to be no less than 2 billion rubles. Therefore, there is a certain gap in our range of instruments in which medium-sized business falls. And now we are making efforts to fill this gap taking into account that medium-sized enterprises are of vital importance for the country’s economic development. They generate demand for innovations, create new markets, have a good credit history but they don’t have enough funds to finance the projects they would like to implement.
- Is the Fund going to give top priority to funding medium-sized enterprises?
- Yes, it is, medium-sized enterprises will be its top priority. The Fund will have a potential for direct financing and target-oriented lending to commercial banks. And direct financing will be provided only to medium-sized production facilities through long-term investment credits, mezzanine financing and maybe participation in capital. We’ll provide support for real sector enterprises. These include manufacturing industry, construction, transport, and communications. The demand for this sort of financing is pretty great. We did a research and it found that SMEs operating in the production sector needed additional investment resources for an amount of 900 billion rubles per year. A significant part of this demand is generated by medium-sized enterprises. Maybe it’s not very much (the total amount of lending to SMEs exceeded 6 trillion rubles last year) but this is a demand in long money that enterprises find it particularly difficult to raise.
- Will the terms of funding offered by the Fund differ from market ones?
- We expect the terms to be market ones. We might accomplish this through engaging foreign development institutions whose cost of raising funds is lower than ours. We believe that this will enable us to extend funds on more favorable terms as compared to commercial banks. Credit periods will depend on an enterprise’s financial standing, profile, projects and a form of funding chosen.
- You are setting up another institution, namely, a Federal Guarantee Fund. What is it designed for?
- Guarantee mechanisms are created to address an issue of credit collateral security in the case that classical liquid security, for example, in the form real property is not sufficient. These mechanisms are actively employed in Europe and the US. For example, financial resources of European guarantee institutions exceed 20 billion euros making it possible to cover credits for an amount of 70 billion euros. In the last years the Economic Development Ministry has been making strenuous efforts to set up regional guarantee funds for SMEs. These funds act as guarantors to banks where borrowers take credits. This measure alone produces a significant effect. Given that guarantee funds’ total capital across Russia is about 30 billion rubles, guarantees and sureties were issued in the amount of 130 billion rubles, almost 1 to 4.5. At the same time, there are certain limitations in the regional guarantee funds because they as a rule are not capable of extending guarantees worth more than 100 million rubles. Therefore, for the most part only small-sized enterprises take advantage of sureties rather than medium-sized enterprises.
We believe that the Federal Guarantee Fund will be an addition to the system of SME support that was created by the Economic Development Ministry designed to fund not only medium-scale projects but also large-scale ones. In parallel with creating such a Fund we might also perform a function of coordinating and methodological center with regard to the system of regional guarantee funds. This will enable us to coordinate instruments of guarantee funds with the SME financial support program and introduce unified operational standards for the guarantee funds and improve the quality of supported projects.
- What’s the amount of the Guarantee Fund’s capital?
- It is to amount to about 10 billion rubles. And this will make it possible to issue sureties and guarantees for at least 70 billion rubles. We believe that the Fund will have commercial partner banks. High priority will be given to extending sureties to medium-sized enterprises that will borrow money from partner banks.
- When will the Fund start operating?
- The Federal Guarantee Fund’s operational scheme is to be prepared till the end of the year. It’s also worthwhile linking activities of the Federal Fund and regional guarantee funds with the SME support program that is being implemented. It’s necessary to engage partner banks and infrastructure support organizations in the system of extending guarantees formed by the guarantee funds.