In the First Half-Year VEB is to Present its Loan Portfolio Divided into Two Parts - Vladimir Dmitriev

24 january 2014 года

January 24. INTERFAX-AFI – At the end of the last year VEB’s Supervisory Board considered criteria for dividing the Bank’s loan portfolio into projects of the Bank for Development and special projects. In his interview to Interfax VEB Chairman Vladimir Dmitriev told about how the portfolio would be divided as well as about the Bank’s performance for the last year and plans for 2014 and the progress of implementing a number of concrete projects.

-What does the portfolio division mean? Is this VEB’s balance division into two parts or a special mechanism for approving non-market projects?

-There are a number of parameters including those related to funding and if a project is not in line with one of these parameters, it falls into a category of special projects. And in this case without going beyond the framework or the format of the current balance we’ll raise the question of creating special conditions for funding such no-market projects. Criteria for dividing the portfolio were approved by our Supervisory Board and in the near future and here I mean the first-second quarter of this year we’ll present an already formed portfolio divided into two parts in accordance with these criteria.

-In view of potential additional capitalization through deposits of the National Wealth Fund, aren’t you planning to reduce your activity on raising foreign funds?

-Basically, our capital won’t be increased because it’s not a matter of any new money. These are the deposits placed in Vnesheconombank and they were used to fund certain projects. So, our borrowings program both inside Russia and abroad will remain almost intact. We are not going to reduce our activity both on eurobonds markets and in terms of raising tied credits or syndicated loans. The basket of currencies is likely to remain the way I was. So, answering your question I can say we won’t reduce our activity.

-Aren’t you going to use in your borrowings program any hybrid instruments, specifically, subordinated bonds that can be included in the Bank’s capital?

-The fact is that our Bank is not a commercial one and it is not a joint stock company so we are not going to offer convertible bonds to the market because they are applicable to commercial banks but are not applicable to us. So, we are not keen on exotics. In the world’s practice there are absolutely proven ways of capitalizing and supporting development banks on the part of the state, we have already discussed them at our Supervisory Board’s meetings and we’ll use them. The Bank’s Supervisory Board and the Russian Government are fully aware of the ways to ensure Vnesheconombank’s dynamic development and enhance its role in funding the Russian economy.

-VEB’s net profit for nine months proved to be a lot higher than expected. Was it for the most part the result of selling EADS shares?

-Yes, it was for the most part. Moreover, we have reviewed our attitude to several projects that attained a good payback level.

-What projects do you mean?

-I can’t just say. I haven’t seen the latest data. And we are now talking about preliminary figures. We’ll get audited financial statements in the second quarter.

-Have you sold EADS shares in full? Was it a strictly market sale? Or were there any major investors-buyers?

-Yes, in full. It was an absolutely market sale and we looked at similar transactions at the same period and the price at which we sold EADS stake was higher than the price at which transactions were conducted by other shareholders who wanted to withdraw from the capital. So, strenuous efforts by a whole number of brokers during this year to offer relevant services to Vnesheconombank for a significant commission fee failed because of actions taken by our professional managers who sold them at a good profit without negative implications for the price movement of EADS shares.

-So, investment banks offered you their services wishing to make money on this transaction?

-Yes, they did. But we demonstrated once again that Vnesheconombank had a professional team and that we were competent enough to conduct transactions without moving the market significantly on the most favorable for VEB terms.

-As far Gazprom’s block of shares (MOEX: GAZP) owned by VEB is concerned you said repeatedly that a criterion for making a decision to sell it is a break-even condition for VEB. But you also mentioned such factor as state control which is guaranteed due to abovementioned VEB’s block of shares. Which factor is primary here? For example, if you see that the market allows you to sell Gazprom’s block of shares at a significant profit will you be free to act on your own or state control will come to the fore?

-A decision to purchase Gazprom’s block of shares from a German company was taken by the Bank’s Supervisory Board and a part of the block of shares was purchased as part of managing Vnesheconombank’s liquidity. So, a decision on selling the block of shares should be also taken by the Supervisory Board.

As VEB’s Supervisory Board is in fact the government – it is headed by the Prime Minister, state control factor will be taken into account upon making a decision.

This means that given the most favorable market conditions, you won’t automatically raise a question of selling the block of shares and generating profit as it is up to the government to make such a decision?

-Why not? We’ll raise this question before our Supervisory Board to generate profit to fund transactions of the Bank for Development.

-To what extent did VEB’s loan portfolio grow last year?

-Our loan portfolio grew significantly. It is safe to say that it increased by about 30 percent. Our loan portfolio and guarantee support for industrial exports increased significantly by 120 billion rubles. And credits to support exports increased by six times. And as a whole credit and guarantee support increased by about three times.

And I’d like to stress that due to our credits and guarantees worth 120 billion rubles Russian industrial exports amounted to about 700 billion rubles. Here I mean guarantees for advance payments, advance repayment guarantees, due performance guarantees, tender guarantees, that is, all those mechanisms that made it possible for Russian enterprises to compete on a par with foreign suppliers and increase Russian industrial exports.

-What portfolio growth do you look to in 2014?

-Approximately at a level seen in 2013.

-It means about 30%?

-According to our strategic benchmarks we are supposed to increase our portfolio to 3 trillion rubles till the year 2020.

-What was its amount in 2013?

Now it’s about 1.5 trillion rubles.

-During the 2008-2009 crisis VEB extended subordinated credits to banks for them to maintain comfortable level of capital. Given that since then inflation slowed down and lending terms changed, didn’t the banks turn to you with proposals for prior repayment of credits?

-No, they didn’t. Our portfolio remains unchanged with the exception of Gazprombank (MOEX:GZPR) where the credit was converted into capital. As far as other banks are concerned grace period is applicable to them during which they don’t make interest payments and do not repay principal. I have no information that somebody wanted to early repay the loan.

-What’s going to happen to infrastructure bonds of large companies, given the changes in VEB’s activity as a state managing company caused by the pension reform?

-We informed the Government that we would not have free financial resources to buy out infrastructure bonds. We fulfilled our conditions; we placed 280 billion rubles in bonds of RZHD (MOEX: RZHD), Rosseti( MOEX: MRKH) and several more issuers, but we can’t count on substantial amounts next year. The only possibility is that if the government considers some options to replace funds invested in government bonds or bonds backed by state guarantees we’ll use received funds to buy out infrastructure bonds or bonds of Russian natural monopolies. But so far we have to follow the rule in accordance with which our extended portfolio is to be composed of at least 50% of government securities or those backed by state guarantees.

-Is there any progress on the issue of project financing of Yamal SPG with potential participation of VEB and the Russian Direct Investment Fund (RDIF)?

-In accordance with its declaration and its mission RDIF can participate in funding projects only on the basis of co-financing with other investors. This means that the project should be attractive for Russian or foreign investors. So far, RDIF has been exploring the possibility of participating in a joint venture which will be involved in transporting liquefied gas, constructing and operating vessel fleet. This JV might be for example created by Sovcomflot and RDIF. NOVATEK (MOEX: NVTK) might be responsible for transporting liquefied gas using outsourcing alone. Other potential investors might also join the JV.

In this case, it is important to ensure guarantees of sustainable supplies at a fixed price as this gives RDIF a reliable guarantee mechanism for return on capital.

As to funding Yamal SPG project itself we have been actively discussing this issue with NOVATEK. We assume that a syndicate of banks will be created because it is a large-scale project. For us it is in line with criteria for a development project.

Moreover, we have been working with a team of NOVATEK’s beneficiaries on a whole number of other projects: they include Rosneftbunker (Ust-Luga)and Tobolsk-Polymer. RDIF is closely cooperating with them. We are happy to work with them and they are well aware of requirements they have to meet to turn to Vnesheconombank or its subsidiaries for funding.

-How are Globex developer projects going and in particular Slava project.

-The project is agreed upon with Moscow’s government. Last year we raised 800 million dollars from the China Development Bank to fund a project on the construction of a polyfunctional complex on the territory of the Slava plant. We don’t rule out the possibility of engaging well-known Chinese companies for contract and construction work as it is one of the conditions (a preferential but not mandatory one) for extending a credit to us by the China Development Bank.


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