Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
Host Marat Kashin
HOST: Vnesheconombank Chairman Vladimir Dmitriev is convinced that in order to transfer to full-scale payments in national currencies they should be stable. In his interview to our channel, he also voiced the Bank’s position on Mechel and Inter RAO.
-If anything, the main events at the Forum and here at the BRICS Summit are to create a New Bank for Development and a pool of reserve currencies. Do you believe that this will change in general the balance of forces in the world’s financial arena?
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economics Affairs (Vnesheconombank)’: If we mean the Bank I think it would be wrong to talk about the global change in the balance of forces in the world’s arena because our Bank is designed to address localbut at the same time large-scale objectives. The Bank was assigned to fund infrastructure as its priority. The needs for infrastructure are overwhelming. According to the World Bank, developing countries will need 15 trillion dollars to fund infrastructure until 2030. So, an idea to create a bank for development was put on the agenda of the BRICS Summit several years ago and the bank is designed to fund infrastructure.
It’s a good thing that the banks have agreed upon volumes and technical issues related to a location of headquarters as well as upon a composition of the Board of Directors. In my opinion, there is every reason to believe thatexecutives of finance ministries responsible for creating this bank would favor a proposal made by BRICS countries national development banks to form key personnel of a New Bank through engaging employees from BRICS countries banks for development. The New Bank is also to be provided with technical equipment and its employees are to undergo training courses in national development banks. These are rational proposals and I think they will be backed.
Who is going to be responsible for making decisions on extending credits and their terms and conditions?
Vladimir DMITRIEV:Decisions are to be made by a Board of Governors and a Board of Directors. The bank is to adopt the world’s best practices, which are common in such international financing development institutions as the World Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Asian Development Bank. Therefore, corporate governance bodies will make relevant decisions based on the best practices.
The most important thing is that the countries have agreed upon volumes of funds, which each of them is to contribute to charter capital on a parity basis. Stated capital is to amount to 100 billion dollars to be paid in tranches of 50 billion dollars.
At least, this fund would provide support for both national currencies and national budgets. There is no doubt that transactions to be conducted within the fund would to a certain extent help national currencies to become settlement currencies in trade and investments of BRICS member countries.
-Nevertheless, as far as the idea of creating a new bank is concerned, a number of experts say that it is necessary to stop using the dollar and try to make payments in national currencies. But contributions to the bank’s capital are made in dollars.
Vladimir DMITRIEV: We have to do a lot in order to transfer to full-scale payments in national currencies. First, currencies should be stable. Second, we have to develop a scheme for swapping national currencies. But there are enough examples that national currencies are already used in mutual trade and in international payments. We have to recall China’s recent initiative on creating a major Asian bankto use yuan as a settlement currency at least in investments.
As far as our relations with China are concerned, the ruble and the yuanare already used in making payments inthe cross-border trade. The yuan is trading on the Moscow Interbank Currency Exchange. So, we are making a steady headway. It goes without saying that we have to overcome a lot technical, systemic difficulties to stop using the dollar.
-There is another important question. Experts say that the International Monetary extends credits on rather hard terms. In the sense that it requires countries to make changes in their economies. Will the two new financial institutions require BRICS countries to do the similar thing? Do you think that it should be done?
Vladimir DMITRIEV: I don‘t think a BRICS Bank for Development will deal with such issues. Credits extended to fund infrastructure, support private business as well as support the banking system above all medium-sized banks are not granted on such tough terms as is the case in the World Bank and the European Bank for Reconstruction and Development. On the contrary, these credits are designed to support private business, developing private enterprise and freeing private initiative. In this case,I’m talking about Russia because I know how it happens. As far as the new bank is concerned I have no grounds to believe that it will be involved in supporting macroeconomic stability in these countries although by supporting infrastructure we create conditions for macroeconomic stability. But high priority is to be given to funding infrastructure because it is our common goal. This goal will be to overcome economic growth restrictions as well as create new jobs and develop industrial sector. This is a common interest of all BRICS countries. In addressing infrastructure objectives on the basis of mutual interest nobody is going to set tough terms.
-The need for investments in infrastructure is great in all BRICS countries. How are they going to prioritize and select projects upon considering applications?
Vladimir DMITRIEV: I wouldn’t like to assume the role of oracle who knows answers to all questions related to this bank’s activity. I think that even the bank’s founders – finance ministries do not have a clear idea of how various decisions will be made and what objectives in a country plan will be given top priority.
These objectives will be addressed in the course of creating a new bank itself. We should above all create a bank, employ personnel, provide it with equipment, we should also adopt appropriate corporate procedures,regulations. This is sure to take some time. But we should immediately start to analyze projects that could be funded jointly and make final decisions on the basis of common interests and priorities of various countries. These decisions will require a lot of time, certain efforts and expertiseThese countries’ territories and population account for a significant part of the global world. In my opinion, this bank won’t come up against big problems because leaders of our countries made strenuous efforts to make a decision on creating this bank.
Do you think that the creation of this Bank and a pool of conventional reserve currencies would somehow prompt to carry out a reform of the International Monetary Fund, which ground to a haltbecause of the US Congress decision to impose a veto.
Vladimir DMITRIEV:If there was no veto, we could expect certain changes. But as it is in place we have to adapt to the current situation. But the creation of this pool of reserve currencies would prompt to reconsider the realities we used to live in beforeand think over the need to create a more flexible system based not on one or two currencies but on the interests of global players.
-I have another several questions, which are a lot closer to the situation in Russia. There is much talking now aboutMechel. And the latest news is that the company was able to arrange for a rollover of credits with VTB Bank for an amount of almost 15 billion rubles. Are you ready to consider possible options or compromise in this situation?
Vladimir DMITRIEV:After I made a public statement,it was followed by the industry minister’s statement relating to Mechel’s future and the need to decide it in a different format rather than giving it a hand without thinking about consequences for Vnesheconombank, Mechel’s officials started to talk about a potential debt restructuring and a sale of non-core assets. Somehow, they started to think in a different way. In fact, I like this approach. Our position remains unchanged. This is not only my position, Our Board formed a consolidated opinion and I voiced it. We haven’t considered any other options. They are moving in a different direction now – commercial banks seem to be ready to discuss potential ways of debt restructuring with Mechel. We, of course welcome such steps.
-Are you going to discuss this situation at the next meeting of your Supervisory Board?
Vladimir DMITRIEV: It isn’t on the agenda.
-There is another Russian story. VEB calls Inter RAO to exercise redemption option for bonds. If my memory serves me right, the price is about 31 billion rubles. The market price now is about five billion. They say in Inter RAO that they don’t have money. What are you going to do?
Vladimir DMITRIEV:I think that legal wrangling with Inter RAO is the worst thing to do. But in the current situation we have no right to write off debts as a loss because the option provided for quite a definite price which differs significantly from the current market price.I’d like to remind you that we entered into Inter RAO’s capital only in order not to increase Inter RAO’s debt burden but to enable it to build its core facilities, specifically, power plants. We are going to talk with Inter Rao. So far we have made our first steps towards exercising our right. But if the situation develops in a different way rather than it was stipulated in our agreement, we are ready to compromise. But I’d like to stress it once more that we won’t accept any price that is different from the one specified in the option agreement.
-Some experts believe that VEB calls Inter RAO to exercise redemption option because it is pressed for available funds.
Vladimir DMITRIEV: You mean VEB?
-Yes, I do.
Vladimir DMITRIEV: The reason was quite different. We were guided by our right and the fact that the option had expired. I can assure you that we do not need money desperately and unconditionally to take such tough and unfriendly measuresagainst our partner Inter RAO. We have our representatives in Inter RAO’s Board of Directors, so we value our relations and we are not going to press then using all possible means to exercise our right. In fact, it’s a commercial dispute and we are going to settle it as it is standard in a civilized world.
-And now my last question. I can’t help asking you about VEB’s additional capitalization. A decision was made. The State Duma passed a draft law in the third reading. Have you received enough money?
Vladimir DMITRIEV: We have received enough money to ensure sustainable financial development and sustainable financial position. I mean above all capital adequacy ratio. This money is enough to form required reserves. Now we are in a difficult situation because with the liquidation of Olmpstroi, we are left on our own as we didn’t form reserves for Olympic credits relying on Olympstroi’s surety. And even if some corporate decisions are made rather than forming reserves both our auditors and our creditors that have Vnesheconombank’s bonds are well-informed about the current situation and will ask us questions we’ll have to answer in a proper way. We were capitalized with Tier 2 capital and now we have enough resources to form required reserves and ensure stability
We have a strategy and we are updating it now. The strategy provides for increased loan portfolio, increased volume of active transactions and a certain package of investment obligations. Given limited capabilities to raise funds on foreign markets to finance our operations, we should look for other alternative measures for providing government support. We do not mean now additional capitalization alone, we mean other measures of government support that would enable the Bank to carry out its mission of a Bank for Development and support Russian industrial exports without doing things we are not supposed to do.
-Thank you very much for your interview.
Vladimir DMITRIEV: Thank you.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
HOST: A meeting of G20 countries development banks, the so-called D20, was held in Rome. Vnesheconombank Chairman Vladimir Dmitriev in his interview to our channel told about themes of discussionб Olympic facilities as well as prospects for Russian aircraft exports.
Maria BONDAREVA: Good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Good afternoon.
Maria BONDAREVA: We can see here new aircraft - a sort of joint venture between Russia and Italy. VEB also participates in this project. Are you happy about cooperation with Italians?
Vladimir DMITRIEV: I can’t help being happy about cooperation with Italians because a part of my working and sometimes personal time is devoted to performing my functions as a Co-Chairman of the Russian-Italian Forum-Dialogue within the Framework of Civil Societies which is designed to enhance contacts and cooperation in various sectors including economy. This of course expands my mission as the Chairman of Vnesheconombank whose objectives include providing support for Russian industrial exports as well as enhancing international investment cooperation. In this respect, I am happy about the way our relations are developing with our Italian partners.
Maria BONDAREVA: Let’s get back to the aircraft as we are standing against the backdrop of them. Vnesheconombank lends to Mexican Interjet for it to purchase our Superjets and engages to this end other foreign creditors. To what extent is it difficult to do itunder the conditions when economic sanctions against Russia might be expanded?
Vladimir DMITRIEV: It is always difficult to maintain effective financial and banking cooperation because we should offer our customers the most favorable terms and conditions. Competition is fierce. But in terms of promoting SukhoiSuperjet 100 to international markets we are glad that we are cooperating with foreign banks and above all with Italian and French banks. The SukhoiSuperjet 100 is a product of cooperation between three countries: Russia, France and Italy. And we also happy about the relations we are developing with such state insurance agencies as Italian SACE and French COFACE.
I would also like to thank our Russian partners, which are involved in the scheme for promoting SukhoiSuperjet 100 to international markets. They include such members of Vnesheconombank Group as the Export Insurance Agency of Russia (EXIAR) and VEB-Leasing – a company that offers leasing services to foreign buyers of these planes.And as of today, three aircraft are ready to be supplied – the first two aircraft are practically complete and the third one is being completed.
Maria BONDAREVA: Eight are already flying.
Vladimir DMITRIEV: Eight are already flying in Mexico. It is here where the whole aircraft’s interior is completed. About 200 job were created in the facilities that had been used earlier for other purposes but as a result of the phase-out people lost jobs.And by means of our SukhoiSuperjet 100 we create additional jobs both here and in Russia as well because some production facilities are located in Russia.
So, we are certainly happy about the way we are cooperating with our Italian and French partners. And I’d like to stress it once more that this is a result not only of Vnesheconombank’s efforts but also of its subsidiaries.
Maria BONDAREVA: Vladimir Alexandrovich, how much money is Vnesheconombank ready now to lend to foreign buyers?
Vladimir DMITRIEV: It’s a matter of hundreds of millions of dollars. In this respect, I’d like to stress that supplies of SukhoiSuperjet 100 for Interjet – the second largest Mexican carrier are being made on the basis of comprehensive support for Russian industrial exports where as I said Vnesheconombank’s subsidiary institutions are involved as well as a mechanism for subsidizing interest rates which made it possible for us to offer the Mexican company terms and conditions that are rather market-oriented and competitive.And as you have said as many as eight aircraft are flying in Mexico.And the daily mileage is about 8 hours. The planes do not stand idle; they are always in the air. Customers are happy. And it is for this reason we hope that besides 20 aircraft that are firmly contracted, another 10 aircraft might be purchased by our Mexican partners.
Maria BONDAREVA: Mexico buys, Italy equips and Russia manufactures and extends credits. And as a whole is this scheme affected by notorious economic sanctions the United States and Western partners are constantly talking about?
Vladimir DMITRIEV: As far as this project is concerned, we are not feeling any pressureor negative attitudes of our foreign partners. Ingeneral, I should say that the sanction regime, more specifically, the reaction by a whole number of foreign banks to the global situation and above all the pressure from the American Administration is tangible. Many Russian banks failed to refinance their credits and had to search for special resources to settle with their creditors. But on the other hand, recent placements in Eurocurrencies by Gazprombank, Alfa-Bank and Sberbank show that the market is open for us. Evidently, Russian banks do not make borrowings in dollars they make placements on European markets and feel rather comfortable.
In this sense, I go along with Economic Development Minister Alexei Ulyukayev who said that we were ready for various turns of fortune. And you know that in the near futurewe’ll launch a new scheme for funding through the Central Bank to extend long-term investment credits for economic development of Russia. In this sense, our domestic resources are being mobilized so that economic development does not stop.
Maria BONDAREVA: Are you somehow getting ready for a further expansion of sanctions? There appeared some information that your Export Insurance Agency might be indirectly hitif a third package of sanctions is imposed.
Vladimir DMITRIEV: You know if sanctions are imposed and Vnesheconombank is among companies to be hit by them, it goes without saying, that all our subsidiary institutions will be influenced by this sanction regime. It remains to be seen… It is important to continue funding the Russian economy. And to this end, as I have said the Central Bank, the Government and ministries are ready to counter the expansion of sanction regime.
Maria BONDAREVA: You are going from here to Rome to participate in D20. What issues are you going to discuss there and what agreement are you going to sign?
Vladimir DMITRIEV: In fact, we’ll hold a regular meeting of Group of Twenty countries’ development institutions. It was Vnesheconombank’s initiative to hold such meetings. We held such a meeting last year in Moscow. The meeting showed that development institutions had a high stake in discussing issues in the G20 format, which are of interest for development institutions. And these are issues of searching for long-term credit facilities, providing support for small and medium-sized enterprises and regulatory rules because development institutions are specialized institutions – they differ from commercial banks. So, we want regulators to treat us in a different way because our objective is to raise long-term credit facilities to extend credits on preferential terms.
Maria BONDAREVA: Are you succeeding with it?
Vladimir DMITRIEV: Yes, we are. And it is important that as part of this dialogue we are moving to discuss joint projects. In the past, our Western partners – development banks of France, Italy and Germany placed main emphasis on searching for joint credit facilities to fund infrastructure projects in Europe. Now they are open for discussing issues associated with long-term funding of various projects in Russia. This is of great interest for us.
So, tomorrow’s meeting is sure to be very interesting. It will be held under the auspices of our partners from Australia.But the European Investment Bank acted as an organizer. We hope that this meeting would be highly instrumental in reaching further agreements.
We are not planning to sign any agreements as part of D20 except for a communique setting forth our common objectives of funding infrastructure, providing support for small and medium-sized enterprises and offering regulators conditions for treating development banks in a special way. But outside of this meeting we hope to sign several agreementswith our Italian partners that are determined to raise credit facilities from Italian banks to implement joint projects in Russia.
Marina BONDAREVA: Vladimir Alexandrovich I wish you a good trip. Finally I’d like to ask you one more question. There appeared information that Vnesheconombank which had extended credits worth 248 billion rubles to fund the construction of Olympic facilitieshoped for government compensation in case of its borrowers’ bankruptcy. Allegedly, VEB requested the Government to allow for a limit in the budgets for 2015 and 2017. Is this true?
Vladimir DMITRIEV:We are not departing from terms and conditions agreed upon with the Government and investors. The moratorium on debt repayment is in force until 2015. So, we do not insist on interest and principal repayment with regard to projects that were funded through using Vnesheconombank’s funds.
With the liquidation of Olympstroy, there arises a question of how we are going to address this problem because Olympstroy’s surety is still valid. Given its liquidation, Vnesheconombank is not capable of compensating for potential losses.
So, we do not require the state to compensate us for something in full right away. Our Bank the state and investors should look for ways of addressing this problem. As it is known that some projects are planned loss-making ones. We took time intentionally and imposed moratorium in order to see how in a period of two years apartments and hotels will be operated and sold and if a cash flow will be sufficient to settle with Vnesheconombank. This work is underway.
Maria BONDAREVA: How do you size up the situation?
Vladimir DMITRIEV: So far, with a cautious optimism, because some private individuals, a number of companies and ministries became interested in purchasing certain facilities. But I’d like to say it once more that our optimism is cautious. The year 2015 is not far off (time flies) and in any case we should be ready for various scenarios. But I’d like to stress it once more that Vnesheconombank, investors and the Government should work together. In my letter to our Prime Minister I proposed to consider various options ranging from providing direct support for Vnesheconombank to subsidizing investors’ interest rates for us to be able to restructure debts to reduce their debt burden. I think that in the long runwe’ll be able to find an optimal solution which is acceptable for the state, investors and Vnesheconombank.
Maria BONDAREVA: Thank you very much for your interview.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
HOST: A question of Vnesheconombank’s additional capitalization remains open. Vnesheconombank’s management and the Government have been in talks since last year about providing VEB with 200 billion rubles. Vladimir Dmitriev told our channel about it as well as about other things. Watch an interview of EvelinaZakamskaya with VEB’s Chairman as part of the Saint Petersburg Economic Forum right now.
EvelinaZakamskaya: Good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Good afternoon, Evelina.
EvelinaZakamskaya: We are happy to welcome you in our pavilion in Saint Petersburg, Vladimir Alexandrovich. What’s the difference between this Petersburg Economic Forum from all the previous ones? Do you feel the international pressure, in which Russia has been living in recent months here at the Forum?
Vladimir DMITRIEV: Your second question is an answer to your first one. It differs this way from all the previous ones. The main thing isthat our partners make no secret that our cooperation is developing in an extremely unfavorable international situation with a constant threat of sanctions and their increased scale. But it is important that our business partners stress that that they are not going to change their plans for continuing cooperation with Russia.As a Chairman of the Russian-Italian Forum-Dialogue within the framework of civil societies,I could clearly see it 15 minutes ago at our business breakfast. All leading top managers of the largest Italian companies stressed the need to further advance cooperation and expand their presence on the Russian market because they view Russia as their strategic partner and their plans are long-term ones.
And in this respect, Italy is not the only exception in the business community. There is no doubt that a strong pressure is being exerted on many companies. Some major representatives of European business failed to come to the Petersburg Economic Forum as opposed to previous years. But our middle-level partners stress that foreign companies’ presence on the Russian market is permanent and here they mean trade-economic and investment cooperation.
EvelinaZakamskaya: You’ve pronounced the word “long-term” several times and it is here on the Forum’s margins that many companies voice their concern that now it’s becoming more difficult to build a long-term dialogue for many years to come because our partners are expecting the third wave of sections, which is likely to be the most powerful one and could affect specific economic sectors.
Vladimir DMITRIEV: It’s not a secret that Russia has established close relations with most western European countries and western European business has been present in our country for decades. And here I mean both foreign companies and joint ventures created in Russia. We are all aware that even a potential threat of sanctions is not able to destroy things that have been formed for decades. Of course, there are threats, andthere are also considerable risks. Nevertheless, we all hope that this turbulent period won’t last for a long time and that in the long runwe’ll start to cooperate againand business will be optimistic about the future.
EvelinaZakamskaya: How do political difficulties with the West influence your relations with eastern partners?On the one hand, they are ready to cooperate and there is a great potential there because of growing markets but on the other hand this enables them to exert additional pressure on Russia and choose more favorable conditions for themselves.
Vladimir DMITRIEV: If you follow formal logic this might be true. But there are also long-term interests here and they have been forming for decadeswhen political events and economic conditions put us to the test.
I came back from China the day before yesterday. We opened financial company VEB Asia in Hong Kong. And at the opening ceremony in the course of formal presentation we could clearly see again that the business community in Hong Kong and this is not only Chinese business but also international business regarded Russia, despite the current situation, as a reliable and long-term partner.
Investments go to Russia. The Far East is a region, in which business of Asian-Pacific region countries is ready to invest. And a clear evidence of it is a great number of epoch-makingagreements signed in the course of President Vladimir Putin’s visit to Shanghai. Our Bank also signed major agreements including China’s Eximbank credit worth 500 million US dollars and its terms and conditions are rather market ones. They are not aimed atgaining additional advantagesin the current situation. This is also the case for major contracts, which were signed by Gazprom, Rosnneftand other Russian companies.
EvelinaZakamskaya: How is the current business situation influencing Vnesheconombank’s performance and forecasts for this year?
Vladimir DMITRIEV: It goes without saying, that we can’t help taking into account the current economic situation. We announced publicly that we had to early repay a syndicated loan without waiting for its refinancing. We raised this loan three years ago. Major east European financing institutions participated in it. The terms of refinancing offered to us proved unfavorable for us. And we found it possibleto repay this syndicated loan. And this did not impact our performance seriously.
As we view borrowings in terms of conducting our active transactions and funding our core activity, the current conditions are sure to influence our relations with our customers. We’ll have to adjust our plans and this will not affect painfully our activity and our relations with Russian borrowers.
EvelinaZakamskaya: We have received the news todaythat the Government has allegedly refused to additionally capitalize Vnesheconombank. I mean the National Wealth Fund’s financial resources worth 200 billion rubles that are placed on Vnesheconombank’s deposits. What does this news mean for you? First, has this news been confirmed? And how will it affect the Bank’s performance in the future?
Vladimir DMITRIEV: Frankly speaking, this news came as a surprise to me. A dialogue and discussions in the Government do not confirm this news. We have submitted all required documents for consideration by the Government. We are expecting relevant budgetary amendments. It is important to stress here that it’s not only a matter of the Bank’s additional capitalization, it’s a matter of the state’s support for the Bank. As opposed to commercial banks and public financing institutions, which can place their shares on the market an raise capital through additional issues, our main and single source of increasing our capital is the state’s monetary contribution because our Bank is a non-profit institution. Andmeasures of the state’s support including conversion of National Wealth Fund deposits in two-tier capital are caused by the need to further step up Vnesheconombank’s operations. They are well aware of it in the Government. Without the state’s support measures, the Bank’s activity will have to be scaled down. Nobody wants this to happen as the Bank was, is, and will be the largest financial development institution, the role of which in the current situation is becoming increasingly important.
EvelinaZakamskaya: When do you think a decision on additional capitalization will be made?
Vladimir DMITRIEV: We hope that in the course of autumn session ((I mean a parliamentary session) all necessary amendments will be passed. And until the end of the year, the Bank is sure to receive the state’s support to step up its business.
EvelinaZakamskaya: I wish you every success. Thank you very much Vladimir Alexandrovich.
Vladimir DMITRIDEV: Thank you Evelina.
In his interview to Gazeta.Ru Vnesheconombank Deputy Chairman Alexandr Ivanov told how sanctions imposed by the US and the EU affect the Russian economy, where VEB intends to raise foreign funds and why Asian markets are not very suitable for it.
-The European Union and the US have by now imposed rather serious sanctions against the Russian Federation and Russian companies. In this connection, how are you going to go ahead with your export transactions and what resources are you going to use?Even before the sanctions were imposed, the government believed that export support had not been sufficient.
-We also believe that we should provide more support for exports. Now Russia is among the top 10 countries in terms of exports – something about $500 billion. Unfortunately, about half of this sum accounts for raw materials. As to high-technology exports: machinery, transport vehicles, power-engineering equipment, that is high-tech value-added products, the proportion of these exports does not exceed5%. As a development institution, VEB is interested in supporting such exports and we are funding the bulk of such exports. For example, we are responsible for fundingsupplies of Superjet 100 aircraft under fixed-term contracts as well as a lot of energy and transport equipment exports, we also participate in negotiations with our leading companies that manufacture locomotives. However, we do not limit our activities to extending limits to buyers. In the past years, the total volume of export-oriented projects supported by Vnesheconombank in Russia amounted to almost 3 trillion rubles.
-What other export-oriented projects does VEB support?
-For example, Tobolsk-Polymer is the first plant of such a type – it exports about 50% of its products to China and other countries, the Yaroslavl Engine Plant “Avtodiesel”. Two billion dollars were committed for Superjet 100 aircraft when it was only in a project stage to create a production facility. Only recently have we started to build up support for exports. A relevant department was set up in June of 2013. Unfortunately, the industrial production is poorly developed and it is obvious that the state should create a more favorable general production environment. Financial support that we provide is very important but there are also non-financial measures that should be taken, industrial production and investment climate as a whole should be supported throughtaxes and preferences
-You’re talking about creating a favorable environment by the state. However, now a new joke has emerged and it says that no sanctions can harm more than our own government does in terms of creating conditions for enhancing business.
-As compared with previous years, government support is being provided. As far as a number of positions are concerned we are improving in the Doing Business rating. Tax administration has been simplified. Before sanctions were imposed we had received major investments from sovereign funds, the investments had been made together with the Russian Direct Investment Fund. After the imposition of sanctions, the investment climate deteriorated substantially. Some measures are being taken but the task is so complex that Vnesheconombank is not capable of fulfilling it alone.
-Asia does not extend many non-tied loans.
-In view of threats from the EC and the US to impose new sanctions where are you going to raise credit facilities for high technology and export-oriented projects? On the one hand, Western borrowing markets are being closed and on the other hand,I’d like to hope that Russian politicians and financiers would be wise enough not to tie themselves tightly to Chinese capital markets. Finally, the Russian budget is not limitless. Where will you get money?
- You are right; this is a serious problem for all Russian banks. Western markets are now practically closed. So far, the local market is accessible but it is less liquid. Credit tenures are not long enough and credits amounts are not sufficient there. We are looking to Asia and specifically to China. There are huge resources there.But as a rule China extends credits tied to specific projects that have Chinese content. As a rule, China does not provide non-tied money. South Korea is still ready to invest actively in Russia. So, we’ll have to rely more on our domestic market and budget. A new “road map” has established a pretty ambitiousrequirement for supporting exports: by 2018 we are to extend credits for an amount of just about 45 billion dollars. Under the current conditions, we won’t be able to raise such a sum. I think that even in the best years it would be problematic to raise such a sum.
-Russia is preparing on a wide scale for President Putin’s visit to China in May. Do decision makers understand that that there is a threat of strategic as well as financial dependence on China for many years to come?
-I can speak for us. Vnesheconombank plans to sign a credit agreement with the Eximbank of China to fund the Elginsk deposit. It is a coal deposit in Yakutia. I can’t comment on the agreement’s terms and conditions.First, it’s a commercial secret, second, the Chinese side is still agreeing upon the documentation. As far as price parameters are concerned, the money is attractive for us. It is less expensive than on American and European markets.
The Chinese link their participation to their supplying a part of equipment for the project. I’d like to stress that their part is not large, we also receive equipment from other countries. I see nothing bad in it because the demand for coal isn’t great in Russia and in China it is very high, why shouldn’t we sell our products? Imposing sanctions, Europe and the US are not doing the right thing driving us out of Western markets. Our country should be present in both Europe and Asia.
-What percentage of funds did you raise earlier on European and American markets?
-If we mean non-tied credit facilities, that is, Eurobonds, syndicated and bilateral credits on VEB’s balance, the percentage is about 80%. China and other Asian countries extend non-tied credit facilities in small amounts. They prefer to extend funds for specific projects or for equipment supplies.
-If we look at percentages of state funds and raised credit facilities, to what extent does VEB depend on the European money market?
-We have 40% of state funds and 60% of funds raised from the market. Out of them up to half accounts for capital markets, the second half is tied funding against coverage of export and insurance agencies. As far as non-tied funding is concerned, we depend for 80% on European and American investors. For example, Americans and Europeans account for 70% of our Eurobonds. And these are long-term funds, especially US funds – more than 10 years. In Europe, periods are shorter but it was the main source of capital. In China, the market is evolving seriously. We are looking to new opportunities but so far they have both different liquidity and different amounts of borrowing.
You support buyers rather than sellers
-On what terms does VEB extend credits to exporters? Are there any preferences for them as compared with other borrowers?
-For the most part, buyers of our products are from CIS countries, Latin America and in part South-East Asia. Their country rating is lower than that of Russia. Therefore, VEB can offer terms and conditions that are suitable for borrowers. There is an individual program of subsidizing interest rateson credits for buyers of our products. For example, a deal with Mexican Interjet.Mexico’s rating is comparable with Russia’s so, we applied a mechanism for subsidizinga short-falling delta between the cost of our funding and the cost of credit for the end borrower. As a result, we were able to participate in the syndicated loan together with Deutsche Bank and IntesaSanpaolo.
You are talking about buyers and what about exporters themselves?
-As a rule we do not fund exporters- we extend credits to buyers. We have a portfolio of pre-export financing but it’s rather small.It’s quite obvious that the exporter does not want to incur an additional debt on its account. It’s better for it when the buyer is funded. And then the buyer makes payments to us.
-As far as the subsidizing program is concerned, the terms of extending such credits are a bit lower than the market ones. Isn’t it a violation of WTO rules?
-No, it is this kind of subsidizing that is permitted.There is a special rule, under which government export promotion institutions can receive this sort of subsidizing.
Is Superjet 100 after all flying
As to Superjet 100, an emerging picture does not look very good. Providing support for high technologies is a good thing but the reality is as follows: you are asking people in Latin America to take your plane saying that it might fly sometime.
-First, it is after all flying. I agree that there are problems there for example with slats. By the way, they are not Russian made; it is a leading European supplier. Each time when Sukhoi sells its aircraft and receives sales proceeds it invests money in improving the product. Second, they have Embraeraircraft in Brazil. The Brazilian Development Bank funded it for about 40 years as well as extended credits to buyers. And today, every second regional aircraft in the world is Embraer.
-As far as I remember,everything got moving when Americans became interested in Brazilian aircraft construction and got involved in it with their money, technologies and production engineering. As a result, Brazil has become the world’s leader in aircraft construction.
-You may be right. But I still insist that Superjet 100 is our high-tech. They haven’t manufactured new aircraft in Russia since Soviet times.
-Almost 90% percent of its parts are foreign made.
-Foreign parts account for 60% in this aircraft. 30 and 30 percent - France and Italy. But basic airplane is ours.At first, we bought a part of equipment in Europe and now production is being increasingly localized. Engines are manufactured both in Russia and abroad. There were a number of problems with engines but they were resolved. We supported the manufacturer together with other banks by providing 2 billion dollars at the product development stage. We also supported such projects as Tobolsk-Polymer and the Yaroslavl Engine Plant. A lot of projects are being funded inside the country. But we are now convinced that under the conditions of globalization you find it difficult to sell even a good product because competitors are sure to offer their products as well as a financial package.
-And aftersales service.
-You are quite right. And it is very important. Superjet 100 is a new product and it has no secondary market. If you take Boeing as a collateral and your credit is not repaid you can sell the collateral on the secondary market in a week or two. This is not so far the case with Superjet 100. An issue of guarantees forfor residual cost has not been addressed and it is a very important issue in funding aviation industry. The Government is considering this issue now. But in my opinion if we do nothing, we are sure to lose what we have. Moreover, Superjet 100 provides jobs.
There aren’t any plans to suspend anything
-There is a team of optimists in the Government who say that sanctions play into our hands. Reduced incomes will force us to not only spend funds from oil and gas but deal at last with our own economy through increasing its efficiency. How do you size up the situation from a major financial institution?
-From my point of view, sanctions are more detrimental than useful. If financial markets are closed there are no investments and this affects Europe’s business adversely but our economy suffers too. Factually, any disturbance makes you think about new opportunities. In any case, Russia won’t stop producing raw materials. The raw materials export model will be in place for many years to come. There is nothing bad in it. For example, Norway exports a lot of gas. And under the current conditions there is no possibility and need to produce everything and on the Russian territory. We are not the Soviet Union and in the global world, there should be cooperation. It’s counterproductive to rely only on your own forces.
-Despite the fact that you are trying to tap Asian financial markets, you are now sure to come up against serious problems with funding. Are there any projects that are likely to be scrappedin case of fund shortage?
-At the end of the last year VEB’s supervisory Board approved a new concept of the Bank’s operation. Our entire portfolio is divided into two types of projects. The first group of project are the so-called market ones; we can see that they are profitable,high pay-back projects and you can easily raise money for them. The second group is comprised of the so-called directive projects that are submitted to consideration on the instructions of the Government and our Supervisory Board. The Bank might conclude for example that they are unprofitable or that money proceeds from them will be insufficient. In this case we request the Supervisory Board to provide us with special funding to implement such projects.As far as our current portfolio is concerned, we don’t have any plans to suspend any projects. Projects approved for funding will be funded. But we are also aware that sources of funding are becoming limited. Our balance will be additionally burdened. Liquidity gaps are already emerging. Like commercial banks, we are thinking about the possibility of limiting our loan portfolio growth. We might as well discuss new increased rates with borrowers as Sberbank and VTB do. Frankly speaking, the situation is tense now and we are preparing crisis plans at the Bank.
-When are you going to discuss them? At the next meeting of your Supervisory Board?
-We are holding a dialogue with our Supervisory Board, the Government and the Russian Finance Ministry. Moreover, we have to link everything to the dates of our capitalization. It was planned originally that the Bank would receive capital at the end of the first –at the beginning of the second quarter. Now we are talking about the third quarter. We should know for sure when additional capital will come because we are supposed to meet capital adequacy standard, which is higher than 10%. If we build up our loan portfolio actively, and there will be a delay in receiving capital for some reasons, we risk coming close to the standard’s critical value.
-Besides your efforts to raise capital on Asian markets, can you see any other sources of borrowings? Will you be able to raise funds, for example, from the budget?
-Besides Asian markets, we can see no alternatives except for the budget and the Central Bank. VEB has a limited mandate and we are not entitled to raise deposits from natural entities. Now we are working with our colleagues from the Central Bank in order to refinance our credits, for example, those credits that are extended for implementing investment projects against guarantees. Our proposal is to refinance credits to be extended for supporting exports.
-You mean not only credits that were extended for construction in Sochi?
-Yes, I do. By analogy with the way commercial banks do it. But VEB can’t use this mechanism because it is not a bank in the classical sense of the word. So, we are holding a dialogue with the Central Bank for us to be connected to a mechanism of refinancing.
How do you think major investment projects will be funded in Russia in the near future? Through bond issues or other mechanisms?
-I think that above all they will be funded by way of using financial resources of the National Wealth Fund. Then,don’t forget about such mechanisms as the Russian Direct Investment Fund (RDIF). There is a resolution by the Russian Government under which funds intended for government programs that have not been used until a certain point are to be transferred to RDIF. And RDIF is working not only with Western investment funds but also with Asian funds and funds from the Persian Gulf. They are still ready toinvest in Russia.
Software and Hardware for Export
-You’ve said that industrial production is not at a very high level in Russia. Do we have any new projects to be exported?
-We can see a rather great demand for assistance in supplies of software. Our companies are active in IT sector and we are already working on a number of transactions to fund supplies of software or hardware to third countries’ markets.
-What sort of software and hardware?
-For example, one of our leading companies on the market plans to supply dactylographic equipment designed to scan fingerprints, retina for access control and people movement control. And this equipment is widely used, for example, in airports.
-Is there a need for legislative changes to support exports? The committee headed by First Vive Premier Igor Shuvalov is now involved in working on such proposals. What are legislative barriers that stand in the way of exports?
-As to VEB, we have already submitted some of our proposals to our Supervisory Board. For example, we want VEB to be given the right to issue customs guarantees and VAT refund guarantees. We were not allowed to do it but exporters we are working with need such guarantees. The proposals are ata final stage of consideration in ministries. As far as the committee on exports and foreign economic strategy under VEB’s Supervisory Board headed by Igor Shuvalov is concerned we believe that such issues will be discussed there on a wider scale because besides VEB there are other participants in the Group such as EXIAR, Roseximbank, VEB-Leasing. We have also to address issues associated with non-financial support for exports; for example, customs administration. Some issues to be addressed will be associated with small and medium-sized enterprises, as they do not receive sufficient support.
-How did the events in Crimea influenceVEB’s activities in international institutions?
-If you mean our relations with international financing institutions we in fact didn’t feel any influence. The 37th session of theAssociation of Development Financing Institutions in Asia and the Pacific (ADFIAP)was held in late April in Moscow. This year, the session is chaired by VEB. Undoubtedly, the events in Crimea and Ukraine affected us. We have a subsidiary in Ukraine, namely, Prominvestbank, which operates in Kiev. Like other subsidiary banks with Russian capital, we can see there a certain outflow of depositors’ funds and this of course requires our support. As shareholders,we’ll provide such support.
-Will you tell us about your successes in your current position? Did you start last spring?
-Yes, I did if you mean exports. Because I’m also responsible for raising financial resources. I can say that we are proud that VEB has significantly intensified its activity on supporting exports for less than a year. The amount of our export-financing portfolio is about 160 billion rubles for the first quarter of 2014. Using various instruments, we provide financial support for export contracts of our domestic enterprises for a total amount of 710 billion rubles. Only in the course of the first quarter of this year, we extended credits worth 31 billion rubles to fund exports.As to the number of credits, we extended 18 export credits in the first quarter. I think that under the conditions when foreign markets are factually closed this is a good result.
Moscow, April 23, 2014
The number of financial instruments to support high-technology companies is on the rise.
Since the second half of 2013, Vnesheconombank has significantly increased its financial support for exports. For example, from the start of 2013to March of 2014, VEB has increased export financing by 3.2 times to 160 billion rubles, the amount of its loan portfolio has increased by more than 8.5 times and the guarantee portfolio – by almost three times. The Bank supported export contracts of Russian enterprises in the total amount of 728.3 billion rubles. At present, the Bank is considering several dozens of large and medium export projects, with the Bank’s expected participation share totaling more than 300 billion rubles. The Bank’s plans for 2014 are more ambitious – VEB Group hopes to increase its portfolio of export contracts to a trillion rubles. Director of Vnesheconombank’s Export Financing Department DaniilAlgulyan toldRG how they were going to achieve this goal.
Is a trillion rubles a realistic figure in the current economic situation?
DaniilAlgulyan: Of course, a lot will depend on the general economic situation both in Russia and on foreign markets. But it’s not only a matter of the number of contracts. We are seeking to substantially increase the number of exporters and export transactions being supported. At the same time, export financing geographical coverage is increasing. Nowadays, projects with our assistance are being implemented in 40 countries. Our key regions are CIS, Latin America, South-East Asia and Africa.
Last year, the national Russian industrial exports support system started to operate in full swing: it includes VEB, Roseximbank, the Export Insurance Agency of Russia (EXIAR), VEB-Leasing. Will any additional mechanisms be launched this year? It’s not a secret that demand for export support on the part of business is a lot greater than the state can provide.
DaniilAlgulyan: You’re absolutely right mentioning the export support system. As part of this system, we can offer exporters a whole range of financing instruments: from credits, guarantees, insurance to leasing structures. Being a parent company,VEB performs functions of a coordinator and a single window. VEB Group’s total export support portfolio exceeded 210 billion rubles out of which 160 billion rubles account for export credits (they are extended to foreign buyers of Russian export products) and guarantees extended by VEB itself. As a development institution, VEB participates in funding a number of major investment projects in such top-priority industrial sectors as oil and gas chemistry, smelting industry, construction materials manufacturing, timber processing, transport mechanical engineering, aviation. The portfolio of Russian export-oriented projects is more than 250 billion rubles. Here I mean funding of Russian enterprises whose products are to be exported.
We are actively involved in working on the further institutional development of the export support system and on boosting synergy from its operational components. Here I mean Reximbank, EXIAR, VEB-Leasing,transport mechanical engineering’s foreign subsidiary banks and financial companies. Our main objective is to provide Russian producers with both individual financing solutionsin implementing complex structured projects and with mass batch credit products above all in the SME sector. Now, new joint products of EXIAR and Roseximbankare being developed to support the exports of small and medium-sized enterprises.
Having joined the WTO, Russia refused all measures to financially support exports with the exception of those allowed withinOECD. As a result, in 2013 exporters were left without such type of support as subsidizing of interest rates under targeted credits. Now the process of Russia’s joining OECD has been suspended. Could export support measures be reviewed in this context?
DaniilAlgulyan: There is a whole range of government export financial support measures including certain types of subsidies that do not run counter to Russia’s international commitments and that are successfully used to support Russian exporters. In the last months alone, we have approved more than 20 credits for foreign buyers of Russia’s high-technology products with the use of such instruments. And our task is not a price damping but creating a level playing field for Russian exporters with their foreign competitors in credit financing.
How did sanctions against Russia affect export support? Did you suspend the implementation of any export projects, specifically, in Europe?
DaniilAlgulyan: The deterioration of the international situation did not stop the implementation of export projects we are working on now including those in Europe. But the main markets of Russia’s non-raw materials exports are CIS, Asia, Africa and Latin America.
In what sectors do export contracts predominate (aircraft construction, rocket-space industry, power engineering, mechanical engineering, defense industrial complex)?
DaniilAlgulyan: In the last year, our key export sectors were aircraft construction, mechanical engineering and power engineering. As far as supporting exports of Russian aircraft are concerned,we’ll continue to fund export supplies of SukhoiSuperjet 100 aircraft. We have made a decision to fund the supplies of 26 SukhoiSuperjet -100 aircraft to various airlines in Latin America and South-East Asia. In fact, a national aviation export financing competency center is being established on the basis of VEB. We are working with all segments of non-raw materials market and we can see a huge yet unrealized potential in most of them. We are actively involved in a number of projects in engine building, railway and automotive mechanical engineering and information technologies.
How is VEB going to increase the number of producers-exporters and credit transactions that it will support?
DaniilAlgulyan: Above all, we are trying to significantly boost producers’ awareness of our support system and existing financial instruments. Unfortunately, Russian producers are often unaware of the current export support opportunities. This poses a serious problem for us and shows us that we have to step up our efforts in boosting producers’ information awareness. We should hold workshops, conferences, especially in the regions, and work with mass media. Moreover, we attach much importance to offering consulting services. We are also making strenuous efforts to improve our decision-making processes. We are developing new financial products to adequately respond to Russian exporters’ needs.Over the last months, we have significantly reduced an average time of handling applications and increased the number of transactions being handled and approved. We are pursuing flexible policy with regard to projects we support andwe also fund a wide range of non-raw materials supplies the value of which ranges from several hundred thousand dollars to billions of dollars.
What new products to financially support export transactions in view of Russian exports needs will be developed in the n ear future?
DaniilAlgulyan: We are giving top priority to developing standardized products and financing programs, which will make it possible to significantly boost accessibility and efficiency of export support for Russian producers. As an example, we can give a system of framework agreements with foreign banks on target funding of Russian exports, which we are trying to create now. Such financing structures reduce the time of handling applications substantially.
Under the draft law of the Economic Development Ministry, VEB is to be given the right to extend guarantees for paying taxes for taxpayers.What should be done to exercise the right to extend guarantees for paying VAT?
DaniilAlgulyan: Now, the Russian legislation does not provide for an opportunity for VEB to extend guarantees for refunding compensated VAT in favor of tax authorities and guarantees in favorcustoms agencies. These guarantees are used by Russian taxpayers to reduce time periods to compensate for VAT from the federal budget as well as to secure their obligations on paying customs duties. We have prepared a package of amendments to the federal legislation providing for giving banks the right to issue guarantees for refunding compensated VAT and guarantees in favor of Russian customs agencies. Granting powers to issue such guarantees will make it possible to boost efficiency of the comprehensive export support system, reduce customers’ expenses and help to implement new projects needed for the Russian economy.