Vladimir Dmitriev: The Far East becomes attractive for investors
TV CNANNEL RUSSIA 24,
HOST: And now we’re returning to the Island Russky where the First East Economic Forum is under way. Nailya Asker-Zade is working in our studio there, her guest today Vnesheconombank Chairman Vladimir Dmitriev. Good morning Nailya, go ahead.
HOST Nailya Asker-Zade
HOST: Roman, good morning. The Far East Economic Forum keeps on going and now we’ll talk about the most topical questions under discussion at plenary sessions with Vnesheconombank Chairman Vladimir Dmitriev. Vladimir Alexandrovich, good morning.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good morning.
HOST: We have just listened to Vladimir Putin’s address and he said that the Far East had a great potential for development and could compete with the world’s economic centers. What should be done to make this happen?
Vladimir DMITRIEV: The state has approved a program to develop the Far East and the Baikal region to make this region attractive both for Russian and foreign investors. And for it to compete on equal terms with global players, major economic centers of the Asian-Pacific region countries it needs above all infrastructure. And in this sense, creating a territory of outrunning development is a right step in this direction because the state undertakes to form an appropriate infrastructure for investors, drastically reduce administrative barriers and create required mechanisms for providing economic support to investors by reducing taxes and insurance payments. All these measures play a key role when investors decide where to invest their capital. And we can see that many agreements have already been signed as part of the East Economic Forum, now we can see an interest of investors from the Asian-Pacific region countries, above all, our close neighbors – China, Japan, South Korea and a number of other states. I am sure that the Far East is a very promising region in terms of its economic appeal. Some days ago, we held talks with our Chinese partners and could see that they are increasingly interested in cooperating with us on the territory of the Russian Far East.
HOST: Let’s talk about the Far East Development Fund’s operation. What important projects have been already funded from this source?
Vladimir DMITRIEV: As far as the Far East Development Fund is concerned, I’d like in the first place stress a significant change in its investment declaration which allows the Fund to enter into capital, be engaged in pre-project activity, fund pre-project work, train personnel and extend financial resources at below-market interest rates. Naturally, this creates conditions for raising foreign capital to fund projects that are important for the Far East and the Baikal Region Development Fund. Of the projects nearing completion I would like above all single out such major infrastructure projects as the development of the Khabarovsk airport as a regional hub and the construction of a bridge crossing over the Amur river between Russia and China. The Chinese side has already done a lot of work and we hope that in the near future work will start at a quickened pace on the Russian territory and we’ll be able to launch this major infrastructure project. The Far East and the Baikal Region Development Fund focuses also on agricultural complex, aquaculture and a number of industrial facilities. And we’re glad that Russian President Vladimir Putin stressed the importance of the Far East and the Baikal Region Development Fund as well as the Direct Investment Fund – subsidiaries of Vnesheconombank - when he was speaking about this region’s development. He also expressed the hope that the Far East Development Fund would be additionally capitalized to carry out tasks set by the President. The Direct Investment Fund will be also additionally capitalized to be able to get down to implementing projects that are of primary importance for the region’s development and for raising more and more foreign funds with the assistance of our Fund.
HOST: In the course of Vladimir Putin’s visit to China an agreement was signed in your presence. Could you tell about it in more detail.
Vladimir DMITRIEV: We signed two agreements in China: the first one - with the Eximbank of China. It provides for funding a major industrial project "the Bystrinsky mining and processing complex". It will manufacture copper concentrate and a number of other products intended above all for exports to China. This project is attractive because it will be funded in yuans. There are some problems here related to currency swaps but we are working with our central bank and our Chinese partners are working with the Bank of China in order to create acceptable terms with regard to currency swaps - the ruble and the yuan. Another agreement that we signed is a quadruple agreement between our subsidiary – the Russian Export Center, Vnesheconombank, one of the largest Chinese province and Sinotrans & CSC Group. The agreement provides for supporting Russian exports and building a logistics hub, which will offer preferential terms for products being imported from Russia to be further distributed on the Chinese market and the Asian-Pacific region countries’ markets. And in this sense, this agreement fits fully into the Russian Export Center’s strategy. The Center comprises The Russian-Export-Import Bank and the Export Insurance Agency of Russia. And with Vnesheconombank’s assistance we’ll create appropriate infrastructure for increasing freight traffic from Russia to China to reexport these products to the Asian-Pacific region countries.
HOST: You’ve already mentioned that there are some obstacles to using national currencies in mutual payments between Russia and China. And what should be done to remove them?
Vladimir DMITRIEV: Now, the mechanism for currency swaps applies only to short-term operations related for the most part to trade business, with a period of operations being no more than one year. But in case of funding long-term projects there is a need for an arrangement between the national banks of China and Russia for swaps for a longer period of time. Our talks and contacts with our Central Bank and our Chinese partners’ contacts with their regulator show that there is a will to set up a reliable swapping mechanism for investment transactions funded in national currencies (yuans and rubles).
HOST:You met President Putin not long ago and discussed export credits. Now the portfolio of loans extended by Vnesheconombank for funding, for supporting exports is already about 350 billion rubles and you are working over issues of loans for an amount of 550 billion rubles. What kind of projects could they be?
Vladimir DMITRIEV: These are projects related above all to supporting industrial exports. The geography of these exports are wide and we are restoring former ties, which our enterprises used to have in the Soviet times with their foreign partners rendering assistance in building large-scale energy facilities supplying industrial products and high value-added products. Now we are focusing on aviation industry, energy mechanical engineering, and transport mechanical engineering, nuclear power industry as well as agriculture. It should be stressed that the geography is expanding and includes Latin America, CIS countries China, of course, the South-East Asia countries. Besides providing support for the export of Sukhoi Superjet 100 to Mexico we also support the sale of the rolling stock to Azerbaijan by UralVagonZavod, we also support Silovye Mashiny in their exports of products to Latin American counties. Here I mean energy mechanical engineering. for example we participate in funding a project on the construction of the Chiuido Hydropower station in Argentina and Sylovye Mashiny Company is expected to supply its equipment there. I’d like also to mention our cooperation with Mongolia in the construction of a thermal power station. We are glad that a single window system has been put in operation as part of which the Russian Export Center, I’ve already mentioned about, offers a range of services to Russian exporters including mechanisms for guarantee support, insurance support and assistance rendered to small and medium-sized enterprises in finding foreign partners through the Russian Export Center and exporting their products through this Center. It should be noted that such mechanisms of the state support as subsidizing interest rates are in full compliance with the rules applied in the member countries of the Organization for Economic Cooperation. We are not backing down on best international practices and now we can compete with foreign companies that enter the same markets on equal terms.
HOST: Vnesheconombank also operates through a mechanism of state guarantees and its first guarantee was issued through a simplified procedure VEB extended under Transaero’s credits in the amount of 9 billion rubles. How do you assess risks associated with this guarantee?
In its capacity of the agent for the Government in issuing state guarantees, Vnesheconombank is obliged to see to economic status of a principal company. In this case, a guarantee was issued in favor of VTB, it acted as a beneficiary. The situation with Transaero is familiar to everybody but it is rather complicated. We can see that it was Aeroflot that lent its shoulder. In this case, default is out of question and we are monitoring the situation although it’s clear that without the state’s assistance one of our largest air carrier won’t be able to overcome the difficulties that have emerged lately. We welcome the steps that have been taken by the state to get the company out of the pre-default situation. As Vnesheconombank provided financial support for Transaero through its subsidiary VEB-Leasing in the amount of 55 billion rubles we care about how Transaero’s problems will dealt with. Naturally, we want the state not to overlook potential problems of leasing companies that provided significant financial support for the air carrier while addressing Transaero’s problems. I think we’ll be resolving these problems together with the government institutions and now with Aeroflot. But the situation is rather complicated and we should look for a way out of it on the basis of a compromise between the air carrier, banks that extended credits and leasing companies that provided the air carrier with airliners.
HOST: Do you think that Aeroflot lent a strong shoulder and the company is going to survive or only Aeroflot will benefit from the situation and the company will be…?
Vladimir DMITRIEV: Of course, we hope that Aeroflot with its competence, serious financial resources, partner ties with the largest Russian banks and leasing companies without detriment to its own commercial and financial activity will be able to resolve the situation and we intend to help our leasing companies to address their problems.
HOST: How long will the ruble go on falling?
Vladimir DMITRIEV: If I knew an exact answer, I might be given a Nobel Prize or at least a prize for the best prediction.
HOST: Could we expect an exchange rate to be 100 rubles to the dollar?
Vladimir DMITRIEV: Unfortunately, we have to acknowledge again that the ruble exchange rate depends directly on oil price and oil price depends directly on the general economic situation – on the demand for oil products, on the sustainability of developing countries’ economies, on the dynamics of China’s economic development. Although the Chinese leader said reassuringly yesterday at the Meeting of Russia’s and China’s leaders that an expected economic growth would amount to about 7 percent this year - the best indicator not only among developing economies but also in the world, the latest developments on the Chinese stock markets, deceleration in economic growth as a whole do not make us optimistic about increased oil prices. Getting back to your first question about the Far East, I’d like to say that it is important for Russia to go on making structural transformations in our economy, developing infrastructure. This is the only way to overcome notorious dependence on energy resources, kick the oil curse and create additional synergy for developing major industrial sectors through forming a reliable infrastructure both here, in the Far East region, and in the country as a whole. And the projects being implemented now I mean high-speed motorways, highway junctions, the Central Circular Road, toll motorways are of course the right steps in the right direction. Let’s be optimistic, roll up our sleeves and start implementing structural reforms in our country.
HOST: But China like Kazakhstan devalued their currencies voluntarily. And what countries can follow suit?
Vladimir DMITRIEV: I can’t give you an exact answer to this question – all depends on the current economic conditions. And it would be wrong for me to name specific countries that would ask me harrowing questions through certain channels. As we live in a global world where countries depend on each other seriously and their economies are interrelated, everything will depend on global behavior and we can’t rule out anything.
HOST: And now my last question. Did VEB adapt to operating under conditions of sanctions?
Vladimir DMITRIEV: Firstly, in fact, sanctions proved to be a serious test for us but given the latest decisions and the fact that we rely on the state’s support and we are feeling comfortable. For example, our Bank was additionally capitalized and the capitalization was associated with the need to be in line with capital adequacy ratios because our loan portfolio is increasing and therefore capital should increase for capital adequacy ratios to be in line with the Memorandum on Vnesheconombank’s Financial policies. Only economic growth, forming reliable infrastructure and funding major industrial projects will allow us to diversify our economy and balance its development. We rely on the strategy that remains unchanged. It was approved last year. This strategy provides above all for increasing the loan portfolio, entering into capital, providing support for our subsidiaries, above all companies that are designed to participate on their own in investment projects and raise foreign investments. They include the Far East Development Fund, the Russian Direct Investment Fund, the North Caucasus Development Corporation. Answering your question I can say that we managed to adapt, we are developing, we are developing with our country and as a state development institution, we fully rely on the state’s support.
HOST: Thank you Vladimir Alexandrovich.
Vladimir DMITRIEV: Thank you.
Moscow, September 1, 2015
Author: Anna Romanova
Russia’s Bank for Development and China’s financing institutions cooperate
In the context of the Russian President’s forthcoming visit to the PRC expected to take place in September off 2015, Head of Staff of the Presidential Executive Office noted: “I can say without exaggeration that at present the Russian-Chinese relations are at the highest level than ever before”.
The same can be said not only about political but also about financial sector. The Russian Bank for Development – Vnesheconombank (VEB) have been working together with Chinese financing institutions for a long time and in the past several years their cooperation has expanded.
Committed to development
VEB’s main partners are the China Development Bank (CDB) and the Export-Import Bank of China (the Eximbank of China). The extent of their cooperation is seen in their stated projects. From 2005 to 2014, VEB raised 10.74 billion dollars and out of them 10.11 billion dollars were provided by the CDB. Due to such significant amounts, VEB remains to be one of the CDB’s largest borrowers among Russian financing institutions. The two banks’ cooperation is based above all on an extensive and solid legal framework. For the past ten years they entered into five agreements and memorandums on cooperation, two framework agreements as well as ten credit agreements. These are the examples of projects where Russian and Chinese financial resources were used.
In 2009, VEB and CDB entered into a funding credit agreement the funds from which were used to fund the construction of a cement plant in the city of Slantsy of the Leningrad region. Cement in this city is manufactured in a special way: they use “dry” method of manufacturing this raw material on the basis of natural raw materials and technogenic raw materials received from production wastes of slate processing industry on the territory of Slantsy district municipality. Such a method is not also economical but also eco-friendly. VEB provided funds that cover more than a half of the project’s value – 237.1million euros from the total value of 442.2 million euros. Two years after the construction started (in 2011); the plant began to manufacture trial batches of products. Now the plant’s capacity is 1.86 million tons of cement per year.
In October of 2013, in the course of the 18th regular meeting of Russia’s and China’s Heads of State and in the presence of the Russian Prime Minister Dmitry Medvedev and Premier of the PRG State Council Li Keqiang, VEB and the CDB signed a credit agreement worth 400 million dollars to fund the third unit of the Ekidastuz-2 power station in the Pavlodar region of the Republic of Kazakhstan.
This project launched in 2009 is to meet Kazakhstan’s growing needs for electric power, electric capacity and close the energy gap in the Russian regions of the South Urals, West Siberia and Altai. Now 400 specialists are working there but by a launch of the unit scheduled for 2017, 1200 specialists will work there.
In May of 2014, in the course of Russian President Vladimir Putin’s official visit to China, CDB, VEB, Gazprombank and OJSC Yamal LNG signed a Memorandum on Arranging Financing of the Yamal LNG project. The Yamal LNG project provides for the construction of a liquefied natural gas plant (LNG) with a capacity of 16.5 million tons of LNG per year on the resource base of South-Tambeisk gas field. Credit facilities are to be raised from Chinese banks to fund it. VEB is to extend a banking guarantee in the amount of 3 billion dollars.
Taking into account the fact that China is our close neighbor some construction projects are being implemented in the Far East region. For example, a timber processing complex to manufacture chipboards and sawn materials was built in the Vanino district of the Khabarovsk Territory, with Vnesheconombank’s participation share being 277 million euros. The project’s total value is 415 million euros.
Joint social programs are among VEB’s and the CDB’s projects. In autumn of 2014, VEB and the CDB agreed to jointly fund the following programs “Housing for the Russian Family” and “the Rental Housing”. On the Russian side. a Memorandum of Understanding was signed by VEB and the Housing Mortgage Lending Agency. But the new Housing Development Agency will be responsible implementing it. The Russian and the Chinese sides intend to develop an optimal mechanism for funding the programs including bilateral syndicated interbankbank loans and they also explore the possibility of issuing bonds in Russia and in mainland China. The Housing Development Agency’s need for funding amounts up to 135 billion rubles for a period of 25 years. Chinese companies also intend to participate in housing construction.
From the dollar to the yuan
Until the year 2015, the dollar and the euro played a role of main currencies in bilateral and multilateral projects. In May, an agreement was signed that would be much appreciated in the near future. On May 8, 2015, VEB and CDB signed in the presence of Russia’s and China’s Heads of State a framework credit agreement worth up to 8 billion in the dollar equivalent. This framework agreement provides funding joint projects in various currencies including in Chinese yuans. It’s already known that the money will be used to fund the abovementioned programs “Housing for the Russian Family” and “the Rental Housing” as well as infrastructure projects, agro-industrial complex projects and projects of utilization and development of communications technologies.
As opposed to a framework agreement signed by VEB and CDB, VEB took its first practical step together with the Eximbank of China by signing an agreement on a credit line for an amount of 3.9 billion yuans (an equivalent of 630 million dollars) for a period of 15 years. It was the first time when VEB raised credit facilities in the Chinese national currency to implement an investment project in Russia. It’s a really breakthrough agreement even for such a large-scale financing institution as VEB.
It should be noted that so far it’s not possible to hedge risks with regard to the ruble-yuan currency pair on a long-term basis and this hinders a process of transferring to payments in our national currencies.
One of the first steps in addressing this problem was an agreement the Russian Central Bank and the China People’s Bank signed in 2014 on a swap (a conversion transaction) in national currencies for an amount of 150 billion yuans.
This is only a part of already stated and implemented VEB’s projects with Chinese partners. As part of the already concluded agreements there will be new projects and this means that new production facilities manufacturing new products and creating new jobs will emerge.
We haven’t been relieved of a task to develop Russia’s economy
Vnesheconombank First Deputy Chairman – Member of the Board tells about working with Chinese financing institutions, new foreign exchange payments, selection andimplementation of investment projects and the current economic situation.
Photo: Denis Vyshinsky/TASS
-In the coming days, Putin is to visit China and Vnesheconombank’s team will be included in the Russian delegation. What prospects can you see for the Bank itself and for your Chinese partners?
-The scale of VEB’s interaction with the Celestial Empire financing institutionsis vividly seen from the following fact: we raised 10.7 billion dollars from Chinese banks from 2005 to 2014. We maintain correspondent relations with a whole range of Chinese banks, with our main partners being the China Development Bank (CDB) and the Export-Import Bank of China. As to CDB’s customers,our Bank is one of the largest Russianborrowers among Russian financing institutions.
-What projects do you fund with this money?
-I’ll mention the largest ones.In 2009, we concluded a funding credit agreement and we used credit facilities from it to fund the construction of a cement plant in the city of Slantsy in the Leningrad region. VEB funded more than a half of the project’s cost - 237.3 million euros from the total value of 442.2 million euros. In 2011, the plant started to manufacturea trial consignment of products and now its capacity is 1.86 million tons of cement a year.
In autumn of 2013, VEB and CDB signed a credit agreement worth more than 400 million dollars to fund the construction of the third power unit of Ekibastuz HPS-2 of the Pavlodar region in Kazakhstan. The project will meet Kazakhstan’s growing needs for electrical energy and electrical capacity and will close the energy gap in the Russian regions of the South Urals, West Siberia and Altai. At the moment, 400 specialists are working thereand by the time of launching the power unit in 2017, 1.2 thousand people will work there.
Last year, Russian VEB and Gazprombank, China’s CDB and the Yamal LNG Company signed a Memorandum on organizing funding for the construction an LNG plant with a capacity of 16.5 million tons of LNG per year on the resource base of the Tambey gas field in the Yamal-Nenetsk district. Credits of Chinese banks are to be raised to fund theproject and VEB is to issue a banking guarantee worth 3 billion dollars.
VEB funded the construction of a timber processing integrated facility to manufacture chipboards and sawn timber in the Vanino district of the Khabarovsk Territory. VEB provided 277 million euros funding a part of the project with a total value of 415 million euros.
-For the projects you’ve listed, the Bank raised for the most part American currency. In which currency are you funding now?
-This spring VEB signed a breakthrough agreement with the Eximbank of China in yuans. It opens up new opportunities not only for trade but also for investment cooperation. It is for the first time when VEB raises credit facilities in Chinese yuans to implement an investment project in Russia.
We also signed in May a framework credit agreement with CDB for a total amount, which is equivalent to 8 billion dollars. Under the agreement, funding can be made in any currency except for American one and above all in yuans of course.
Switching to ruble and yuan payments will make it possible for us to reduce the amount of payments between Russian and Chinese companies in US dollars and will help to increase the amount of trade turnover and mutual investments. This move is sure to give additional impetus for strengthening economic cooperation between Russia and China
Why are you so optimistic about prospects for ruble yuan payments?
The process of a large scale switching to payments in our national currencies is hindered by a small amount of the yuan-ruble market and the absence of a long-term currency risks hedging. But our regulators are making certain steps in this respect. For example, in 2014 the Russian Central Bank and the People’s Bank of China entered into an agreement on the currency swap in national currencies worth 150 billion yuans.
Now, this agreement allows us to conduct currency swaps for a period of up to a year and only as part of trade agreements. And this is not enough taking into account the scale of potential cooperationbetween Russian and Chinese companies. So, we have to create conditions for concluding longer-term swap agreements for periods of at least three and even five years. And in the future we should increase periods up to ten years. This would help to raise long-term investments for Russia.
-A recently signed agreement with CDB, which is equivalent to 8 billion dollars focuses above all on the development of the Far East. Is there already a list of potential assets for investing?
-We are now making strenuous efforts to search for and select projects that could be funded as part of this agreement.
-Speaking about Russian-Chinese partnership we have also to recall the recent BRICS and SCO summit in the city of Ufa and the New Development Bank (NDB) where Russia and China will be actively represented.
-In the city of Ufa in summer, heads of banks – participants in the BRICS Interbank Cooperation Mechanism entered into a Memorandum of Intent on Cooperation with NDB. Head of the New Development BankKundapurVaman Kamath said: NDB can extend the first credit as early as in the second quarter of 2016, (a total amount of funding from NDB is 400 billon dollars – Gazeta.Ru).
Now, work is underway to prepare documentation on regulating NDB’s activity and determining criteria for selecting projects. Requirements for projects are not formalized now but we believe that high priority will be given to infrastructure and sustainable development in line with principles of green economy, energy efficiency that yield positive socio-economic effect
Upon defining the degree of projects attractiveness for NDB, they’ll take into account the number of the BRICS countries interested in their implementation as well as the possibility of co-financing projects by other investors including the BRICS development institutions. It is these financing institutions that will be able to provide NDBat the first stage with well-prepared projects with clear prospects.
-Could there be any other formats of cooperation between Vnesheconombank and its Chinese partners?
-In September of 2014, under the auspices of the Extended Tumangan Initiative (ETI)for (a regionalprogramme to render assistance to North-East Asia countries approved by the UN, Russia joined it in 1995 – Gazeta.Ru) a framework agreement of the North-East Asia Export-Import Banks Association (VEB and the Eximbank of China joined it) an agreement was signed in the Chinese city of Yangtze. It provides for a cooperation mechanism of the parties in implementing projects under ETI auspices, a procedure for approving potential projects to be funded within the association and sharing information on projects. There are already 18 projects in the Association’s project pool from member countries and we are happy to say that one of the first projects being considered as a pilot one is a Russian project on the construction of the Zarubino Port in the Primorsky Territory 18 kilometers from China.
Another future joint plan is to create either a bilateral Russian-Chinese rating agency or multilateral rating agencies within BRICS and SCO independent of individual state’s political will or economic interests of large corporations. It might be a matter of forming a whole network of specialized rating agencies within associations whose members are Russia and China. In Russian experts’ opinion this move would be instrumental in creating a single and transparent that might rating area that might be open in the future for other states which do not want to be hostage to an opinion about the so called Big Three international rating agencies
-How is the creation of a Russian-Chinese rating agency coming along?
-There is some progress here but unfortunately it isn’t so big as we would like it to bedespite Russian institutions’’ interest. The most difficult thing here is to form a legislative framework and get a Law “On Rating Agencies”passed. A draft law itself has been already submitted to the State Duma and we hope that our lawmakers won’t delay its consideration.
-Many fear that Chinese capital expansion would be so great as to result in the Russian economy’s dependence on China.
-We see no problem in Chinese companies’ participation in joint projects being implemented in our country. It’s not a secretthat until quite recentlymost projects being implemented jointly with foreign partners focused above all on western companies’ participation.
A share of Chinese companies’ participation in projects on the Russian territory is extremely small, so we welcome Asian companies’ participation in joint projects in Russia. This makes it possible for our country to build up more balanced economic relations.
-In what projects on the territory of the Silk Road Economic Belt is VEB interested to participate?
- We haven’t been relieved of a task to develop Russia’s economy, so we are interested in any project that contributes to economic development and creating new jobs and new production facilities. As far as projects being implemented in the Silk Road Economic Belt are concerned we give top priority to projects aimed at developing all types of infrastructure and creating high value added production facilities.
Petr Fradkov: VEB supports all initiatives within the New Silk Road Project
TV Channel Russia 24
HOST: Vnesheconombank supports all initiatives within the New Silk Road Project. First Vnesheconombank Deputy Chairman – Member of the Board Petr Fradkov told us what projects VEB was interested in.
CORR: Petr Mikhailovich thank you very much for finding the time to give us an interview. Let’s formulate our theme in the following way: “The Silk Way” - an idea which is pushed forward for the most part by China and backed by a whole number of other countries. How do you size up its prospects and how can Russia above all benefit from it?
Petr FRADKOV, First Vnesheconombank Deputy Chairman – Member of the Board: I’m very positive about this project and Vnesheconombank supports all initiatives within this project. We believe that landmark Silk Road projects are sure to be implemented whether it be construction of new infrastructure facilities, port facilities or logistics terminals. This would expand trade and economic sanctions. We can also speak about financial instruments, some non-financial measures of cooperation but we need infrastructure, we need channels to transport goods. Increased trade turnover is an ultimate result we focus on. On the one hand, this would have a positive impact on export surplus, budget revenues and new jobs and on the other hand, this would make it possible to export Russian products to Asian countries’ markets. This is a very important task because it includes exports support, in which Vnesheconombank is involved, boosting our global competitiveness as well as logistics, port facilities, transshipment terminals and storage facilities. In our opinion we have to address this task jointly.
CORR: Quite often Chinese companies receive pretty large shares in our companies. Won’t we become too dependent on the Celestial Empire?
Petr FRADKOV: I believe that it’s too early to speak in such a way because Chinese companies’ participation in the past years has been rather small. By the way, we focused more on cooperation with Western companies. And now it’s too early to say that we are somehow dependent on them. On the contrary, in my opinion this project will balance our interest, our involvement in this value added chain, which is perhaps to a greater extent on our Western partners side. But now, we can say that it would be some good balance in terms of cooperation and partnership in a global sense.
CORR.: You’ve mentioned trade, trade surplus and so on. But now we continue to interact so to speak within a dollar format. That is, the dollar still circulates between our countries. What are the prospects in your opinion for transferring, above all, to the yuan and maybe to the ruble in our payments?
Petr FRADKOV: It is not a new theme. You are absolutely right that this is one of key issues in the Russian-Chinese agenda in terms of strengthening trade ties. I believe that Vnesheconombank is a pioneer in transferring to cooperation in the ruble- yuan couple because we were among the first ones to enter into appropriate credit areements and they are valid. And we are quite experienced in raising among other things, financial resources in yuans and we might raise credit facilities in rubles in the future. So far, there are some limitations. Today, the yuan-ruble market is not large enough on the one hand, and on the other hand, we haven’t developed a mechanism for a fully functional mechanism for hedging currency risks and this is also one of the problems. Now the central banks of Russia and China have entered into a swap agreement. Unfortunately, this is a short-term agreement, it is valid only for a period of up to one year and applies only to trade transactions. We of course speak out in favor of spreading this swap between the national banks to investment transactions, and for longer periods of three or may be five years. In principle, some Chinese partners stand for a ten-year period. This in fact encourages investment cooperation. A volume of transactions also matters because so far this swap is limited to 150 billion yuans – this is not much.
CORR.: If we talk about Russia and China, we immediately start to think about BRICS. Vnesheconombank takes an active part in it. And they say that as early as in spring of 2016 the first projects might be examined. And a team to select these projects is to be formed from VEB’s professionals. What projects are you interested in most of all? How are they going to be selected? Are you interested in New Silk Road projects”.
It’s too early to speak about the New Development Bank’s (the BRICS Bank) operation as a financial institution. For the most part, it is now involved in establishing its internal procedures, so to speak, preparing business processes. But we are already working actively with a team of the New Development Bank. You are absolutely right – our colleagues from Vnesheconombank will participate in this Bank’s operation as employees. And we regard this Bank as our partner. The Bank’s President Mr. Kamath visited us several times. We held various talks with him and we know that his goal is to extend the first credit as early as in 2016. To my mind, now they are structuring their work and identifying main lines of their activity. These of course are going to be infrastructure assets, green economy, and projects associated with socio-economic development. The New Development Bank is a multilateral institution and it should support projects in which more than one country is interested - at least two and maybe more. Co-financing is very important in the BRICS’ Bank operation for national development institutions to participate in its activity. In the course of a recently held BRICS summit in the city of Ufa a Memorandum was signed between the New Development Bank and the BRICS Interbank Consortium. Vnesheconombank is a representative of Russia in this Interbank Consortium. National development banks are natural partners of the New Development Bank. Under this Memorandum, we are working on those projects that we would be ready to hand over to the BRICS Bank. We’ve got such a portfolio of pretty well-prepared and structured projects.
CORR.: As far as other projects are concerned, not long ago VEB and the China Development Bank signed a framework agreement on the joint support for the development of the Far East. The amount of investments is tremendous – 8 billion in dollar equivalent. How are you cooperating with the Chinese side on this issue?
Petr FRADKOV: I’d like to say that the China Development Bank has been our partner for many years. Since 2005, we have been enjoying good relations with CDB and have jointly implemented many projects. And we prepared and entered into an agreement with them on projects in the Far East. The agreement is worth 8 billion in dollar equivalent. It’s quite a different sum in yuans. In terms of receiving funding, we assume that for the most part it would be also in yuans for Chinese investors and companies to be interested in participating in projects in the Far East. I must say that the agreement was signed only in May so we haven’t conducted any transactions yet. Not long ago, we staged a sort of Road show in China. We engaged in it our subsidiary – the Far East Development Fund. There was a significant interest. I assume that even at a forthcoming Far Eastern Economic Forum some sort of documents (initiatives) could be signed on using these monetary resources.
CORR.: They even mentioned such sectors as communications technologies, agro-industrial complex.
Petr FRADKOV: You are absolutely right.
CORR.: That is to say, that this attitude remains.
Petr FRADKOV: These are perhaps the region’s priorities as a whole. We are coordinating our work with development institutions that are interested in developing the Far East. The region’s priorities include defense industrial complex, infrastructure and communications.
CORR.: Rounding up our interview devoted to your Bank’s cooperation with Chinese banks, we can also mention the Export-Import Bank of China. For the first time you raised funds from this bank in the national Chinese currency to finance the project. Could you tell us in more detail about this line of activity?
Petr FRADKOV: This must have been the first pilot project that we implemented jointly with the Eximbank of China. This must be our second vis-à-vis in China. The Eximbank of China is also a state bank with its mandate, its clear logic and interest. The Eximbank of China is designed to enhance cooperation between Chinese companies and the rest of the world, specifically with Russian business. We entered into an agreement with it. So far, I wouldn’t like to reveal details because of a certain list of conditions precedent. This is the first long-term credit agreement in Russia. I’d like to stress that it enables us to use yuans for more than seven years to fund a specific project on developing ore deposits.
CORR.: Summing up our today’s conversation about the new Silk Road Project I’d like to ask you a question: To what extent is it realistic to implement such a global project?
Petr FRADKOV: I believe that this is quite a realistic project, given the common interest in implementing it. To my mind, all the sides are interested in the project.
CORR.: Petr Mikhailovich, thank you very much for your interview.
Petr FRADKOV: Thank you.
Origin: Oleg Panteleev // AviaPort.Ru
Published: 25.08.2015, 08:58
Vnesheconombank is a key player responsible for export funding of both Russian aircraft and spare parts. But the Bank is not going to limit itself to 120 billion rubles committed to this end. Director of the Export Financing Department Daniil Algulyan believes that operational leasing will open up great prospects for and Vnesheconombank is ready to develop cooperation with leasing companies that will offer such a service.
- The Russian economy is going through a difficult period. Is there a possibility now to fund high technology exports?
- Despite the problems, our country’s economy is facing now, we can say that a unique window of opportunity has been formed for Russian exporters to enter new markets and expand their presence on international markets. A fall in the ruble exchange rate is becoming an additional factor of competitiveness. Here I mean above all non-raw materials exports - supplies of manufacturing and high technology sectors products.
When we talk about exports now, we mean competition not only between products themselves but also exporters’ financial proposals. Our task is to prevent Russian exporters from being in an unequal position with regard to their key competitors on international markets. To guarantee this, we need to provide an efficient support for our international supplies. We need a comprehensive support system, which includes a set of financial and non-financial instruments allowing Russian exporters to promote their products to international markets.
- They have been talking for a long time about the need to create a high-technology products export support system. What do we have at our disposal nowadays?
- At present, a whole system of institutions within Vnesheconombank Group has been set up. This system is responsible for providing financial support to promote Russian products abroad. Vnesheconombank is a central part of this system – it extends both credits and guarantees. Moreover, Vnesheconombank focuses above all on large-scale and structurally complicated transactions whereas Roseximbank – a member of Vnesheconombank Group – is responsible for “straight-line” funding of export credits. It also provides services on export and pre-export funding as well as extending required guarantees. The Export Insurance Agency of Russia (EXIAR) is responsible for export insurance.
- A key non-financial support institution is a recently created Russian Export Center which also performs coordination functions and acts as “single” window”.
- Vnesheconombank’s other subsidiaries also assist the Bank for Development in performing its functions to support exports, for example, Russia’s largest leasing company VEB-Leasing. We also actively use our subsidiaries abroad. For example, our subsidiary bank – BelVEB is one of the largest banks in Belarus. So, we can say that a comprehensive export support system has been put in place and is dynamically developing.
- Is there a need for these instruments in the aviation industry?
- As to non-raw materials exports, we work along a whole range of lines. Aviation industry is one of our top priorities. At present, Vnesheconombank’s portfolio of funding Russian aviation and space exports exceeded 120 billion rubles. Of course, our landmark project is Sukhoi Superjet 100. I think it would be right to say that Vnesheconombank is a key partner bank in this aircraft’s exports. In the past years, we have participated in funding the most part of these aircraft. A landmark transaction was to supply the aircraft to Mexico where we act as a lead organizer of a consortium of funding banks.
- How do you size up this transaction? Didn’t the first step prove to be a failure?
- The fact that after an original arrangement for supplying 20 aircraft an arrangement has been made now for supplying 10 more aircraft shows that the transaction was successful. On the other hand, the funding scheme won a wide international recognition and a number of prestigious awards from trade magazines for example from Global Transport Finance.
- A consortium of banks participated in funding the aircraft for Interjet including Western banks and insurance agencies. Are there any risks that it will be impossible to put together a syndicate of banks and partners with regard to other export transactions?
- I would break this question into two parts. Can we use the experience we gained from foreign partner banks with regard to Mexico? Yes, we can. We don’t see any problems in setting up this sort of consortiums to fund other transactions related to supplying Superjet aircraft. A c change in the environment hasn’t influenced the situation very much.
But I would also like to say that putting together this sort of consortiums is a pretty individual matter intended for a specific buyer. So, when we talk about supplying aircraft for each individual company we should keep in mind that a composition of funding banks and institutions might vary pretty substantially. This is associated both with perception of specific counterparties’ risks and with limits which various banks and export credit agencies have with regard to specific borrowers.
An individual set of partners in each of transactions might vary and this is absolutely normal. If you have a look at Boeing and Airbus, you’ll see that supplies are funded by different set of banks. A whole financing industry is operating there. This is the case with Superjet.
- Is it possible to increase the extent of Russian banks’ participation in funding exports?
- It’s quite possible. Our transaction with regard to Superjet in Mexico is not the only one we have conducted in the past years. All transactions as I have already mentioned are of individual nature. In some cases Vnesheconombank acted as the sole creditor. And nowadays, a whole number of transactions are under consideration under which Vnesheconombank is planning to fund supplies on its own. Moreover, credits are also being prepared under which the Bank is planning to act as a member of consortium together with other financing institutions.
- Airlines need not only credits but also other instruments and above all operational leasing. Does Vnesheconombank Group have any relevant proposals in this respect?
- At present, we are working actively on expanding the set of instruments to fund supplies of aircraft. Forming up an effective instrument for operational leasing is one of our key tasks in the coming years. The reason for it is that Russian civil aviation planes are relatively new for international market. For most airlines operational leasing is the most effective method to feel the plane and see its advantages.
- As far as operational leasing is concerned, the lessor needs new competences associated with residual value management. Do you have partners capable of conducting such transactions?
- You were right saying that operational leasing has a number of significant special features if we compare it with financial leasing or with direct selling. In case of operational leasing, one of the main problems is the aircraft’s residual value because tenures of credits for purchasing aircraft for a leasing company might significantly exceed terms of leasing contracts. We are working actively with a whole number of investors and leasing companies in order to develop technical instruments that could allow us to minimize risks upon funding.
Talking about leasing companies, I have already mentioned that VEB-Leasing is a member of Vnesheconombank Group. We have already conducted transactions with this company on supplying aircraft abroad. At the same time, we are open for cooperation with all other leasing companies. We are also working hard with investment funds, other banks and government authorities.
- One of important factors for organizing operational leasing is a duration of a period needed to prepare a transaction…
- When we discuss aviation funding we are aware that each transaction is individual, so we can’t say that there is a standard funding period. On the other hand, our Mexican transaction shows that in terms of decision-making period and extending money we play by market rules and do not yield to our esteemed colleagues from Western countries. So, if we face low risks and deal with a good airline in an easy-to-understand market situation a decision-making period should not become a hindering factor.
- Do you consider projects on providing funding for other types of planes, for example, MS-21, helicopters?
- We hope that the market appearance of MS-21 will result in forming up a new important line of exports. As to other segments of aviation exports, we are actively involved not only in supplying new aircraft but also in funding spare parts for the already existing fleet of Russian and Soviet-made aircraft. From our point of view, this help to create new jobs and develop technological potential of our exporters.
You’ve mentioned helicopters. We believe that this line of activity will become one of our top priorities in aviation funding. Now we are considering several transactions related to helicopters. We hope that they will be closed successfully in the near future.
In general, from our point of view, Russian aviation industry has a tremendous export potential, which significantly exceeds the potential of the Russian domestic market. So, exports supplies will play a key role for the aviation industry’s further development in the coming years.
- A final question is about MAKS. What do you expect of the show?
- For us MAKS is very important and interesting salon where we can see many representatives of companies related to aviation in terms of manufacturing, funding, servicing and sales. So, this is a key event of the year for us. Both Vnesheconombank and companies comprising Vnesheconombank Group tend to sign quite many agreements in the course of the salon.
We expect important and interesting talks with leasing companies and aircraft makers because nowadays we are working on a number of interesting transactions on the supply of Russian aircraft. We hope that MAKS will help us to make significant headway on the projects. I’m sure that this salon will result in signing a number of agreements in the coming several months.