VEB and SREI approve principal terms and provisions to establish Russian-Indian IT and Innovation Fund
Vnesheconombank, VEB-Innovations and an Indian company SREI Infrastructure Finance Ltd, a Kanoria Foundation entity, and one of India’s largest holistic infrastructure institutions, with the support of Roscongress Foundation signed an agreement on the terms and conditions to establish a Russian-Indian IT and Innovation Fund with the target size of investors’ commitment amounting to USD 200 million. This agreement has become a real example of implementing the provisions of the Memorandum of Understanding on the support of the Russian export and the development of Russian-Indian cooperation between Vnesheconombank and SREI Infrastructure Finance Ltd signed at the St. Petersburg International Economic Forum 2017.
On the part of Vnesheconombank, the Agreement was signed by the Chairman Sergey Gorkov, on the part of VEB-Innovations - by the Director General Kirill Bulatov, and on the part of SREI Infrastructure Finance Ltd - by the Chairman and Managing Director Hemant Kanoria.
The Fund is designed to attract investment in innovative companies focused on the development of cooperation between Russia and India. Particular emphasis will be placed on promising inventions based on a strong scientific and technological base of Russia and India. This will help facilitate an innovative transformation of both economies. The Fund will also help build up trade in Russian and Indian cutting-edge technologies and their transfer to other countries. The parties have already started to identify projects for the Fund’s pipeline, which will include projects of Russian innovative companies.
As a next step, the parties will proceed to creating a corporate structure of the Fund, with operating activities scheduled to begin prior to the end of Q2 2018.
Apart from the Fund, VEB and SREI are actively promoting Russian high-technology exports in the Indian market.
“We expect the Russian-Indian Fund to help boost trade and economic cooperation between our two countries. Such platform is of crucial importance as it will facilitate a pipeline of projects and joint assessment and financing of these projects. For many IT companies, the Russian market is not enough for distributing their products. And cooperation with SREI will help them enter the market of India and the Asia-Pacific region”, said Vnesheconombank Chairman Sergey Gorkov.
“Information technologies and innovations are very quick processes, and our cooperation is also rapidly evolving. In June, we signed a memorandum of understanding. And next year the Fund will be ready to make the first investment”, said SREI Chairman and Managing Director Hemant Kanoria.
SREI Infrastructure Finance Limited (SIFL) is one of the leading independent financial institutions and infrastructure financial conglomerates in India. Founded by the Kanoria brothers in 1989, it specialises on capital markets, including M&A transactions, venture investment and project financing. Total assets under the Group’s management is around USD10bn. SREI has been operating in Russia since 2005.
Vnesheconombank (VEB), officially called State Corporation “Bank for Development and Foreign Economic Affairs (Vnesheconombank)” is a national development bank and one of Russia’s largest financial institutions. Established in 1924, Vnesheconombank has been operating in compliance with the special Federal Law “On Bank for Development” since 2007. The Bank’s supreme governing body is the Supervisory Board headed by Chairman of the Russian Government Dmitry Medvedev. According to the VEB Strategy 2021, Vnesheconombank priority financing areas include high value added manufacturing, infrastructure, non-commodity exports, innovation and the National Technological Initiative (NTI) projects.
VEB Innovations LLC (VEB Innovations) was established by Vnesheconombank as its venture capital arm, a platform for development of strategic partnerships and creation of joint funds with Russian and international partners for investments in technology venture projects. Its focus also includes search and selection of unique projects and their financing. VEB Innovations goal is also to support the National Technology Initiative (NTI), digital ecomony projects, to attract co-investors, assist Russian companies in entering international markets.
Roscongress Foundation – a major organizer of congress and exhibition events
The Roscongress Foundation was founded in 2007 with the aim of facilitating the development of Russia’s economic potential and strengthening the country’s image by organizing conventions, exhibitions, and public events. The Foundation develops substantive content for such events, providing companies and organizations with advice, information, and expert guidance, and offering comprehensive evaluation, analysis, and coverage of the Russian and global economic agendas. It offers administrative services and promotional support for business projects and helps to attract investment, including in the form of public-private partnerships.
Today, its annual programme includes events held from Montevideo to Vladivostok, offering an opportunity to bring together global business leaders, experts, the media, and government officials in one place, creating favourable conditions for dialogue and the promotion of new ideas and projects, and assisting in the creation of social enterprise and charity projects.
Vnesheconombank-Supported LNG Production Facility in Operation in Yamal
An official ceremony took place in Sabetta, Yamalo-Nenets Autonomous District, to mark the first shipment of liquefied natural gas from the Yamal LNG Plant. The ceremony was held in the presence of Russian President Vladimir Putin.
Put into operation with the support of Vnesheconombank, the new LNG production facility is to produce up to 16.5 million tonnes of liquefied natural gas and up to 1.2 million tonnes of natural gas condensate per year. With its potential for developing one of the world’s largest gas-producing areas and setting up new promising hydrocarbon delivery routes via the Northern Sea Route, the project has strategic significance for Russia. The project included building a sea port and airport.
The project is operated by Yamal LNG, a joint venture of NOVATEK (50.1%), Total (20%), CNPC (20%) and Silk Road Fund (9.9%). As part of its export support functions, Vnesheconombank issued a bank guarantee for the equivalent of 3 billion US dollars to secure NOVATEK’s obligation to service the debt of Yamal LNG.
“The Yamal LNG Project is one of the largest in Russia, having strategic significance for the global energy market. The bank guarantee issued by Vnesheconombank helped the project to receive international financing. The guarantee was accepted, which proves that foreign, including Chinese, lenders have every confidence in Vnesheconombank Group,” Vnesheconombank’s Chairman Sergey Gorkov said. “Drawing on many years of experience in the Chinese market and relying on our vast network of partners and our long-standing trust-based relationships with key players in the Chinese financial sector, we are working to set up mechanisms to help Russian exporters with entry into Asian markets. The Yamal LNG Project is a shining example of cooperation between Russia and Asia-Pacific countries.”
First Bond Offerings of Vnesheconombank’s Project Financing Factory Scheduled for 2018
Vnesheconombank’s First Deputy Chairman and Member of the Board Dmitry Kurdyukov told the Cbonds Russian Bond Congress in Saint Petersburg about the bond offerings scheduled by Vnesheconombank’s Project Financing Factory for as early as the first half of 2018.
The Factory is financially structured in a truly innovative way. This streamlines risk allocation among all financing project actors. In the first phase, a borrower receives a multi-tranche syndicated loan, with Vnesheconombank taking on the roles of syndicate agent and collateral manager.
“The second phase is the issuance of tranche-backed bonds. Although similar structured financing and mortgage-backed securitisation products have been available for more than 10 years, the model offered by the Factory is expected to make a real breakthrough in the Russian capital market. Bond issues will amount to 10–30 billion roubles, which will ensure their high liquidity. Such government-backed bonds will be notable for their increased reliability,” Dmitry Kurdyukov said.
A long-term tranche is initially financed by Vnesheconombank and then assigned to the bond issuer, a special-purpose vehicle (SPV). The Factory will enable the SPV to acquire loan receivables and, starting from 1 June 2018, to lend at its discretion as the syndicate manager.
“The SPV is organised as Vnesheconombank’s wholly owned subsidiary. Vnesheconombank will keep care of bond performance until the maturity date by undertaking to replace all toxic assets of the SPV,” Dmitry Kurdyukov said.
As for the characteristics of these bonds, the concept of collateralised debt obligations is being introduced into legislation. CDOs will make it possible to form a pool of bond issues that have equal seniority and are issued in different tranches but backed by the same collateral. The assets of the SPV are given as collateral for all bond issues to the bondholders. The nominal amount of outstanding bonds is not in excess of the asset value at any time. The SPV bond portfolio is dynamic. Its value is expected to increase to 300 billion roubles.
The SPV has plans to issue both fixed-rate bonds and floating-rate notes, such as securities linked to the Bank of Russia’s key rate. All of the bond issues will be rated by a Russian credit rating agency.
Vnesheconombank published its interim condensed consolidated financial statements of the VEB Group for the nine-month period ended 30 September 2017 under IFRS.
«Fully abiding by the approved development Strategy, we are currently in the transformation stage, which we plan to complete in 2018. We are on schedule. This year we have focused our efforts, among others, on the “old” loan portfolio management, on profound change to the investment process, strategic projects financing. Of course, these measures do not produce an immediate effect: VEB Group’s financial result for the nine-month period is negative so far, which was mainly caused by provisioning within the “old” loan portfolio restructuring. However, there already are some positive interim results: funding structure is being optimized, interest expense on borrowed funds is going down; we see the Group’s equity increase.
The Bank is thus preparing to an active phase of investing in the approved priority areas. Under the development Strategy the new VEB will focus on financing of the projects in value-added industries, projects promoting new technology development, including National Technology Initiative. It is obvious that the use of new information technology is a pre-requisite for the efficient and competitive economy.
We also worked hard on the establishment of the Project Finance Factory, which is due in the first quarter 2018. We strongly believe that this instrument will boost the investment process and will make project financing one of the major drivers for the economic growth of Russia», - VEB’s First Deputy Chairman – Member of the Board Nikolai Tsekhomsky said.
Large-scale transformation of the VEB’s activity became possible thanks to a solid capital base.
- Group’s equity for the nine-month period went up by RUB 3.8 bn (+0.7%) to reach RUB 559.5 bn as at September 30 2017. The major contributing factors were subsidies from the federal budget (RUB 107.6 bn) and the Group’s financial result.
- Capital adequacy ratio (under RAS) amounted to 15,6% as at September 30 2017.
Total assets for the nine-month period 2017 equaled RUB 3.5 trl as at September 30 2017. The assets structure remained mostly unchanged, with the loans to customers (after allowance for impairment) amounting to RUB 1.77 trl. At the same time throughout the nine-month period quarter-on-quarter we saw a positive stable dynamics with regard to granting new loans. The amount of new loans in the nine-month period of 2017 was RUB 107.9 bn, exceeding by 46% that in the corresponding period of 2016.
Total liabilities for the nine-month period of 2017 went down by 2.5% to RUB 2.94 trl, primarily due to the decline in amounts due to the Russian Government and the Bank of Russia by RUB 47.8bn (-8.6%) because of partial maturity of the Federal Treasury deposits in Q3 2017, as well as the reduction of amounts due to banks by RUB 27bn (-4.2%).
Applications are now open for Vnesheconombank’s Development Award, an annual contest among investment projects. The awards ceremony will take place during the Russian Investment Forum in Sochi in February 2018 to recognise excellence in implementing projects of national importance.
The winners are selected in five categories:
- Best Infrastructure Project
- Best Industry Project
- Best Export Project
- Best Digital Economy Project
- Best Innovation Start-up (special category).
Aspirants can apply online on the contest’s website.
The Development Award is an annual nationwide contest established by Vnesheconombank in 2012 and held for the sixth time. This is a professional award in recognition of involvement in large-scale capital investment programmes and projects of national importance with a significant contribution to Russia’s socio-economic development.
The contest terms and conditions, the requirements for projects, contestants and project teams and the contest documents are available on the contest’s website.