The Government Guarantees for Bonds Issued by VEB Project Financing Factory
Chairman of the RF Government Dmitry Medvedev signed a resolution on the government guarantees for the VEB bonds issued in the context of its Project Financing Factory. The VEB bonds are secured by the government guarantees amounting to 294 billion rubles.
Placement of the government guaranteed bonds will be made by the Specialized Project Financing Company (SPFC, which is the VEB’s 100% subsidiary). The funds raised will be allocated as a tranche (not exceeding 40%) of the syndicated loan for financing the investment projects approved by VEB.
Speaking at the St. Petersburg International Economic Forum (SPIEF-2018), Russian President Vladimir Putin acknowledged that “… a new mechanism was put in place to create a project financing factory of sorts. The agreements to fund new investment projects worth more than 700 billion rubles will be signed at this forum, while the annual amount of investments is expected to exceed 1 trillion rubles. The Bank of Russia, the financial and economic ministries and agencies within the Government, and Vnesheconombank were working together to implement this program.”
The first projects within the framework of the VEB factory (the factory operator and syndicator) were announced at the Russian Investment Forum in Sochi. The second pool of VEB projects was made public at the SPIEF-2018.
“The Project Financing Factory is one of the most important drivers that enables Vnesheconombank to accomplish most significant projects — to develop infrastructure and create high-tech production facilities, to ensure fulfilment of the tasks set in the President’s May Decree. The requisite regulatory framework for the program implementation has been formed. The projects selection was made based on VEB’s sectoral priorities, their initiators’ willingness to implement them within the framework of the Factory. VEB’s largest projects will be implemented in partnership with commercial banks and private investors through a loan syndication mechanism. This will seriously expand the opportunities for launching modern industries with high added value and creating new jobs in Russia’s regions,” said Igor Shuvalov, Chairman of Vnesheconombank.
Financial closure of the first transactions is expected in the 3rd quarter of 2018. The aggregate volume of the bond issues will amount to 5 to 20 billion rubles, which will ensure their high liquidity. The government guarantees will secure the bonds’ high solvency.
The Project Financing Factory allocates funds to borrowers based on syndicated loan agreements (whereby funds are loaned by several lenders) which is implemented with the government support (subsidies and guarantees from the federal budget). In February 2018, the Government of the Russian Federation approved the “Project Financing Factory” program. The VEB Supervisory Board will be given powers to pass approvals for the pilot transactions within the Factory. In the future, approvals of loan transactions will be regulated by the RF legislation and by the Bank internal bylaws.
Financing through the Factory will be provided in the amounts above 3 billion rubles to the domestic projects with the payback period of not more than 20 years. The project initiator’s share should be at least 20% of the overall project cost. One of the participants of the syndicate will be the SOPF, which is the specialized project finance entity empowered to issue the bonds secured by the government guarantee.
VEB has opened its representative office in Abu Dhabi, the United Arab Emirates. The new representative office has obtained all necessary permits, a commercial license and a registration certificate, and now is ready to operate.
“Vnesheconombank has been actively cooperating with the United Arab Emirates and the Middle East, and the Islamic world as a whole. We are working to engage investors, raise finance, enhance trade and foster greater economic ties, and also to promote high-technology exports from Russia. Now that we have the representative office in Abu Dhabi, the Bank has expanded its geographical reach to bring the cooperation with the region to a new level. The Abu Dhabi representative office will promote VEB Group interests and enable cooperation with local players,” said Igor Shuvalov, Vnesheconombank’s Chairman.
Working together with the Organisation of Islamic Cooperation (OIC) is strategically important for VEB. The Bank’s OIC export loan and guarantee portfolio stands at USD2.8bn.
“No other Russian bank has such extensive cooperation in the region. And we are set to move forward and actively engage in financing joint projects,” added Mr. Shuvalov.
The VEB representative office in Abu Dhabi will promote cooperation between the UAE and Russia in exports and investment. Boosting trade and expanding economic ties was among the topics discussed by Russian President Vladimir Putin and Mohammed bin Zayed bin Sultan Al-Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE's Armed Forces, during their meeting on 1 June 2018.