Vladimir Putin has met with Igor Shuvalov, Chairman of State Development Corporation “VEB.RF”. They discussed the bank’s long-range projects and ways of their implementation.
Putin: Igor Ivanovich, I know that you wanted to start our conversation today by discussing the bank’s support for high-technology exports, one of our focus areas at present. But I suggest that after that we talk about a wider range of issues on the agenda of VEB, as our main development institution.
Shuvalov: As you instructed us, VEB joined work on all national projects. We are now involved in all the operations of the Russian Government and are taking an active part in almost all the activities of the Government.
Our special task is to look into any projects that generate new production, goods and services by considering the opportunities for export. Your 7 May decree set a really ambitious goal of increasing exports. We understand that this is our common task.
Before providing a loan or assistance in any other form, all development institutions whose agendas currently include the issue of development are studying whether such services can be in demand in foreign markets or they are created solely for Russian service recipients.
Jointly with Russian Export Center, a wholly owned subsidiary of VEB, the Government has already prepared road maps to carry out the tasks assigned by the May decree. With all doubts, and experts always like to voice doubts, as to whether such ambitious goals are achievable, the goals are attainable.
We must work. We know what to do. Under the direction of the Government, we will be doing this work and reporting to you on the results.
I must tell you that the VEB Supervisory Board has already approved several transactions on this agenda. These include Shchekinoazot, KuibyshevAzot, Udokan copper deposit and Amur Gas Processing Plant.
A major concern for us, a special project, is support for the Zvezda shipyard in Bolshoy Kamen in the Far East.
Putin: What are your activities there?
Shuvalov: We order vessels. Since VEB has leasing tools, we cooperate with Sovcomflot, Rosneft and NOVATEK and order vessels that they need and that they will use.
First, these vessels help us to build the most modern production facilities and ensure import substitution. On the other hand, it will be an export service, including using the tankers to transport our energy and related products. This is an export service.
Putin: I see. It is very good that the bank is involved in this work.
Shuvalov: Vladimir Vladimirovich, we will carry on with it.
Putin: What issues do you regard as the most important for discussion and for today’s activities of the bank?
Shuvalov: Vladimir Vladimirovich, as I have on several occasions reported to you and received your consent, VEB is now involved in the development of the urban economy.
This is a very important issue; and we view it as the most important in the context of you saying in the Address to the Federal Assembly, and then in the decree, that in this cycle of government, during these years, there must be a qualitative change in the life of ordinary people.
As over a hundred million people in this country are urban dwellers, we have made thorough preparations for the regional forum in Sochi, presenting our agenda and launching more than one project in municipalities.
We are now starting these projects in forty cities, bearing in mind that these will be a hundred major cities, except Moscow and Saint Petersburg where the smallest support is needed. If necessary, we are also ready to participate in supporting projects in the two cities, but our main focus is not on the capitals.
Afterwards we will offer partnership to the municipalities and the regional teams and municipal authorities that want to carry out such projects with our support.
What are the projects? This is municipal solid waste processing, this is clean water, this is modern urban public transport, this is support, for example, for old people’s homes, they are called differently now, or support for organising leisure activities and housing facilities for the elderly where it is possible to sell such services. They, of course, are state-financed establishments, but market-based services are already in demand in big cities.
We are looking to create children’s summer recreation infrastructure in collaboration with municipal and regional authorities. I mean, this is a whole range of activities that allow a city to be built anew or transformed.
This is the construction of up-to-date neighbourhoods, which is done by DOM.RF; this is support for export services to attract foreign tourists, which we do through REC [Russian Export Center].
The city is becoming more attractive. This, of course, is a purely economic dimension: a foreign tourist arrived, spent some or no money.
This is RSMB Corporation. No comfort or modern economy in the city is possible without support for small and medium-sized businesses.
We believe that we, as a coordinator of development institutions, must provide substantial funding to help DOM.RF, RSMB Corporation and REC to reach their goals.
Vladimir Vladimirovich, we are set to work hard, we will concentrate capital where interregional large companies are formed. We know that it is often convenient to have a regional subsidiary that deals with vehicle maintenance or environmental issues.
Putin: Not always economically feasible.
Shuvalov: Yes, but it makes sense in this interregional context, and our partners here are Russian Railways, ROSSETI and Rostelecom. We are building good partner relationships with federal companies.
Putin: Very good.
VEB.RF issued short-term bonds in additional placements to companies and corporations on 27 and 29 March 2019.
The Bank raised 0.7 billion roubles, including 0.4 billion roubles from bonds with a maturity of 14 days and a coupon of 7.60% p.a. and 0.3 billion roubles from bonds with a maturity of 28 days and a coupon of 7.59% p.a.
The par value of one bond is 1,000 roubles. The bonds were sold at 100% of their par value. The coupon is payable at maturity.
The arrangers of the bond issue are Gazprombank and Svyaz-Bank.
The bonds are on the Moscow Exchange’s Quotation List Level 1. The depository is National Settlement Depository.
VEB published its consolidated financial statements for 2018 as prepared in accordance with IFRS.
VEB published its consolidated financial statements for 2018 as prepared in accordance with IFRS.
The VEB Group’s key performance indicators for 2018 are as follows:
- The VEB’s Group assets for 2018 remained largely unchanged and as at 31.12.2018 amounted to RUB 3, 361.9 bn. The decrease against the beginning of the year was 0.4% (RUB-14.1 bn).
- Loans to customers account for 46.5% of the Group’s total assets. As compared to 2017 year end loan portfolio less allowance for impairment declined by 12.5% (RUB -222.4 bn) reaching RUB 1,561.6 bn. Major contributing factors to this decrease were assignment of certain loans to other lenders due to VEB’s fulfilment of its task of a development institution, reclassification of some loans at fair value through profit/ loss and corresponding negative revaluation of such loans.
- The amount of loans granted by VEB in 2018 reached RUB 95.3 bn.
VEB’s key focus in 2018 was project finance tools elaboration. The new mechanism of project financing aims at investment growth in the real sector of the Russian economy as well as investors’ risks minimization. The main concept implies syndicated projects lending through commercial banks and other development institutions involving state subsidized rates and state guaranteed bonds. The model envisages VEB’s non-competition with commercial banks.
Legislative framework was laid in 2018, including Russian Government Resolution dated 15.02.2018 №158 on launch of a specialized project finance programme based on syndicated lending principles. State guarantee was received in accordance with Russian Government Resolution dated 06.06.2018 № 654.
First pilot deals in spheres corresponding to the major areas of VEB’s activity were approved and countersigned. These included a project of sulphuric acid production facility construction at the site of Kuibyshevazot and a project of Phase 3 methanol production facility construction at Shchekinoazot site, in Tula region.
The investment portfolio will address national projects (programmes) implementation, as stipulated by the Russian President Executive Order dated 07.05.2018 № 204 “On National Goals and Strategic Objectives of the Russian Federation Through 2024”.
VEB Supervisory board approved another project in March 2019 – construction of Stage 1 of the mining and metallurgical plant at the Udokan copper deposit. The deal became third and largest to date under this project finance programme.
- In the reporting period net investment in leases went up by 16.6% (RUB +28.7 bn) to reach RUB 201.8 bn.
- Total liabilities of the Group as at 31.12.2018 changed insignificantly reaching RUB 3,077.8 bn, increasing by 3.3% (RUB +97.5 bn). It is largely attributable to the increase in amounts due to the Russian Government and the Bank of Russia by 10.9% (RUB +58.2 bn) and rise in the book value of subordinated deposits by 48.4% (RUB +46.3 bn) due to the conversion of NWF foreign currency-denominated deposits to rubles. Additionally under the requirements of the new IFRS 9 standard, allowance for impairment of financial guarantees, recorded in liabilities, was made.
- Amounts due to banks and debt securities issued account for 52.5% of total liabilities (as at 2017 year end this share was 55.2%). In 2018 the share of amounts due to OECD-banks and Eurobond investors in total amounts due to banks and investors in debt securities declined from 32.9% to 26.7%, the amount of the said liabilities decreased by RUB 110.9 bn, inter alia due to the redemption of Eurobond issue for the nominal value of EUR 1.0 bn in February 2018 and redemption of Eurobond issue for the nominal value of USD 850.0 mn in November 2018.
- The financial result of 2018 was RUB -175.8 bn, with a positive trend of loss decrease by 38.9% against the result of 2017. The major factor contributing to the 2018 result was revaluation of loans to customers at fair value, as well as a recognition of non-interest expense from NWF foreign currency-denominated deposits conversion to rubles.
- In 2018 the Group’s equity went down by RUB 111.6 bn (-28.2%) to reach RUB 284.1 bn as at 31.12.2018.
- Equity decrease was largely driven by the 2018 financial result, transition to IFRS 9 and result on investment financial assets at fair value through other comprehensive income, and foreign currency conversion in the total amount of RUB 71.9 bn.
- This negative impact was partly offset by the state support measures. In 2018 VEB received federal budget subsidies for a total amount of RUB 136,1 bn, RUB 125.5 bn of which as compensation of costs related to servicing foreign capital market borrowings.
- VEB’s capital adequacy ratio as at 01.01.2019 was 11.8% (RAS), (10,8% as at 01.01.2018).
- In 2018 for the first time state support measures were codified in law in order to maintain or amend VEB’s authorized capital structure.
- Federal law dated 28.11.2018 № 452-FZ “On Amendments to the Federal Law On the Bank for Development and Certain Legislative Acts of the Russian Federation” provides for the procedure of callable capital allocation to VEB.RF. Under Russian Government Resolution dated 21.12.2018 № 1611 VEB’s authorized capital is to be built inter alia through further asset contributions from the Russian Federation in the amount of RUB 300 bn.
VEB.RF’s strategic role of a development institution and state support measures are confirmed by the leading international rating agencies that assigned VEB with credit ratings at the level of the Russian Federation sovereign rating, as well as by the national rating agency, ACRA, that assigned highest credit rating of AAA to VEB.
During an official visit of Russian President Vladimir Putin to Kyrgyzstan, VEB.RF, Russia’s solar giant Hevel Group and Kyrgyzstan’s largest solar manufacturer Astra LLC signed a memorandum of intent. The signing ceremony took place during the 8th Russian-Kyrgyz Interregional Conference in the presence of the Russian and Kyrgyz heads of state.
The document was signed on behalf of VEB.RF by its First Deputy Chairman – Member of the Management Board Nikolay Tsekhomskiy, on behalf of Hevel Group by its CEO Igor Shakhray and on behalf of Astra LLC by its Chairman of the Board of Directors Yaroslav Kuznetsov.
The parties agreed to expand industrial and financial cooperation in the common economic space of the Eurasian Economic Union, encourage global industrial and financial cooperation with a view to stimulating industrial growth and the manufacture of competitive products both for the Russian and Kyrgyz markets and for export to other countries, and promote the most modern technologies for renewable energy and energy efficiency.
Such cooperation may include creating a new industry cluster to make components for highly efficient solar modules that can be used for the construction of generating facilities in Russia and Kyrgyzstan and exported to foreign markets.
“Astra can carry out its scaling-up projects using VEB.RF’s financial instruments and funds raised from other financial institutions,” Nikolay Tsekhomskiy said.
“With the rapid growth of the solar power industry, high-technology production chains in the neighbouring states enhance product competitiveness in foreign markets and enable our countries to fulfil their great industrial potential,” Hevel Group’s CEO Igor Shakhray said.
Founded in 2009, Hevel Group is now Russia’s largest integrated solar power company. The company’s core activities include the high-technology production of solar modules, the construction and operation of solar power stations and solar power research.
Astra LLC was founded in 2016 as a spin-off from OJSC Kyrgyz Chemical and Metallurgical Plant and has developed into Kyrgyzstan’s and the EAEU’s sole producer of single-crystal rods and N-type wafers for the solar market.
Supervisory Board Considers VEB.RF’s Involvement in Large-scale Projects to Strengthen Russia’s Export Potential
On the agenda: projects for the construction of a mining and smelting facility in the Trans-Baikal Territory and a gas-processing plant in the Amur Region; corporate governance issues.
Opening remarks by Dmitry Medvedev:
At today’s meeting of the Supervisory Board, we will discuss several large-scale projects aimed at developing the Far East, which are strategically significant for the Russian economy and for strengthening Russia’s export potential.
I would like to mention several projects that require substantial investment and are of considerable importance.
The first one is the construction of a mining and smelting facility to develop the Udokan copper deposit in the north of the Trans-Baikal Territory. The Udokan deposit is the largest in Russia. The comprehensive development of the deposit involves building an infrastructure to mine the ore, extract the concentrate and create a high-technology cathode copper production facility. Upon completion of the first project phase, the production capacity is expected to reach 12 million tonnes of ore per year.
The project will be carried out under the Project Financing Factory programme. This is just one of the projects selected for this financing mechanism. A total of about 3 billion US dollars will be invested in the project. Approximately one third of the funds were committed by the project initiator. The rest will come from a syndicate of banks, including VEB.RF.
The project is extremely important for the Trans-Baikal Territory. It will create about 2,000 new jobs. The region is in a very difficult situation, and such ambitious projects are definitely needed to bring in modern job opportunities, change the employment pattern and develop the local economy. It is intended that both infrastructure and service facilities will be constructed. There are plans to use public budget funds to renovate the local airport in addition to the construction of power lines and the implementation of other appropriate measures required for the project’s success.
The second project is the construction of the Amur gas-processing plant in the Svobodny advanced development zone, Amur Region. The new plant is expected to become the world’s largest helium refinery and the world’s second largest gas-processing facility. Its feedstock will be high-quality methane to be supplied from natural gas fields in Eastern Siberia via the Power of Siberia pipeline and converted into added-value gas products. The project will create up to 3,000 new jobs.
The project budget is large, about 19 billion euro. Gazprom’s commitment is one third of the required funds, the rest will be provided by a pool of Russian, Chinese and European lenders. VEB.RF’s commitment is expected to be 1.5 billion euro. Its contribution will help to complete this large-scale project, which is strategically important for the country’s development.
We will also discuss a whole range of corporate issues and several transactions, including a compensation-free transfer by VEB of Sviaz-Bank’s shares to the ownership of the Russian Federation, to the treasury of the Russian Federation.