VEB.RF Guarantees RUB100bn in Surety Bonds for Zero-Interest Salary Loans
VEB.RF has completed the first phase of support for small and medium-sized enterprises by issuing surety bonds totalling 100 billion roubles to commercial banks that give salary loans with an interest rate of 0%.
The programme to issue surety bonds to commercial banks for zero-interest loans intended for salary payments is aimed not only at micro and small businesses but also at medium-sized enterprises.
VEB.RF is to issue surety bonds to guarantee at least 75% of interest-free salary loans to SMEs.
“VEB.RF acts as a reliable financial partner both for the government and commercial banks, and we have joined forces with them to support small and medium-sized enterprises. We got the transactions completed as quickly as we could. We find it important that the government’s rescue package should become accessible to businesses in the shortest possible time to help them to survive the acute phase,” VEB.RF Chairman Igor Shuvalov said.
The new banks that received VEB.RF surety bonds include Rosbank (0.75 billion roubles) and Raiffeisenbank (3.5 billion roubles).
VEB.RF had previously issued surety bonds to Sberbank, VTB, Promsvyazbank, Otkritie Bank, Alfa-Bank, Ak Bars Bank, Russian Agricultural Bank, SME Bank and Bank Saint Petersburg. In the case of certain banks (VTB, Russian Agricultural Bank and Gazprombank), surety bonds guarantee an increased amount of money and extend to medium-sized enterprises.
VEB.RF issued the surety bonds to the commercial banks under the Russian Government’s rescue scheme to support troubled businesses.
Vladimir Putin Instructs VEB.RF and Government to Work Together to Renew Public Transport
During a meeting discussing the situation in the automotive industry, Vladimir Putin noted VEB.RF’s active involvement in crisis-fighting measures and instructed the government to collaborate with the state corporation in launching a programme to renew public transport.
VEB.RF Chairman Igor Shuvalov reported that the programme was already in place for 12 large cities.
“We made estimates with our colleagues. This year we’ll be able to ensure the purchase of 70 billion roubles’ worth of vehicles. This makes it necessary that VEB-Leasing, our subsidiary, and State Transport Leasing Company, an entity controlled by the Ministry of Transport, should work together. If we join up with each other, we can spend this amount on urban transit equipment,” Igor Shuvalov said.
According to VEB.RF’s Chairman, the proposed programme is designed not only as one of the crisis-fighting measures because it has a direct impact on the quality of life in the cities.
“We worked hard for several months and, together with the government, developed a mechanism to renew urban public transport. The programme has proved effective as we were able to launch it in Tver, for example. It didn’t cost much; we spent 3.2 billion roubles in Tver to produce a huge effect. This is definitely a high-quality public transit service with modern safe transport and notable social effects,” Igor Shuvalov added.
State Development Corporation VEB.RF has closed a deal to acquire a 77.63% shareholding in PFC CSKA Moscow as part of debt conversion into the club’s equity. The deal paid off all of PFC CSKA’s debts to the state corporation, making VEB.RF the principal owner of the club.
The club’s shareholder meeting elected a new board of directors of PFC CSKA. VEB.RF is represented by four directors: Maxim Oreshkin, a member of VEB.RF’s Supervisory Board and an assistant to the Russian president; Igor Krasnov, VEB.RF’s Senior Vice-President, Legal; Alexander Chebotaryov, VEB.RF’s Vice-President, Chairman’s Administrative Office; and Alexander Plutnik, Chairman of VEB.RF’s Urban Economy Committee and CEO of New Urban Projects. The representatives of PFC CSKA on the new board of directors are the club’s President Yevgeni Giner and General Director Roman Babayev as well as Mail.ru Group CEO Boris Dobrodeev.
“Basically, the transfer of 77.63% shares in PFC CSKA to VEB.RF settled the issue of the club’s debt, which tied them down and didn’t let them invest in development. So, this helped out the club in a difficult economic situation. I must stress that the deal will involve no sweeping changes in PFC CSKA’s football management or strategy. Mr Giner will keep running the club, stick to his plans for team development and set himself the same ambitious goals as before but with a very strong and reliable partner. I hope that with support from millions of CSKA fans, we’ll make it to the top,” VEB.RF Chairman Igor Shuvalov said.
“I’s like to thank VEB.RF’s management for their constructive position and support for the club in such a difficult economic situation. The format we chose will enable PFC CSKA to restructure its financial obligations and concentrate on sporting results. We’ll continue work on building a team that will be able to achieve our ambitious goals. I’m sure that with such loyal supporters and such a powerful and reliable partner, the club will regain leadership in Russian football in the near future,” PFC CSKA President Yevgeni Giner said.
Alexey Miroshnichenko is the vice-chairman of VEB.RF, the Russian National Development Corporation established by the state to support finance for projects that contribute to the public good. Here he reflects on how COVID-19 is reshaping global priorities, and sets out how new policies are channelling investment towards sustainability in Russia.
At the end of March, I was looking forward to the Berlin Energy Transition Dialogue, where I was due to present the first-ever Russian Green Finance Standard – a new financial policy that has the potential to transform the Russian economy into a more sustainable one. Unfortunately, it didn’t happen: the coronavirus pandemic made travel impossible, and the event was cancelled.
It is ironic, however, that the travel restrictions have done more for the environment than any climate conference so far. Satellite images show substantial drops in pollution levels over cities and countries under lockdown - a stark reminder that in many cases the interests of nature and the economy are in opposition: when we suffer the planet thrives. But as we sit in quarantine or spend weeks self-isolating, there is no better time to think about how to change this sad equation.
The new green finance standard being developed by VEB.RF serves this exact purpose. Russia has never been known for its environmental preservation efforts – even beyond extensive negative stereotyping abroad. Yet the facts paint a more favorable picture. Russia has 54 million hectares of protected natural areas, an area roughly the size of Spain or Thailand. Since 1990, its carbon footprint has decreased almost by 30 percent. The country signed the Paris Climate Accord in 2019 and has resolved to uphold it, gradually decreasing emissions and improving its policies.
But all this does not mean that there are no problems.
A January 2020 report by the Russian Accounting Chamber says 38.6% of Russia’s population breathes polluted air, while 88% of the water used in agriculture and manufacturing did not meet decontamination standards. A January Levada-Center poll suggests such failings do not sit well with Russians, who place environmental issues at the top of the list of problems that humanity faces in the 21st century.
The government reacted to such concerns by adopting the “Ecology” national project two years ago. Running from 2018 to 2024, its goals include the liquidation of all 191 known illegal garbage dumps and reprocessing 60%of solid communal waste – an ambitious target, considering that only 3% currently undergoes such treatment. Big urban centers are being targeted for a 20% decrease in air pollution, while the logging industry will be made sustainable by replacing 100% of all trees culled, while the ecosystems of Lake Baikal and the Volga will be restored. And these are only some of the projects under the “Ecology” umbrella. After all, Russian forests, lakes and rivers are among the world’s biggest – so their importance extends far beyond national borders.
“38.6% of Russia’s population breathes polluted air, while 88% of the water used in agriculture and manufacturing did not meet decontamination standards.”
But the program comes at a cost - over 4 trillion Rubles, or roughly 50 billion Euros. And while the government will support it with 800 billion Rubles, the remaining sum will have to be found on the private market, both domestic and foreign.
Here’s where Russia’s national standard of green finance comes in. Intended for presentation later this year, it will outline ways of facilitating private investments into environmental projects of national importance.
The market for green bond and other debt instruments is almost non-existent in Russia at present. While the Moscow stock exchange opened a sustainable finance section in November 2019, so far only 5 issues of green bonds with a total value of approximately 80 million Euro are registered there.
Given the current absence of a green finance culture in Russia, market and government stimulus will be need to create momentum behind sustainable bonds. After placing bonds with a total value of 500 million Euro on the EU market in 2019, the Russian Railroad monopoly RZHD created an example of what this market stimulus might look like – they successfully reduced their borrowing costs and the issue was oversubscribed. For now, investors cannot hope for such premiums from the Russian market. But that is about to change.
VEB.RF chief Igor Shuvalov says the national standard will outline measures to make such bonds attractive for companies and investors. Planned are coupon subsidies, tax breaks, verification process subsidies and other measures to draw investment. The figures are still being worked through, but the stimulus will be sizeable enough to attract a wide range of companies.
In addition, companies will be able to issue green bonds through VEB.RF’s special project finance SPV that will allow firms to obtain government guarantees if the project is deemed critically important to achieving the targets of the “Ecology” program. As a national development institution, we intend to include the terms of the standard in our lending process and supplement state incentives with our own; for example, by reducing the loan rates for sustainable projects.
The standard will be based on international CBI and ICMA criteria to be compatible with the demands of the EU and British stock exchanges and investors. It will exclude new coal projects (although coal plants account for less than 16 percent of all electric generation in Russia) and will include a maximum threshold of carbon emission for projects in different spheres such as waste management, energy production, construction, manufacturing, transport, water management, forestry, landscape and biodiversity conservation and adaptation to climate change.
VEB.RF will be positioned as the verifying agency, managing the standard itself and updating it through an expert council composed of state officials, environment experts and businesspeople with a credible environmental portfolio. The competence center will authorize independent private rating agencies (second level verifiers) to issue certificates of approval of green status to the bonds and projects of the market players. These private agencies will also be obliged to track the implementation of the project and ensure that money from bond sales are truly spent on the stated objectives.
Easing the garbage crisis is the first practical benefit of the project. The growth of solid communal waste in the 2010s resulted in the near-collapse of the Russian garbage disposal infrastructure – designed and built decades before today’s consumer culture. Illegal dumpsites started to mushroom across Central Russia, leading to mass protests. The picture has improved somewhat with a VEB.RF investment of $1.7 billion into the construction of four huge waste-to-energy plants using Hitachi Zosen Inova technology in the Moscow region. When they go online at the end of 2022 they will be capable of processing 2.8 million tons of garbage a year – that’s 35% of all waste in the Moscow region.
“As we contemplate the clearing waters and more breathable air, we realise that there must be better ways to deal with pollution than an epidemic of world proportions.”
This, unfortunately, is not enough. Creation of a national system of waste reprocessing is a monumental task, and waste-to-energy plants must be supplemented with recycling facilities to avoid loss of valuable resources. We hope that with the help of the national standard, Russian private and public companies will be able to attract money to finance such projects.
Though ambitious for Russia, we recognize that our efforts are only a small part of global efforts to curb pollution and greenhouse gas emission. Yet achieving the targets of the Paris Agreement is possible only through the concerted effort of all nations.
As we contemplate the clearing waters and more breathable air in countries most severely affected by the pandemic we all know that there are better - and more lasting - ways to clear the skies and the rivers than an epidemic of world proportions. Let us hope that once this emergency has passed, it will leave all of us determined to increase our efforts in achieving a sustainable balance between humankind and nature.
Alexey Miroshnichenko, VEB.RF
VEB.RF and the Russian Agricultural Bank Group have signed an assignment agreement in respect of Eurodon’s loans. The transaction totalled 6.2 billion roubles.
As Eurodon’s major creditor, VEB.RF gained control of the company in 2018 after its previous owners had found themselves unable to service their debts. In February 2019 the company came under financial monitoring as part of insolvency proceedings. VEB.RF took on Eurodon’s operational management and carried out the company’s financial restructuring, which enabled the company to carry on as a production facility, ensured the settlement of all its debts, wage arrears included, and eliminated phytosanitary hazards.
“As the principal owner of Eurodon, VEB.RF fulfilled its functions of a development institution: we saved the company as a production facility and resolved a host of phytosanitary issues. I think the agreement to assign such an important local business to Russian Agricultural Bank, which has all the necessary expertise to provide financing for agriculture, is a very good decision that will allow Eurodon to realise its potential,” VEB.RF’s First Deputy Chairman Mikhail Kuzovlev said.
“As a bank systemically important to Russian agribusiness, we believe that the company’s financial restructuring is our first priority. Russian Agricultural Bank is interested in enabling Eurodon to resume operation as soon as possible. A whole range of agricultural investors have shown an interest in the asset. We’ll be considering all proposals to take the optimal decision for the company and the agricultural sector in general,” Russian Agricultural Bank’s First Deputy Chairperson of the Board Irina Zhachkina said.