Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
TV Channel Russia 24
Host: Evelina Zakamskaya
HOST: Good evening, Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good evening.
HOST: I am glad to see you, thank you for finding time for us. The Russian economy is said to have come out of the crisis. Is this really the case and what impact did it have on Vnesheconombank’s operation?
Vladimir DMITRIEV: Not all crisis developments have been overcome, a lot of problems still remain. But as far as Vnesheconombank is concerned, we are confidently moving from taking crisis management measures to undertaking our core activity as a Bank for Development. We have new projects, new borrowers, and new ambitious plans. To tell you the truth, we didn’t actually stop operating as a Bank for Development even in the time of the crisis but undoubtedly a top priority was given to engaging the Bank into taking crisis management measures.
HOST: So, you’ve stopped acting as a red knob and started operating on a routine basis?
Vladimir DMITRIEV: To a large extent we are still taking anti-crisis measures. We shouldn’t forget about subordinated loans which we extended for a period of 10 years. We should keep in mind that we are reorganizing two large commercial banks; we became “happy” owners of a number of non-core assets: Amurmetal and the Traktornye Zavody Concern. To this end, we have the VEB Capital Company that helps us to manage these diverse business entities thus performing functions not always typical for the Bank.
HOST: The Russian Economic Development Ministry proposed to develop a program of privatizing non-core assets did you agree upon this program with the Ministry and what do you think on this account?
Vladimir DMITRIEV: We agreed upon this program as far back as last year when decisions on reorganizing Globex Bank and Svyaz-Bank and on working with their assets were being taken. At present, these banks are in safe hands but all this required strenuous efforts and considerable financial resources. In order to settle Globex Bank’s problem debts we received a deposit worth 87 billion rubles from the Central Bank and we have to repay the deposit. Clearly, at the moment we can’t sell our non-core assets by which I also mean commercial banks because the market is undervalued. We discussed this issue at our meetings of the Bank’s Supervisory Board and in our conversations with its members including the Economic Development Minister and we arrived at a conclusion that these assets could be sold in a few years when Globex Bank is well capitalized. And we can count on applying pre-crisis ratios or at least close to them when a bank’s capital is multiplied by several times. We also include in these non-core assets the property, incompleted constructions and facilities we received from Globex Bank. They include the former Slava watch factory. There are a number of operating construction projects but we have to complete them before talking about selling them.
HOST: As to development projects supported by Vnesheconombank we should single out modernization projects. What projects would you describe as truly state-of-the-art ones?
Vladimir DMITRIEV: At present, about 15% of our loan portfolio accounts for innovation projects but as far as modernization projects are concerned the percentage is a lot higher. We are actively searching for innovation and modernization projects. One of our lines of activity is related to supporting Russian shipbuilding; here we have brand new projects that have no analogues in our country and in the world in the shipbuilding sector. We provided financing for Sovcomflot to construct two high-powered icebreakers with deadweight of 70 thousand tons each. These heavy-duty oil-carrying vessels transported oil through Northern Sea Route to South-East Asian countries. As to modernization and innovations our Management Board and Supervisory Board made a decision to finance a company which will be responsible for implementing a project aimed at creating supercomputers and their software. This is T-Platforms Company. It is energetically tapping into European markets and leading companies in the computer and supercomputer sector are interested in entering this company’s capital. We pride ourselves on launching two significant projects this year. The projects are aimed at modernizing our oil-refining sector and they are implemented by Tobolsk-Polymer Ltd. This was a very large transaction, a very complicated one in terms of financing its financial model, in which the largest European banks as well as banks from other continents and leading insurance agencies participated. Our participation share is about one and a half billion dollars.
HOST: Vladimir Alexandrovich, this is a question most frequently asked by experts when they discuss the future of the Russian economy: where to get money for innovations? What are Vnesheconombank’s capabilities in this respect and what new instruments for financing new projects are under discussion?
Vladimir DMITRIEV: Here we can’t come up with something new, we have to raise money in the market. This year we have completed several transactions, with some of them being truly breakthrough deals. None of Russian borrowers, and the more so, after the crisis, borrowed money for such a long period of time and made so many investors from various countries purchase bonds issued by Vnesheconombank or participate in tied transactions where we are supported by foreign state insurance agencies and banks that engage in supporting national industrial exports. By our estimates, only this year alone we have raised about 9 billion dollars including three tranches of eurobonds. The latest tranche is a fifteen-year bond issue. No one has ever raised such a big amount of funds for such long periods of time. And this is not the most important thing. The most important thing is that we have raised financial resources this year and this means that foreign investors started to regard Russia as being solvent and creditworthy and they believe that there are reliable borrowers in Russia and they trust not only state banks but also banks with private stock capital. Surely, it is important for investors that the state backs this sort of placements.
HOST: And what about a proposal to invest pension savings funds in innovation projects?
Vladimir DMITRIEV: This is a special interesting issue but in its capacity of the trust management company Vnesheconombank adopts a conservative approach to managing pension savings funds. We should have a clear idea as to what risks exist because innovation business is highly risky. Recently I have participated in international and Russian forums and discussions on providing support for innovation business. Nowadays everybody believes that innovations are risky. And out of ten projects only two or three could prove to be successful but it is their success that justifies investments in innovation business. That is why it is theoretically possible especially when projects are not at a start-up stage but at a more advanced stage and when it is evident that these projects could be commercialized we can think of using pension savings funds. But we should keep in mind that in accordance with our expanded declaration we can purchase debt instruments secured by state guarantees. And to my mind this mechanism is to be used to consider an issue of using pension savings funds to finance innovation business.
HOST: What are this year’s results of managing pension savings funds in a conservative way?
Vladimir DMITRIEV: According to established practice, we are to make public information on our performance. Unfortunately, but this is beyond our control, the total return on pension funds investments is most likely a bit lower than inflation rate due to the significant price growth in the third and fourth quarters. But this results from the fact that actually we have started to form our investment portfolio in accordance with the expanded declaration. A lot of funds were invested, for understandable reasons, in government bonds and they didn’t perform the way we expected. But it was not worthwhile withdrawing from these bonds without having an alternative. Nevertheless, we hope that government-guaranteed bonds issued by Rusnanotech, the United Aircraft Construction Corporation and a number other reliable borrowers would help us to balance investment yields and achieve acceptable results.
HOST: Economic modernization, among other things, in the risky high technology sector is not possible without developing small and medium-sized enterprises (SMEs). Aren’t you afraid of running risks here? And what SME projects do you finance today?
Vladimir DMITRIEV: Fortunately, small and medium-sized enterprises demonstrate positive dynamics. This year alone the banking system extended funds to small and medium-sized enterprises in the amount that exceeds last years’ sum by 1 trillion rubles.
HOST: And this supply exceeds the demand?
Vladimir DMITRIEV: The demand is enormous as is the demand for credits. Still, we are well aware that we have to make targeted systemic efforts to support small and medium-sized enterprises. In this respect, there is a program of supporting small and medium sized enterprises. We are implementing this program through the Russian Development Bank. A credit worth 30 billion rubles was extended to the Russian Development Bank to support small and medium-sized enterprises. Credits to SMEs are also refinanced through the Central Bank. There are also programs of co-financing SMEs under which regional banks participate in supporting SMEs. The program of supporting SMEs is to amount to a hundred billion rubles by the year-end. With our subsidiary banks namely, Globex Bank and Svyaz-Bank we expect the total amount to reach 125 billion rubles. By our estimates, this amount would reach up to 250 billion rubles till 2015. There are various programs but it should be stressed that we extend long-term credits to SMEs. The most important thing is that about 60 percent is linked to the real economy. I’ve been talking about financing, haven’t I? Financial resources to support SMEs are extended not only by our Banks but also by banks participating in the program. In this case, we reduce interest rates and increase credit periods. We have launched programs aimed at financing innovations and modernization where interest rates are a lot lower. As a whole, we managed to reduce interest rates to about 12 percent and this to a great extent helps to promote the development of SMEs against the backdrop of 25-30 percent interest rates in the crisis years.
HOST: I can’t help asking you a question about Vnesheconombank’s support for the mortgage market. How is this market going to develop in the future? And how large is this market now?
Vladimir DMITRIEV: It is well known that Vnesheconombank commits 250 billion rubles to implement the program of supporting the mortgage market. Here we use the Bank’s own funds generated from our transactions on the stock market. One part of this income was committed to implement Olympic projects and the other in the amount of 50 billion rubles to support mortgage lending. The National Wealth Fund is also involved in this program. It committed 40 billion rubles to the Housing Mortgage Lending Agency. We also use the funded portion of pension savings funds to finance the program of supporting mortgage lending. So, we employed all the instruments and I am glad to say that commercial banks have already extended credits worth nine billion rubles. We have applications for all 150 billion rubles intended for these purposes. I’ve already mentioned 40 billion rubles committed to support the Housing Mortgage Lending Agency. 50 billion rubles out of the Bank’s own funds will be used to buy out three-percent bonds. For this money to start working even now our Supervisory Board took a decision to use it to refinance credits to be extended by commercial banks to their borrowers for economy-class housing construction. The problem is that a pool of credits to be used to lay the basis for issuing bonds is being formed only now. So we expect the program to be fully launched next year and here I mean a buyout of bonds. But I’d like to stress it once more that we have received applications from commercial banks for an amount of 150 billion rubles and the program is being unfolded.
HOST: And Olympic construction projects. Construction projects in Sochi. Furthermore, the 2018 Soccer World Cup in Russia. And here they have to rely on VEB support?
Vladimir DMITRIEV: The Sochi Olympics put us to a serious test. But to my own satisfaction I’d like to underline my employees’ contribution and close interaction with Olympstroi and our investors as a result of which we managed to do a lot. Even now the amount of Vnesheconombank’s credits approved by our bodies of corporate governance has in reality approached to 70 billion rubles. And another several new projects are on the way. These Olympic facilities taught us a lot; we learnt a lot useful things and gained valuable experience in cooperating with investors. And there is no doubt this experience is the best precondition for us to participate in financing 2018 Soccer World Cup projects.
HOST: As you can see Vladimir Alexandrovich, Vnesheconombank is at all times and in all places: innovations, small and medium-sized enterprises, Olympic construction projects, mortgage lending. Your Bank was called a Rescue Bank in the time of the crisis. Do you know the most frequently asked question about Vnesheconombank? The question is: when will Vnesheconombank run out of money?
Vladimir DMITRIEV: In fact, VEB’s capital is formed through budgetary contributions alone as opposed to commercial banks which are in a position to enter the market and conduct IPOs. We belong to a different category just like our partners from other countries. For example, the German Bank for Development raises annually about 60 billion euros to finance its projects. This year we have raised a much lesser amount of 9 billion dollars on the market. And market is above all trust. Here I mean trust in a bank, trust in Russia, our country’s investment appeal. If the overall situation remains favorable the market is going to be huge. At present, we are seriously working on regional projects, establishing a fund of direct investments for the Far East and the Baikal region. Our fund of infrastructure investments started to operate together with the Macquarie Renaissance Company. As soon as we completed a transaction to purchase a transport company VTB Capital and another investment company followed the suit. At present we are seriously considering an issue of engaging major foreign investors in both sovereign funds and companies of private direct investments to participate in large-scale projects in Russia. And we can see a growing interest to invest in Russia on the part Europeans, Persian Gulf countries, South-East Asia and America. And this is a genuine interest. And we should to capitalize on this situation by all means.
HOST: I wish you every success. Thank you.
Vladimir DMITRIEV: Thank you.
Vnesheconombank to Support Innovation Projects in the Aircraft Construction Industry
State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’, the Federal State Unitary Enterprise the Zhukovsky Central Aerohydrodynamic Institute and the Russian Development Bank (OJSC) entered into an Agreement on Cooperation.
On behalf of Vnesheconombank the Agreement was signed by Vnesheconombank Chairman Vladimir Dmitriev, on behalf of the Zhukovsky Central Aerohydrodynamic Institute (TsAGI) - by its Director General Boris Aleshin, on behalf of the Russian Development Bank (OJSC) – by its Board Chairman Sergei Kryukov.
The Agreement aims to establish strategic partnership and promote long-term and effective cooperation between the parties in supporting innovation and modernization projects of small and medium-sized enterprises (SMEs).
Under the Agreement the parties intend to work out mechanisms for financing innovation and modernization projects of small and medium-sized enterprises to be implemented on the basis of the Central Aerohydrodynamic Institute’s developments and establish interaction between small and medium-sized enterprises, initiators of innovation and modernization projects, developed by the Central Aerohydrodynamic Institute together with the Russian Development Bank’s partner banks.
The Agreement also provides for the parties’ cooperation in engaging SMEs in the Central Aerodynamic Institute’s innovation activity among other things by way of placing orders for developing technologies, supplying products and services as part of implementing innovation and modernization projects as well as transferring technologies developed by the Institute for their further commercialization.
This Agreement’s implementation would make it possible to use the Institute’s innovation developments in the aircraft construction industry and involve small and medium-sized enterprises in implementing promising innovation projects.
TsAGI is the world’s largest research aviation center. It was founded in 1918 in Moscow by N.E Zhukovsky on the basis of the Aerohydrodynamic Laboratory of the Moscow Higher Technical School and the Aviation Settlement-Test Bureau. Since 1935 the Institute has been located in the city of Zhukovsky of the Moscow region. The Institute is the world’s first research center to have combined basic studies, applied research, structural design, and pilot production and testing. TsAGI is engaged in developing concepts for promising aircraft, new aerodynamic layouts of aircraft and helicopters, structural power schemes, criteria for evaluating aircraft stability and controllability, strength standards. The Institute does basic and applied theoretical and experimental research in aviation, rocket and space technology.
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