First Project Financed by VEB.RF and Gazprombank Through Project Financing Factory Goes into Commercial Operation
The project was completed by KuibyshevAzot and financed by VEB.RF and Gazprombank. It was the first to receive approval under the Project Financing Factory programme.
An official ceremony took place on 2 December 2020 to mark the opening of the facility. The event was attended by Igor Shuvalov, Chairman, VEB.RF; Viktor Kudryashov, Prime Minister of the Samara Region; Alexander Gerasimenko, Director General, KuibyshevAzot; and Vyacheslav Okhotin, Vice President and Head of Oil & Gas and Chemicals Financing, Gazprombank.
The facility’s annual output is 140,000 tonnes of K-grade sulphuric acid and 360,000 tonnes of refined oleum. The facility produces caprolactams used to make polyamide fibres and threads. The project aims to provide feedstock for caprolactams and derived products and scale up their production. The new sulphuric acid plant will also ensure feedstock security and stable operation for KuibyshevAzot throughout its import-substituting process chain. The project will result in increased tax revenues and new high-technology jobs. KuibyshevAzot exports 45% of its end products.
Investments in the project reached 8.6 billion roubles, including 4.7 billion roubles borrowed from Gazprombank and VEB.RF under the Project Financing Factory programme. The syndicated loan agreement was signed during the Russian Investment Forum in Sochi in February 2019. VEB.RF’s approved commitment totalled 3.8 billion roubles, while its share in the syndicate was 2.5 billion roubles. Gazprombank lent 2.2 billion roubles for ten years.
Igor Shuvalov, Chairman, VEB.RF, said: “VEB.RF’s key goal is to maximise investment in projects that contribute towards national goals. We are mandated to inject up to 3 trillion roubles into the economy and work with commercial banks to attract investment of 10 trillion roubles by 2025. VEB.RF and partner banks have approved 11 projects to date, totalling 930 billion roubles, and the first of them are already in the operational phase. The Tolyatti -based company’s project is the first transaction approved under the Project Financing Factory programme. We are satisfied with this partnership: the investors and Gazprombank agreed quickly and started production ahead of schedule.”
Vyacheslav Okhotin said: “Gazprombank was the first to carry out its customers’ projects through the Project Financing Factory. All the teams involved in the project—KuibyshevAzot, VEB.RF and Gazprombank—proved their professionalism and willingness to be innovative. The efficient preparation and execution of the transaction using a totally new financial mechanism in the market laid the foundations for its scalability in the future.”
Viktor Kudryashov, Prime Minister of the Samara Region, said: “The production started seven months ahead of schedule. It’s a new milestone in the company’s history because it will allow them to set up their own manufacturing operation for sulphuric acid and refined oleum and create a reliable source of feedstock, which will enable the company to scale up production, bring down costs and improve the quality of products sold all over the world. I want to thank you, Mr Shuvalov, and VEB.RF for your huge support for this project. The company, VEB.RF and Gazprombank signed the agreements to implement the project as early as a year ago. And today we are present at the opening ceremony here. We were able to put the idea for the project into practice largely because it was implemented in the Tolyatti advanced development zone, and the company gets considerable regional tax benefits.”
Alexander Gerasimenko said: “The project is aimed at increasing the competitiveness and export potential of Russia’s only process chain, from caprolactams and polyamides to threads and fabrics, created by KuibyshevAzot. Working in partnership with VEB.RF and Gazprombank under the state-supported Project Financing Factory programme demonstrated the high professionalism of the teams. We find it very important to use the Factory mechanism to obtain resources for the introduction of advanced technology ensuring a high level of industrial and environmental safety.”
In the environmental context, it is noteworthy that the project uses advanced technology ensuring 3.5-fold emission reduction compared even with best available techniques. Equipment has optimal characteristics with respect to feedstock, energy consumption and product quality with guaranteed optimal permissible emissions, effluents and waste.
- New petrochemical businesses will allow Russia to increase its global market share
- Projects create a new quality of life in cities
VEB.RF Chairman Igor Shuvalov took part in a meeting chaired by the Russian President to discuss the development of the petrochemical industry.
According to Vladimir Putin, the petrochemical industry is showing a good rate of growth. Russian producers are able not only to meet the domestic demand for high-quality products, but also to gain a stronger position in the global market. This is a very promising area: world demand is expected to grow by 4% every year.
“This requires that the industry should implement large-scale projects with investments totalling about 5 trillion roubles. The two largest of them — Amur Gas Processing Plant and the ethane-containing gas processing project near the seaport of Ust-Luga in the Leningrad Region—are already under way with the support of VEB.RF,” Vladimir Putin said.
Overall, Russia is to launch 14 projects in the coming years. The projects will create about 17,000 highly skilled and well-paid jobs. According to Vladimir Putin, an important element in project implementation is to raise loans.
Igor Shuvalov emphasised that it was important for VEB.RF not only to provide funding for new production, but also to work towards the goal set out in the presidential decree, namely qualitative changes to the lives of Russians. “The most important thing is that SIBUR has a very important competency: they can invest in a modern way. Where they come, there is a new quality of life in cities. Tobolsk is a shining example,” Igor Shuvalov said. Such approaches are also considered for the cities of Svobodny (where nearly 50,000 people can receive a new quality of life) and Kingisepp. “As for financial resources, we know how to work without competing against commercial banks. Instead, we give them a helping hand to make loans on acceptable terms,” he said.
VEB.RF-supported petrochemical projects (completed and ongoing) total 5.5 trillion roubles, with VEB.RF’s commitment of 1 trillion roubles.
As a strategic partner of SIBUR, VEB.RF provided financing for the creation of a Tobolsk-based advanced hydrocarbon processing facility, one of the largest in the world. The VEB.RF Group is involved in large-scale projects at Ust-Luga (Russia’s largest ethane-containing gas processing facility), in the Amur Region (Amur Gas Processing Plant), in the Tula Region (Shchekinoazot) and in the Primorie Territory (Nakhodka Fertilizer Plant).
VEB.RF is also considering partnering up with Russian commercial banks to provide financing for another project that is a landmark in SIBUR’s gas-to-chemicals operations, namely the Amur polymer production facility.
Prime Minister Mikhail Mishustin Praises VEB.RF’s Efforts to Promote National Currencies Used Across SCO
During a meeting of the Council of Heads of Government (Prime Ministers) of the Shanghai Cooperation Organisation, Russian Prime Minister Mikhail Mishustin noted the importance of “developing alternative payment methods, independent of the dollar”. “We believe it’s a good idea to expand the use of mutual payments in national currencies,” he said. “It is necessary to reach agreement on this issue and then start negotiating the creation of financial mechanisms for SCO projects.” As a reminder, VEB.RF’s year-long presidency of the Interbank Consortium of the Shanghai Cooperation Organisation (SCO IBC) resulted in the SCO IBC Council giving its approval to the Joint Approaches to the wider use of national currencies.
Speaking to the Council of Heads of Government (Prime Ministers), VEB.RF Chairman Igor Shuvalov said that the document approved by the SCO IBC “includes approaches such as providing mutual access to liquidity in national currencies, developing hedging instruments for currency risks, developing the capital markets of the SCO countries, facilitating the wider use of national currencies in foreign trade”. According to him, the document will help the SCO member states to set up a more resilient system of trade, economic and investment ties.
Another important outcome of VEB.RF’s presidency was the Road Map adopted to cope with the repercussions of the pandemic. “Its implementation will help to create new growth points, give impetus to trade and investment. We intend to share our experience of support for companies. Our plans include creating a base of potential joint projects, developing mechanisms for long-term lending to infrastructure, and promoting green financing,” he said.
Igor Shuvalov also spoke in favour of expanding the SCO integration processes and exchanging best practices between the Shanghai Cooperation Organisation and the Eurasian Economic Union. “In the context of rebooting the post-pandemic economy, businesses in our countries could be more actively involved with integration projects across Eurasia,” he said. “I think these formats have enormous potential for complementing each other. The development banks can become a bridge to transfer best practices of integration projects.” Igor Shuvalov said that he was confident that this would help the SCO member states to adopt “a more transparent, inclusive, green and sustainable model of development”.
VEB.RF Completes Its Surety Bond Programme Helping Over 5 Million People to Keep Their Jobs and Income
- Surety bonds totalled 500 billion roubles
- The project was part of the Russian Government’s rescue scheme
- Businesses were given more than 250,000 loans
Under the first programme, VEB.RF issued surety bonds totalling 100 billion roubles to 15 commercial banks for zero-interest loans intended to help businesses to meet the immediate needs related to supporting and retaining their employees. VEB.RF’s surety bonds cover 30,688 loans given by commercial banks for more than 85 billion roubles.
The second package is a huge amount of 400 billion roubles in surety bonds issued by VEB.RF to commercial banks for 2% interest loans designed to help businesses to resume their operation. Under the lending programme launched on 1 June, businesses received 221,478 low-interest loans totalling about 415 billion roubles; 85% of each loan amount, including compound interest, is covered by VEB.RF’s surety bond. Overall, the programme covered 40 commercial—chiefly regional—banks.
“VEB.RF is actively involved with the government’s job retention scheme, including support for small and medium-sized enterprises. Our task was to promptly support commercial banks that gave loans to businesses. We created a unique guarantee product that made it possible to implement the government’s rescue scheme in the shortest possible time. And the VEB.RF team was able to meet the challenge. The low-interest loans with VEB.RF’s surety bonds helped businesses to retain over 5 million employees,” VEB.RF Chairman Igor Shuvalov said.
VEB.RF published its interim condensed consolidated IFRS financial statements as at September 30, 2020
VEB.RF published its interim condensed consolidated financial statements under International Financial Reporting Standards as at September 30, 2020.
«VEB.RF serves as a financial and lending institution, Russia’s only institution having such a complicated profile. We support large-scale projects that are most important for Russia’s economy development. VEB.RF fully meets the IFRS criteria designed to enhance transparency and deemed appropriate in the light of VEB.RF’s transformation.
Backed by the Russian Government, VEB.RF dynamically implements nationally significant projects in infrastructure, high-technology industries, exports and urban development, and is actively involved in programmes supporting business during the COVID-19 pandemic. VEB.RF issued about RUB 500 billion worth of guarantees to commercial banks for entrepreneur loans, thus allowing hundreds of enterprises to maintain millions of jobs and revive business.
Notably, our agenda extends far beyond overcoming the economic consequences of the pandemic. VEB.RF increases investment in development in partnership with commercial banks. In the reporting period, VEB.RF demonstrated an increase in the loan portfolio, operating income and equity. The VEB.RF Group generated profit in Q3 2020. The reported nine-month loss is attributable to loan and guarantee provisioning including as part of support for businesses during the pandemic, and VEB.RF’s continuing work with its ‘old’ loan portfolio.
The capital adequacy ratio above 12% and a comfortable level of liquidity allow us to actively promote our development agenda. VEB.RF is continuing its transformation and making up a new break-even portfolio amounting to at least RUB 3 trillion subject to successful implementation of VEB.RF’s business model.” VEB.RF Chief Financial Officer Andrey Moskovskikh said.
9M 2020 VEB.RF Group’s key financials according to IFRS are as follows:
- The Group’s assets as compared to the beginning of the year increased by 6.6% (RUB +209.0 bn) and as at September 30, 2020 reached RUB 3,399.8 bn. The increase in the loan and leasing portfolio, as well as in investment financial assets, stipulated the assets dynamics.
- As compared to the end of 2019 total loans less allowance for impairment and net investments in leases went up by 6.3% (RUB +80.5 bn) to reach RUB 1,364.8 bn. The total loan and leasing portfolio accounted for 40.1% of the Group’s total assets.
- The amount of loans granted by VEB.RF in 9M 2020 reached RUB 160.9 bn. The investment priority sectors included industry, infrastructure and urban economy, as well as export support. Among the projects for which financing started in the third quarter are the following projects: construction of the Sukhodol coal export terminal in the Far East, financing of rail buses delivery to the Sakhalin region, etc.
- In 9M 2020 allowance for expected credit loss amounted to RUB 26.2 bn, including the provision of RUB 11.4 bn for guarantees provided in favour of credit institutions within anti-crisis measures of the Russian government.
- In the reporting period the amount of cash and cash equivalents went down by 30.8% (RUB -187.1 bn) to RUB 420.9 bn due to increased project lending. Liquidity is maintained at a comfortable level: cash and cash equivalents account for over 12% of total assets as at September 30, 2020.
- As at September 30, 2020 the Group’s liabilities year-to-date went up by 1.3% (RUB +36.5 bn) to RUB 2,802.2 bn. Foreign currency revaluation affected the increase in liabilities. At the same time amounts due to the Russian government and the Bank of Russia went down by 12.3% (RUB -94.7 bn) because of the derecognition of obligations under deposit agreements with the Bank of Russia. The decrease in debt securities issued was largely due to the redemption in July 2020 of the Eurobond issue with a nominal value of USD 1.6 bn.
- Operating income for 9M 2020 totaled RUB 146.1 bn, exceeding that for the same period of 2019 by 34.2%. In the operating income structure, net interest income amounted to RUB 6.3 bn, net commission income reached RUB 11.1 bn, and non-interest income was RUB 128.7 bn. Interest income decline was caused, inter alia, by the Bank of Russia key rate cut and by the specifics of interest rate calculation on impaired loans in accordance with IFRS.
- For the nine-month period the Group reported a loss of RUB 29.7 bn. The negative financial result was mostly driven by the loss on initial recognition of guarantees issued in favour of banks to secure their loans, provided to companies to support the Russian economy during the COVID-19 pandemic, and by the creation of provisions including those for the guarantees mentioned above. However the Group recognized the profit of RUB 17.4 bn in the third quarter.
- Weakening of the Russian rouble also affected the indicators and the Group’s result for 9M 2020.
- In 9M 2020 the Group’s equity went up by RUB 172.5 bn (+40.6%) to reach RUB 597.6 bn as at September 30, 2020. Equity increase was, inter alia, due to the following asset contributions:
- in May 2020 the Russian Ministry of Finance contributed the rights of claim of the Bank of Russia to VEB.RF under agreement to place funds on deposits with VEB.RF as an asset contribution of the Russian Federation to VEB.RF’s authorized capital in accordance with Article 1.4 of Federal Law No. 49-FZ On the Transfer of Part of Income Gained by the Central Bank of the Russian Federation from the Sale of Ordinary Shares of Public Joint-Stock Company Sberbank of Russia of 18 March 2020. Upon receipt of the asset contribution and derecognition of obligations under deposit agreements, VEB.RF recognized an increase in the authorized capital in the amount of RUB 350.4 bn as a transaction with the owner with an increase in uncovered loss in the amount of RUB 142.6 bn;
- in the reporting period VEB.RF received a subsidy of RUB 19.3 bn as an asset contribution of the Russian Federation in order to make a contribution to the share capital of JSC Far East and Arctic Development Fund for the implementation of priority investment projects. The whole amount of the subsidy was recognized within additional paid-in capital;
- additional paid-in capital was increased with the subsidy of RUB 2.4 bn as an asset contribution of the Russian Federation for the purchase of shares in Russian Export Center JSC in order to increase share capital of EXIAR JSC under the federal project “Systemic Measures to Develop International Cooperation and Export” of the national project “International Cooperation and Export”.
- VEB.RF’s capital adequacy ratio (according to RAS) was 12.9% as at 01.10.2020 (13.6% as at 01.01.2020).
- Comfortable equity level and state support measures allow VEB.RF to perform the leading development institution’s functions and be actively engaged in programmes of national significance for the Russian economy.