VEB.RF published its consolidated financial statements prepared in accordance with International Financial Reporting Standards for 2020.
VEB.RF Chief Financial Officer Andrey Moskovskikh said: “We are pleased to post a net profit of RUB8.4bn in accordance with IFRS for 2020. This is the result of our efforts to follow the government’s agenda and reorient VEB.RF’s activities towards achieving national goals and building up a new, high-quality portfolio of projects in infrastructure, industrial production, export and urban economy development. The most serious challenge we faced in 2020 was definitely mitigating the consequences of the pandemic.
“As part of the government’s large-scale rescue package for ailing businesses, VEB.RF issued surety bonds totalling about RUB500bn to commercial banks. The surety bonds were intended to guarantee that businesses would repay their interest-free or low-interest loans. This helped millions of people to keep their jobs at hundreds of companies. We can see the general trend is for borrowers to improve their performance in various business segments.
“VEB.RF’s agenda is expanding to encompass active partnership with commercial banks and international financial institutions, the introduction of responsible and green financing, and the consolidation of development institutions under the umbrella of VEB.RF. The capital adequacy ratio of 17% and a comfortable level of liquidity allow us to invest considerably in our development priorities.”
Key financial results of the VEB.RF Group in 2020:
The VEB.RF Group made a profit of RUB8.4bn in 2020. The positive financial result was achieved by great and efficient efforts to carry out projects of importance to the national economy amid the COVID-19 pandemic and global economic slowdown.
Operating income reached RUB233.0bn in 2020, or RUB97.1bn more than in 2019, driven by the following:
- net fee and commission income increased from RUB8.2bn in 2019 to RUB21.5bn in the reporting period due to higher income from guarantees, surety bonds and letters of credit;
- net interest income decreased from RUB25.8bn in 2019 to RUB12.2bn in 2020, largely because of lower interest rates in debt markets and due to IFRS-based interest rate calculation for impaired loans;
- non-interest income grew due to the positive revaluation of loans and securities at fair value.
The Group’s assets increased by 6.7% (+RUB215.3bn) on the beginning of the year to RUB3,406.1bn as at 31 December 2020. Assets changed due to increases in the loan and lending portfolios as well as financial investment assets.
The total loan and lending portfolios, less provision for impairment, grew year on year by 3.6% (+RUB40.3bn) and 13.1% (+RUB20.3bn) respectively. Taken together, they accounted for 39.5% of the Group’s total assets.
The loans given by VEB.RF in 2020 totalled RUB243.1bn. The main borrowers were shipbuilding, gas to chemicals, engineering, infrastructure development and airport modernisation, city development and IT.
Apart from lending in 2020, VEB.RF was also actively involved with the government’s COVID-19 rescue schemes. VEB.RF issued surety bonds totalling about RUB500bn to commercial banks in 2020 to help businesses to repay their loans. As at 31 December 2020, the value of surety bonds was RUB396.6bn.
Provisioning for expected credit losses was RUB28.6bn in 2020, including RUB12.0bn for VEB.RF’s surety bonds issued as part of the government’s rescue package. The loan loss provision was restored for RUB7bn.
The Group’s liabilities decreased by 1.8% (–RUB48.6bn) in the reporting year to RUB2,717.1bn as at 31 December 2020. Liabilities changed due to a decrease of 19.3% (–RUB148.9bn) in amounts due to the Russian government and the Bank of Russia, including derecognising the obligations under the deposit agreements with the Bank of Russia after receivables under the agreements were used as the Russian Federation’s contribution to VEB.RF’s capital.
The decrease in debt securities issued was largely due to the redemption of Eurobonds with a nominal value of USD1.6bn in July 2020. The decreased value of external borrowings was partly offset by increased domestic bond borrowings and amounts due to banks.
The Group’s equity went up by RUB263.9bn (+62.1%) in 2020 to RUB689.0bn as at 31 December 2020. Equity grew, inter alia, due to the following contributions:
- in accordance with Article 1.4 of Federal Law No. 49-FZ of 18 March 2020 “On the Transfer of Part of Income Gained by the Central Bank of the Russian Federation from the Sale of Ordinary Shares in Public Joint-Stock Company Sberbank of Russia”, the Russian Ministry of Finance used the Bank of Russia’s receivables from VEB.RF in May 2020 as the Russian Federation’s contribution to VEB.RF’s capital under the VEB.RF deposit agreements. After receiving the contribution and derecognising the obligations under the deposit agreements, VEB.RF recognised an increase of RUB350.4bn in its capital as a transaction with owners while increasing uncovered losses by RUB142.6bn;
- in the reporting period, VEB.RF received a government subsidy of RUB19.3bn as the Russian Federation’s asset contribution intended to make a contribution to the share capital of the Far East Development Fund for the implementation of priority investment projects. The subsidy was recognised in additional paid-in capital.
VEB.RF’s capital adequacy ratio in accordance with RAS was 17.0% as at 31 December 2020 (13.6% as at 31 December 2019).
In 2020, VEB.RF had its international credit ratings reaffirmed at the same level as the sovereign rating of the Russian Federation (S&P: BBB-, Fitch: BBB, Moody’s: Baa3). The Analytical Credit Rating Agency (ACRA) also reaffirmed VEB.RF’s credit rating at the highest level of AAA.
As part of the government’s administrative reform aimed at streamlining procedures in governmental agencies, changes were introduced in 2020 to the system of development institutions. Ordinance of the Russian Government No. 3710-r of 31 December 2020 approved the list of development institutions pulled together under the umbrella of VEB.RF, laying out the state corporation’s agenda for the near future. VEB.RF is working to implement the road maps approved by the ordinance and submit proposals to the government for approaches to managing these development institutions.
VEB.RF published its interim condensed consolidated IFRS financial statements as at June 30, 2020
VEB.RF published its interim condensed consolidated financial statements under IFRS as at June 30, 2020.
«As instructed and backed by the Russian government, in the reporting period VEB.RF was actively involved in the large scale measures to support the Russian business during the COVID-19 pandemic. By the time of IFRS statements publication the total amount of guarantees issued by VEB.RF in favour of commercial banks for the loans to business at zero or reduced interest rate nearly reached RUB 500 bn. All decisions were taken promptly and on time. The financial result of H1 2020 was affected by the created provisions (including provisions for guarantees for loans to small and medium business) and by the decrease in net interest income (against the global loan interest rate drop). At the end of H1 2020 capital adequacy ratio was 18%, VEB.RF has been supporting projects in infrastructure, industry, urban development and export support, - said Andrey Moskovskikh, CFO of VEB.RF.
VEB.RF Group’s key financials for H1 2020 are as follows:
- As at June 30, 2020 the Group’s assets increased by 2.4% (RUB +76.3 bn) as compared to the beginning of the year, reaching RUB 3,253.7 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 5.2% (RUB +66.6 bn) to reach RUB 1,350.9 bn. The total loan and leasing portfolio accounted for 41.5% of the Group’s total assets.
- The amount of loans granted by VEB in H1 2020 reached RUB 95.7 bn. Investment priority sectors included industry, infrastructure and urban economy, as well as export support.
- Among the projects for which financing started in the reporting period are the following projects: Amur gas processing plant construction in Blagoveshchensk, projects aimed at public transportation development in Perm and Tver, etc.
- In H1 2020 allowance for expected credit loss amounted to RUB 21.1bn, including the amount of provisions of RUB 12.1 bn for guarantees provided in favour of credit institutions within anti-crisis measures of the Russian government.
- Weakening of the Russian rouble affected the indicators and the Group’s result for H1 2020.
- The Group’s total liabilities as at June 30, 2020 decreased by 3.4% (RUB -94.0 bn) to RUB 2,655.8 bn. The liabilities dynamics is accounted for by the decline in amounts due to the Russian Government and the Bank of Russia by 21.8% (RUB -168.5bn) because of derecognition of obligations under deposit agreements with the Bank of Russia. The growth in debt securities issued was due to the currency revaluation of securities denominated in foreign currency.
- Operating income for H1 2020 totaled RUB 46.6 bn, exceeding that for the same period of 2019 by 12.0%. In the operating income structure, net interest income amounted to RUB 3.4 bn, net commission income reached RUB 5.1 bn and non-interest income was RUB 38.1 bn. Interest income decrease 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 H1 2020 VEB.RF Group recognized a loss of RUB 43.5 bn. The negative financial result of the Group was mostly driven by the loss on initial recognition of guarantees issued in favour of commercial 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.
- The Group’s equity for H1 2020 went up by RUB 170.3 bn (+39,8%) and as at June 30, 2020 amounted to RUB 597.9 bn. Equity increase was, inter alia, due to the following asset contributions as part of state support provided to VEB.RF:
- 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 also received a subsidy of RUB 19.3 bn from the federal budget 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 also increased with the subsidy of RUB 2.4 bn granted from the federal budget 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 18.0% as at 01.07.2020 (13.6% as at 01.01.2020).
A comfortable liquidity cushion (cash and cash equivalents account for 14.0% of total assets as at June 30, 2020) and equity allow VEB.RF to perform the development institution’s functions and actively facilitate the programs of national importance for the Russian economy and aimed at mitigating the consequences of the COVID-19 pandemic.
International green community follows the development of VEB.RF Green Finance Standard
A prominent British outlet “Environment Finance” has published an article on a new Guidelines for green finance developed by VEB.RF. Here is a full text of the article.
Russia's proposed green taxonomy to include coal to gas conversion
A consultative draft of Russian green finance guidelines has been published, which includes controversial practices such as upgrades to thermal power plants, and coal to natural gas conversion.
This most recent version is a ‘technical' draft and awaits approval by the Russian government. However, VEB.RF says it has already started to adopt the guidelines in its own lending practices. The first green credit based on the guidelines is expected in the next month.
The move by Russia comes as numerous parts of the world are developing green taxonomies to stimulate the flow of finance to sustainable activities. The best known is the EU Taxonomy for green activities, which secured final approval from the European Parliament after two years of negotiation last month, ahead of official standards coming into force from 2022, but countries such as Canada and China also have their own taxonomies or are creating them.
The different taxonomies often define green in different ways, with some more accepting of fossil fuels than others.
In the Russian taxonomy, green finance may be sought for any ‘increase in energy and ecological efficiency and reduction in harmful emissions of thermal power plants.’ Additionally, finance may be obtained for coal to natural gas conversion in the energy sector.
In 2019 a ‘climate action bond’ issued by natural gas infrastructure company Snam that included use of proceeds for biomethane and energy efficiency did not make a list of issues the Climate Bonds Initiative regarded as aligned with its goals.The Russian taxonomy is divided into nine categories - waste management and recycling, energy, construction, industrial production, transport, water supply and wastewater disposal, forestry, conservation of natural landscapes and biodiversity, and information and communication technologies.
The energy category includes renewables sources such as solar and wind, as well as other forms that have encountered controversy in Europe for potentially breaching ‘do no significant harm’ principles or potentially having limited positive effect, such as biomass.
The published guidelines outline:
- The Russian national taxonomy for green projects.
- The procedure for determining compliance of financial instruments with the guidelines which determines: a. What is a green financial instrument and what is a green project b. How to obtain green certification for a financial instrument c. How to become an approved verifier.
The guidelines do not cover procedures related to obtaining government support measures associated with the green certification.
Verification must be performed in order to certify the financial instruments intended to be classified as green finance under the guidelines. Based on its results, the verifier issues an opinion, which in turn serves as a basis for a VEB.RF decision to certify the financial instrument.
“Today Russia is at the very beginning of the creation of green market architecture,” said Cesare Ragaglini, vice-chairman of VEB.RF. “The needs as well as the opportunities for green projects in Russia are enormous. It is important for our guidelines to be recognised by international investors, therefore, we put a strong emphasis on transparency and the green standard being created in Russia will be harmonised with the existing international standards.
“This will allow [us] to attract international investors to climate and environmental protection projects in Russia. We believe that the unprecedented challenge posed by the green agenda should be addressed with unprecedented cooperation among countries across the borders.”The Russian state has also instigated a four-year "Ecology" plan that has set ambitious goals since its inception in 2019, including shutting down all illegal waste dumps, reprocessing at least 60% of all solid communal wastes, reducing pollutants in the air by 22%, cleaning and restoring major waterways, and a 61% reduction of forest fire damage.
According to Igor Shuvalov, chairman of VEB.RF, the corporation has a set of targets to support "Ecology": helping attract RUB3.2 trillion ($45 billion) from domestic and international markets; making green bonds and other debt instruments focused on renewables more attractive and popular; and promoting the development of new technologies that will make the Russian economy less dependent on fossil fuels.
Link to the article on the website
VEB.RF and Russian Export Centre Launch a New System to Support Russian Exports, with a Pilot Project in China
State Corporation VEB.RF and the Russian Export Centre have opened in China the Hua No E San Russian Trade Company. This commercial structure will help Russian companies to integrate effectively into the local market and very soon begin exporting their products to China. A unique distinguishing feature of the Russian Trade Company is the principle of “payment for results,” meaning it will only receive payment for its services if the applying Russian company successfully enters the local market. The Russian Trade Company in China will breathe new life into the Russian export support system. If it is successful, VEB.RF and the Russian Export Centre will create similar structures in other states.
Practical work concerning the launch of the Russian Trade Company has been delegated to VEB.RF’s subsidiaries: VEB Asia Limited, which develops VEB.RF’s projects in Asia and the Pacific, and the Russian Export Centre. The Chairman of the Board of Directors is the General Director of VEB Asia Limited and General Representative of the Russian Export Centre in Asia, Artem Sharov.
The management structure of the Russian Trade Company in China is Hua No E San LLC (华诺俄翔贸易有限公司), which translates as “Russia soars in harmony with China.” The name adheres to Chinese principles of naming, and an expanded version is interpreted as follows: “Russia soars above all the world in harmony with prosperous China.”
“The Russian Trade Company aims to become a reliable inter-industry platform for the conclusion of foreign trade deals between the Russian manufacturer and the Chinese consumer, by taking on itself some of the risks of the foreign economic activity of both parties, and receiving payment for this to compensate expenses,” said Artem Sharov. “Payment for services is for us a practical measure of the value of the service itself, and an acknowledgement of the effectiveness of our work, and the principle of payment only upon success is an honest and riskless format for the exporter.”
In accordance with Chinese law, the Russian Trade Company has the right to: conduct trading and import-export operations; consult on a wide range of questions; act as an agent for partner enterprises, with a view to solving certain tasks in the organisation of business in China; make equity investments in other companies; participate in the mechanism of providing guarantees for Chinese enterprises importing Russian goods; develop logistics delivery schemes; and act as a freight-forwarding service agent, with a view to reducing risks and costs for both parties of a foreign trade deal.
The Russian Export Centre will act as the Company’s head office in Russia, collaborating with Russian exporters on a “one-stop shop” basis. The Company is connected to the Russian-Export-Centre-developed information system for Russian export-oriented enterprises, in order to have the opportunity to select prospective stakeholders to fulfill the demand of the Chinese market. There are provisional collaboration arrangements with a range of Russian suppliers and Chinese importers in Beijing and Shanghai, and the Guangdong, Heilongjiang, Shandong and Sichuan provinces.
VEB.RF’s management has given the Trade Company the task of taking an active part in implementing agreements between the Russian President Vladimir Putin and the President of the PRC Xi Jinping, concerning an increase of bilateral trade volumes to $200 billion, and we intend to make a sizable contribution to this important common cause,” added Artem Sharov.
Global Financial Institutions Urge Governments to Turn Their Attention to PPP Contingent Budgetary Commitments due to Pandemic
On 29 June, on the initiative of the Russian Ministry of Finance and the French Ministry of the Economy and Finance, and supported by VEB.RF and the International Monetary Fund, The Liability Side of PPP and the COVID-19 virtual workshop was held. The workshop was moderated by Artem Volodkin, Managing Director of the National PPP Centre.
Participants discussed the importance of evaluating financial risks in infrastructure projects, including those delivered on PPP principles, in the context of the COVID-19 pandemic, as well as the necessity to develop a management system for the contingent liabilities of public partners.
An opening address was given by Vladimir Tsibanov, Director of the Russian Ministry of Finance’s Department of Budgetary Policy and Strategic Planning, and Ronan Venetz, Director of the French Ministry of the Economy and Finance’s Department of Bilateral Relations. They stressed the importance of risk management in the sphere of PPP. “The pandemic may become a good stress test for PPP-project risk-control systems, which will bring to light the best practices for their evaluation and minimisation, to provide budgetary sustainability,” stressed Tsibanov. France already has practical models to evaluate such risks, aside from which, PPP projects throughout the European Union undergo strict risk and liability assessments.
Isabel Rial, an International Monetary Fund representative, and Clive Harris of the World Bank, spoke of the systematic evaluation of financial risks, including contingent liabilities, in PPP projects. Together with the IMF, the World Bank has developed a suitable model (PFRAM), which can be used to evaluate the effect of contingent liabilities accepted by public PPP-project partners on budgetary sustainability. A separate platform, created by international development banks (SOURCE), contains various tools for working with infrastructure projects, including the possibility of evaluating their risks. Christophe Dossarps, General Director of the Sustainable Infrastructure Foundation, spoke about the operating procedure of the platform.
Evgenii Dombrovsky, Deputy Director of the Russian Ministry of Finance’s Department of Budgetary Policy and Strategic Planning, and Maxim Merkulov, Managing Director of VEB.RF and Member of the Board of the National PPP Centre, used their speeches to highlight the situation on the Russian PPP market, and the prospects of creating an integrated management system for contingent liabilities in Russia. According to data from the ROSINFRA platform for the support of infrastructure projects, 3,425 PPP projects are realised in Russia for $60 billion, of which 2,684 projects are within the framework of concession agreements, and direct budgetary liabilities for them are valued at $10 billion. Maxim Merkulov underlined that the situation with COVID-19 demands that the Government pays close attention to budgetary stability and risk monitoring.
According to Evgenii Dombrovsky, the Ministry’s chief goals in this regard are: regular evaluation of direct and contingent government liabilities; development of a methodological framework for evaluating contingent liabilities in PPP projects; assessment of risks and liabilities under agreements; and consolidation of information on direct and contingent liabilities.
An important element in identifying and evaluating liabilities is their record in state financial statistics. The particularities of reporting budget liabilities in PPP projects, which are applied to PPP agreements in the European Union according to Eurostat regulations, were disclosed by Luca Ascoli, head of Unit for EDP statistic in Eurostat. He stressed that for statistics, it is the “economic,” rather than the legal, owner of an asset, accounting for risk sharing between parties, which is important.
With a view to informing on international approaches to evaluation, forecast and management of contingent liabilities, VEB.RF and the National PPP Centre, supported by the Russian Ministry of Finance, have prepared a research paper, “Management of Contingent Budgetary Liabilities in PPP Projects.”