Egyptian-Based Russian Industrial Area Showcased by VEB.RF and REC at Expo 2020 Dubai
The VEB.RF Group’s delegation made a presentation about the Russian industrial area (RIA) in Egypt at Expo 2020 Dubai today. Supervised by the Russian Ministry of Industry and Trade, the project is to offer a unique opportunity for Russian companies to enter the Arab and African markets. According to Daniil Algulyan, Deputy Chairman of the Management Board, VEB.RF, construction in the RIA is scheduled to begin as early as May 2022. The RIA is situated at the town of Ain Sokhna near the Suez Canal.
“The Russian industrial area in Egypt is basically a public-private partnership project,” Daniil Algulyan said. “Our countries work together to help businesses to set up their projects. The RIA is designed to make it easier for Russian companies to adapt themselves to the local environment during their entry into the Middle Eastern and North African markets.”
The 50-hectare site is only a few hundreds of metres from the Red Sea. The RIA is located near a railway that can be used to transport feedstock and finished products, a desalination plant and a power station. The RIA will potentially be expanded to 525 hectares; the second site will be built at Port Said. The two sites are to operate on the same conditions.
RIA residents will be able to repatriate 100% of their profits, have 100% shareholdings in their businesses, and import duty-free components, materials and parts for use within the Russian industrial area. In the case of products exported from the RIA to the other territories of Egypt, they will be exempt from tax with the exception of assemblies and components manufactured abroad. Russia will build on-site accommodation for RIA residents. They will also be provided with access to a full range of products offered by development institutions: loans from EXIMBANK OF RUSSIA, insurance plans from EXIAR, performance bonds from VEB.RF etc.
“Russia and Egypt are equally interested in this form of cooperation. The ongoing project is a win-win for everyone,” added Veronika Nikishina, CEO, Russian Export Center (REC, part of the VEB.RF Group). “This will be good for both Russia and Egypt as well as for countries across the region because products will be cheaper and more affordable. This will promote foreign investment in the region, create new jobs and develop infrastructure around the Suez Canal transit route. The RIA brings added impetus to Russia’s economic ties with Egypt, and we’ll be able to see qualitative changes in trade between the two countries.”
VEB.RF and EDB to Provide Financing for Russian Equipment Supplied for Renewable Energy in Kazakhstan
VEB.RF will lend 1.282 billion roubles to the Eurasian Development Bank (EDB) to promote renewable energy in Kazakhstan. The credit line agreement was signed by Daniyar Imangaliyev, Vice Chairman of the Management Board, EDB, and Aleksey Ternavskiy, Managing Director, VEB.RF, during the Eurasian Congress.
The project uses Russian-made equipment, thus also boosting economic integration.
“Green technology transfer from Russia to Kazakhstan with the direct involvement of VEB.RF is an example of how the EDB is laying out a new integration agenda. Since 2017, the Bank has provided financing for renewable energy projects worth over 540 million US dollars and totalling about 500 MW. In 2020, the Council of the Bank approved a programme for 600 million US dollars in financing for 500 MW renewable energy projects in 2020–2024. This can increase planned renewable energy financing to over 1 billion US dollars by 2024,” Daniyar Imangaliyev said.
“Support for high-technology exports is a key area of VEB.RF’s activities. In 2021 alone, VEB.RF entered into loan agreements for more than 1.5 billion US dollars in this area. Their stable export potential means that Russian goods and services are highly competitive. Our main focus now is on ESG criteria for project selection, so we are optimistic about the future prospects of joint green integration projects with the EDB, our good and reliable partner,” Aleksey Ternavskiy said.
VEB.RF-Supported Project Included on Intergovernmental Russian-Chinese Commission’s List
The VEB.RF-supported project to build the gas-to-chemicals facility at Ust-Luga (under the ethane-containing gas processing project) was included on the list of important projects at the eighth meeting of the Intergovernmental Russian-Chinese Commission on Investment Cooperation (IGC). The IGC co-chairmen, Andrei Belousov, First Deputy Prime Minister of the Russian Federation, and Han Zheng, Vice-Premier of the State Council of the People’s Republic of China, were in charge of the meeting.
“The Ust-Luga ethane-containing gas processing project is of nationwide significance. It has Chinese participation, and some of its products will be supplied to the Chinese market. The fact that the gas-to-chemicals facility is now on the IGC list of projects means the project will get the necessary support, which is of benefit to both Russia and China,” said Daniil Algulyan, Deputy Chairman and Member of the Management Board, VEB.RF.
Additionally, the parties discussed the current status and growth prospects of investment cooperation. The IGC secretariats, the Consultative Business Committee, national development institutions and companies reported on their performance. The meeting gave particular attention to bilateral cooperation in COVID-19 vaccine production and gas-to-chemicals projects.
VEB.RF became actively involved with the IGC in 2014. VEB.RF is participating in work on 14 projects in the IGC’s pipeline, with six of them to receive financing from VEB.RF.
To support projects within the IGC, VEB.RF and China Development Bank (CDB) signed a framework agreement for project financing for 15 years and are active in fulfilling its conditions. For example, as part of their cooperation in the project to supply 15 ice-class gas carriers to Arctic LNG 2, CDB lent VEB.RF 4 billion yuan.
In collaboration with the Russian Ministry of Economic Development in 2021, VEB.RF fine-tuned and put into operation an electronic system (mpk-cn.ru) enabling more than 200 IGC members to monitor IGC projects on a twenty-four seven basis.
As an IGC member, VEB.RF intends to contribute to the successful implementation of IGC-supported projects and continue to be actively involved with the IGC.
VEB.RF and VTB Infrastructure Holding Agree on IRIIS Certification for Projects
The company’s projects will be provided with independent quality assessment in accordance with international governance standards and best practices.
VTB Infrastructure Holding is a member company of VTB Group and the largest investor in Russian infrastructure.
It is intended that its project initiatives and infrastructure projects will be assessed for compliance with the IRIIS requirements.
Developed by VEB.RF in collaboration with the National PPP Development Center and AECOM, IRIIS uses an infrastructure project assessment methodology to evaluate economic efficiency, environmental safety and social outcomes.
The memorandum of cooperation was signed during VTB Capital’s “RUSSIA CALLING!” Investment Forum. The document was signed by VEB.RF’s Deputy Chairperson and Member of the Management Board Svetlana Yachevskaya and VTB Infrastructure Holding’s CEO Oleg Pankratov.
The Ufa East Exit project of Bashkir Concession Company (part of VTB Infrastructure Holding) is the first in Russia to be awarded IRIIS certification. A syndicate of VEB.RF and VTB is financing the project through the Project Financing Factory. Due diligence showed that high quality standards had been applied to the preparation and planning of the project from the very beginning.
Svetlana Yachevskaya, Deputy Chairperson and Member of the Management Board, VEB.RF:
“It’s particularly important to build up a portfolio of projects for quality infrastructure investment, taking account of Russia’s goals of creating new, modern infrastructure. We hope IRIIS will enable Russian infrastructural projects to be compliant with the highest quality standards and attractive across a wide range of investors. This will increase private infrastructure investment and help the government to support the most promising project initiatives, which today incorporate sustainability and ESG factors to an increasingly large extent.”
Oleg Pankratov, CEO, VTB Infrastructure Holding:
“VTB Infrastructure Holding has always been committed to ESG principles. When we embark on a project, as early as conceptual design, we investigate how it will reduce environmental impacts, what tax revenues it will generate, what jobs it will create, and how it will improve quality of life, contribute to regional planning and raise environmental standards. The agreement with VEB.RF is a significant strategic step for us and reaffirms our commitment to achieving the sustainable development goals and moving from theory to practice.”
VEB.RF published its interim condensed consolidated financial statements under IFRS as at September 30, 2021.
“VEB.RF generated a net profit of RUB 14.7 bn in accordance with IFRS for the nine months of 2021 and provided unprecedented support for nationally significant projects and projects aimed at improving the quality of life, with the loans given by VEB.RF growing by RUB 554.8 bn. The major drivers of the financial result delivered in the three quarters of 2021 were the net interest income and the net fee and commission income. VEB.RF’s liquidity cushion and capital adequacy ratio of 15.9 percent allow VEB.RF to scale up financing for infrastructure, industry, exports, and regional and municipal development with support from the Russian Government. VEB.RF’s absolute priority is to invest in new facilities and support businesses during the pandemics by issuing guarantees to banks for zero- or low-interest loans to entrepreneurs designed to help them retain employees,” VEB.RF Chief Financial Officer Andrey Moskovskikh said.
VEB.RF Group’s key financials for 9M 2021 are as follows:
In 9M 2021, the VEB.RF Group made a profit of RUB 14.7 bn against a loss of RUB 29.7 bn as compared to the same period last year.
The positive financial result was driven by:
net operating income (net of allowance) of RUB 101.8 bn, which is by RUB 11.9 bn less than for the same period of 2020;
decrease in non-interest expense to RUB 76.8 bn from RUB 111.4 bn for 9M 2020.
The operating income dynamics was stipulated by the following factors.
- Net interest income in the reporting period went up to RUB 16.1 bn as compared to RUB 6.3 bn for 9M 2020. Increase in interest income by RUB 3.0 bn was mainly due to the interest income growth from the loan portfolio, and interest expense decreased by RUB 6.8 bn, as the effect of the reduced cost of funding.
- Net fee and commission income went up by RUB 12.2 bn from RUB 11.1 bn for 9M 2020 to RUB 23.3 bn for 9M 2021 due to the commission income on guarantees issued as part of the state anti-crisis programme (amortization of loss on initial recognition of guarantees).
- Non-interest income for 9M 2021 amounted to RUB 26.1 bn compared to RUB 76.7 bn for the same period last year. In the reporting period that ended September 30, 2021 the loss was recorded on initial recognition of guarantees issued on preferential terms as part of the new state COVID-19 rescue scheme.
The Group’s assets went up by 14.5% (+ RUB 492.7 bn) against the beginning of 2021 and as at September 30, 2021 reached RUB 3 898.8 bn. The assets increase was mainly driven by a substantial growth in the loan portfolio.
Against the beginning of 2021 the total loan and leasing portfolio (net of provision for impairment) went up by 34.2% (+ RUB 460.4bn) to reach RUB 1 805.3 bn. In total, the loan and leasing portfolios account for 46.3% of the Group’s total assets.
The amount of loans granted by VEB.RF in 9M 2021 reached record RUB 554.8 bn, with the amount of loans granted in Q3 almost doubling the result of the first six months. Investment priority sectors include industry, infrastructure including urban economy projects, as well as export support. Since the beginning of 2021, financing has started for twenty eight new projects in priority economic sectors.
In the reporting period allowance for expected credit loss was charged in the amount of RUB 8.0 bn.
The Group’s liabilities increased by 16.3% (+ RUB 442.3 bn) since the beginning of 2021 and as at September 30, 2021 reached RUB 3 159.4 bn. Inter alia, amounts due to banks went up by 39.0% (+ RUB 231.7 bn) and debt securities issued increased by 13.3% (+ RUB 101.7 bn). Amounts due to the Russian Government and the Bank of Russia went down by 3.1% (- RUB 19.4 bn).
VEB.RF has consistently built up its market funding to ensure increased financing of major projects of the national economy.
The Group’s equity in 9M 2021 went up by RUB 50.4 bn (+7.3%) to reach RUB 739.4 bn as at September 30, 2021. This equity growth was stipulated by the profit for 9M 2021, increase in gains from investment financial assets at fair value through other comprehensive income, and receipt of an asset contribution from the federal budget to increase a subsidiary’s authorized capital.
VEB.RF’s capital adequacy ratio was 15.9% as at September 30, 2021 (17.0% as at December 31, 2020).
In August 2021, the Bank of Russia Board of Directors approved amendments to Instruction No. 199-I which stipulate weighing all bank credit claims on State development Corporation VEB.RF nominated and funded in rubles with the risk weight of 20% when calculating the prudential ratios of banks (previously, from 20% to 100%, depending on credit claims parameters). These amendments came into effect in October 2021.The decision of the Bank of Russia will contribute to the expansion of interbank cooperation, including due to the growth in demand of Russian banks for VEB.RF public debt instruments.