Interview of Yuri Soloviev, CEO of VTB Capital, to "Institutional Investor" magazine
Interview with Yuri Soloviev, CEO of VTB Capital.
A new financial powerhouse, VTB Capital, the Investment Business of VTB Group, is coming to the international financial markets. Yuri Soloviev, a banker with a long track record, who was until recently the first Deputy Chairman of Deutsche Bank Russia, leads Russia’s first national champion in the financial sector. Soloviev moved to VTB in March 2008 to build the new investment banking arm for the VTB Group. In July, Financial News recognized him as one of the top 10 people in investment banking -- the only Russian banker to be included on the prestigious list.
The Russian markets still face numerous challenges: tax issues, weakness of the regulatory system, and lack of financial instruments. All these should be addressed to develop Russia’s markets and improve the investment climate. In spite of these problems, why is Russia still a good place to invest?
Indeed, further work is necessary to strengthen domestic financial markets and elevate products and services to the highest international standards. Looking ahead, despite Urals crude oil prices easing to below US$125 per barrel, Russia’s macroeconomic fundamentals are expected to remain solid. Economic growth from 2008 to 2009 is seen averaging more than 7 percent year on year – remarkable figures when compared with the recessionary fears in the West. Russia remains a very attractive proposition and its growth stands in marked contrast to the decline seen in many markets. Russia’s GDP is up 8 percent over the first half of 2008 compared to the same period of last year and recent data continues to underline a strong domestic demand profile, dominated by robust consumption and investment expenditure.This explains why in spite of the global liquidity crisis, Russia is still in good shape. Even as the financial crisis shows no signs of abating and deleveraging continues, our economy remains strong because of very low levels of public debt. Together with current account and fiscal surpluses, Russia is singled out as a country that can rely on internal finances – a genuinely enviable achievement given tight credit conditions today. At a time of pervasive downgrades by leading credit agencies, Russia manages to get upgrades. This is quite telling.
What are the competitive advantages of VTB Capital, especially in a tough market that created problems for Western banks?
Let’s be clear here – the Russian markets did not create the problems in today’s financial system. Yes, as globalization spreads, capital flows freely, and Russian markets get hit with their global counterparts. However, VTB Capital has an outstanding team of professionals with expertise in Western markets that we bring to local markets. We also have the resources and the commitment, which are simply unparalleled. At a time when the risk appetite of global financial institutions is low, VTB Capital is constructive on good assets and has muscle to take risk on its balance sheet.Our recent deals serve as good examples. VTB Bank and VTB Bank Europe plc (part of the Investment Business of VTB Group) have arranged a US$1.51 billion, three-year medium term secured finance facility to OJSC Kamskaya mining company. Earlier, VTB Capital acted as co-lead manager of Razgulaj Group’s follow-on offering that raised US$295.2 million. VTB Bank Europe plc has participated as a co-arranger in an innovative deal with the premier public Russian factoring receivables ABS for the Russian Factoring Company Trust for US$338 million.
As a Russian investment bank, what are your key target markets?
We are naturally focusing on Russia and the CIS, and facilitating the growth of investment in Russian markets. We aim to do this through our structuring, distributing and trading hub. We are also looking to capitalize on the demand for our services in other international financial centers. With the headquarters of VTB Capital in Moscow, we already have strong presence in London and Singapore. This October, we will be moving our London operations to a new and bigger location, one that will be more fully equipped for the task that lies ahead – providing a full-service Russian investment bank for London’s international business community.
What other additional offices, besides Moscow, London and Singapore are you planning to open?
At present, we are considering opening offices in a number of locations, including the world’s key financial centers, as most of our clients work from there. We are also looking closely at the EMEA region, among others. All these international financial centers offer opportunities for us and we will explore each one in turn.
What products are you offering to your client base?
VTB Capital aims to provide a full range of investment banking products and services to both Russian and international clients. These include arranging operations in debt and equity markets, advising clients on ECM and M&A deals in Russia and abroad, developing private equity, as well as operations in the global commodities markets and asset management. Despite the credit crunch, Russian markets continue to grow and we remain an important conduit for the global investment community. The development of an investment business by the VTB Group is a strategic move in accordance with the market requirements.
Will the rising inflation put an end to the Russian success story?
Inflation today is a worldwide phenomenon and Russia, like other economies, is affected by market trends. With regard to price pressures driven by booming domestic consumption, the government is employing not only monetary responses but also fostering competition and removing bottlenecks in various markets. I am sure that this multi-pronged approach will succeed.
What are VTB Capital’s plans going forward?
We are keen to develop the core product areas we have been building over the past six months and ensure that we have a full-service investment banking franchise that acts as a bridge between international markets and Russia. We have attracted talent in the M&A and capital markets arena, as well as in infrastructure and structured products, commodities trading, and asset management, which have seen strong growth and demand in Russia. VTB Capital will provide investment banking services and products to investors from around the world who wish to participate in the success of the Russian market with a local partner offering comprehensive support in world’s key financial centers, both in Russia and internationally.
What role does the state play in your business?
VTB may be majority-owned by the Russian state but it is not a policy tool for the government. The bank’s commercial client relationships are important to us and to our business. We see enormous potential growth in becoming a bridge between Russia’s major corporations and the international markets. We are able to capitalize on opportunities requiring the commitment of a long-term partner. The continued importance of the Russian markets to global investors is what makes us a formidable player.
Institutional Investor, September 2008
Head of Press