Chinese-Russian M&A deals seen surging
15 July 2013
Alison Tudor-Ackroyd, FinanceAsia online (HK)
Russia's VTB Capital and China's Citic Securities are looking to break out of their local markets by helping each other intermediate growing trade and investment flows between their two countries.
VTB Capital is betting that growing trade flows between Asia and the Commonwealth of Independent States will soon translate into more mergers and acquisitions, according to a senior executive.
The Russian investment bank is steadily building a team in Hong Kong to help capture some of this new business.
"We're seeing an enormous amount of interest from China in Russia, mainly from state-owned enterprises so far," Damian Chunilal, VTB Capital's chief executive in Asia, told FinanceAsia in an interview. He said there are deals already in the pipeline.
The Chinese sovereign wealth fund, CIC, bought VTB shares in 2011, followed by stakes in gold miner Polyus and potash miner Uralkali.
"It's becoming broader than just interest in natural resources," Chunilal added, pointing to growing Chinese interest in the Russian real estate, agriculture and consumer sectors.
In line with its strategy of intermediating the growing flows between the two regions, VTB Capital signed a cooperation agreement with China's Citic Securities on Friday, saying that that they would join forces to help each other capture advisory roles based on the growing flows of trade.
Their memorandum of understanding focuses on cross-border M&A, but also allows for cooperation in additional areas, such as capital markets, asset management, private equity investments, research and foreign exchange.
Such tie-ups between investment banks often fizzle out as they fail to agree on the economics of swapping ideas or refuse to give each other access to key clients. However, Chunilal noted that it was in each others' mutual interest to see this tie-up succeed as the potential revenues from deal flows looked significant, based on growing bilateral trade figures and political goodwill between the nations.
"It just makes sense," Chunilal said. "There are many cooperations announced but this one has real substance,"
The tie-up follows the first Russian sate visit by China's new president, Xi Jinping, between March 22 and 24. During the trip, he signed agreements to help boost trade and investment between the two countries.
China has been Russia's biggest trade partner during the past three years, while Russia is China's seventh-largest trading partner. Bilateral trade volume hit $88.16 billion in 2012. That will hit $100 billion in 2015 and $200 billion by 2020 under the new trade agreements.
"The Asia-Pacific market is one of the strategic regions for developing VTB Capital's business abroad," said VTB Capital's global chief executive, Alexei Yakovitsky, in the statement announcing the tie-up with Citic Securities.
Both banks are looking to expand beyond their own competitive markets. VTB Capital is the investment-banking unit of Russian state-controlled lender VTB Group. Created in 2008 at the height of the global financial crisis, when a team of bankers joined from Deutsche Bank, it has since dominated Russian deal rankings.
To keep the momentum going, and to stave off competition from Russian rival Sberbank, VTB Capital has been expanding into other countries.
It officially opened an office in Hong Kong in 2011.
VTB Capital initially focused in Asia on building a fixed-income trading platform, where activity was booming and competition was less intense than in equities.
Chunilal said that VTB Capital was also seeking to establish relationships with Asian corporates across the region, in part to help facilitate Russian investment in the region.
He has been steadily growing his team. VTB Capital recently hired Xin Lin as head of multiproduct sales for China and Wei Chen as part of its corporate and investment coverage team.
The tie-up with Citic Securities allows VTB Capital to access China quickly and cheaply.
"We can very efficiently access the Chinese market place without having the costs some of the other investment banks have incurred building their own platforms," said Chunilal.
For Citic Securities, the tie-up is one more step in its efforts to make itself more international. The Chinese broker raised $1.7 billion to fuel its expansion by selling shares through the Hong Kong stock exchange in October 2011. Then it said it would buy all of Asian broker CLSA in November 2012. The deal with CLSA is still awaiting regulatory approval and the expected completion date has been pushed back to the end of this month.