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15 April 2013
VTB Looking Beyond Europe to Africa for Deals: Russia Overnight


Lyubov Pronina and Halia Pavliva (Bloomberg)

VTB Group, the biggest arranger of eastern European bond sales, is looking to Africa to expand its capital markets business after organizing a debut deal for Angola last year.

“We are seeing potential in Africa, in particular on the corporate side, primarily in the natural resources -- oil and gas -- and the mining sphere,” Marco Huber, the head of central and eastern Europe, Middle East and Africa debt capital markets at VTB Capital, the bank's investment arm, said in an interview in London April 3. “This is our turf and that is where we see opportunities.”

While 78 percent of VTB Capital’s underwriting business came from ruble notes and sales for its parent VTB Group last quarter, the brokerage is expanding beyond Russia, hiring more than 100 employees in London, New York, Hong Kong, Dubai and other financial centers last year. Since helping Angola sell its debut bond in August, VTB joined Deutsche Bank AG and HSBC Holdings Plc in raising $750 million in bonds for Serbia.

The top bond underwriter in eastern Europe with $5.9 billion of deals last quarter according to data compiled by Bloomberg, VTB Capital is looking at a “number of countries” in Africa, non-executive Chairman Yuri Soloviev said in an interview in New York April 9. Shares of VTB rose 0.6 percent in Moscow last week, while RTS Index futures added 0.4 percent April 12 to 137,540. The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. slid 1.1 percent.

VTB was one of four Russian lenders that provided $278 million of loans to Angola in 2011. The government subsequently picked VTB to manage its $1 billion bond.

  African Growth
The bank joins JPMorgan Chase & Co. among financial firms that are expanding in sub-Saharan Africa with the region’s economy poised to grow 5.8 percent in 2013, the fastest pace of any region after developing Asia, according to the International Monetary Fund. Kenya, Rwanda, Tanzania, Uganda and Mozambique are among sub-Saharan African nations that may sell foreign bonds for the first time, according to Moody’s Investors Service.

“This is probably one of the most interesting continents” for transactions “because it’s very underdeveloped,” Soloviev said April 9.

Standard Bank Group Ltd., Firstrand Bank Ltd. and Barclays Plc led bond sales in Africa in the first quarter, data compiled by Bloomberg show.

“Most global banks have probably realized that the African story cannot be ignored anymore, but in the big scheme of things, their African business still accounts for an insignificant portion of their revenue base,” Samir Gadio, an emerging-market strategist at Standard Bank in London, said by e-mail.

  Mechel Plunges
Russia’s benchmark Micex Index slid 2.2 percent last week to the lowest level since November. The Bloomberg Russia-US index lost 0.2 percent in its fifth week of declines, while the Russian Depositary Index of the most-liquid company DRs in London rebounded 1 percent, after four weeks of losses.
The RTS Volatility Index, which measures expected swings in the stock futures, fell 0.1 percent to 21.28 April 12. The Market Vectors Russia ETF, the largest exchange-traded fund dedicated to Russian equities, rose 0.5 percent to $27.11 in the week.

American depositary receipts of OAO RusHydro, Russia’s biggest producer of renewable energy, posted the biggest decline on the Bloomberg Russia-US gauge last week, falling 10 percent to a record low of $1.54. OAO Mechel, Russia’s second-most indebted mining company and biggest maker of steelmaking coal, fell 4 percent to $4.30.

  ‘Still Expensive’
“Mechel is still expensive at these levels, because of its high debt and low commodities prices,” Vladimir Sergievskiy, an analyst at Barclays in London who rates the stock the equivalent of sell, said by phone April 12. “The only chance for a U-turn would be a rise in coking coal prices, which is not happening any time soon.”

The Moscow-based company may agree on as much as $2 billion in financing from Russia’s biggest government-run banks and anticipates securing a loan of more than $1 billion from state development lender Vnesheconombank later this year, Chief Financial Officer Stanislav Ploschenko said in an interview in New York April 10. Mechel’s total debt is more than five times its market value.

OAO Mobile TeleSystems, Russia’s biggest mobile provider, gained 2.4 percent to $20.11 in New York last week, while VimpelCom Ltd., the third-biggest operator, jumped 5.1 percent to $12.28.

  Tele2 Talks
MTS is seeking talks with VTB, which acquired Stockholm- based Tele2 AB’s Russian unit April 4, after losing a joint bid with VimpelCom to buy the asset directly from the Swedish company, MTS Chief Financial Officer Alexey Kornya said in an interview in New York last week. VimpelCom spokesman Bobby Leach said the company expects to continue to work with MTS on Tele2.

VTB isn’t looking to sell or resell Tele2 Russia and may choose a partner to work with in the company by the end of the year, VTB’s Soloviev said last week. Renaissance Capital and Otkritie Financial Corp. have said Tele2 Russia may be merged with state-run OAO Rostelecom, the country’s biggest fixed-line operator.

Corporate Communications VTB Capital