15 November 2017
VTB pivots to China for business, post-sanctions
VTB Capital is making headway in seeking to grow its capital markets and investment banking business in Asia, after growth plans in the US and Europe were stymied by sanctions.
VTB's increasing interest in Asia, especially China, has come about as sanctions against Russia by Europe and the US, enacted after the annexation of Crimea in 2014, seem increasingly unlikely to be lifted soon. In fact, the US imposed further sanctions in August. The sanctions include measures that stop certain sanctioned entities from raising funds in the capital markets.
VTB is one of these, but that does not prevent it continuing to raise money for clients.
Issuers — especially those in Europe and the US where the bank had been rolling out operations before the sanctions — seem, however, to have become more cautious about doing business with VTB because of the reputational risk of working with the bank.
The Russian bank’s cost of funds has also risen, making it harder for VTB to compete with international houses as broadly as it originally intended.
Instead, VTB is focusing its international business growth on Asia and the Middle East.
“After the imposition of restrictions, we optimised the debt capital markets team and got them to extend focus to other international markets like China,” said Andrey Solovyev, global head of DCM at VTB Capital.
VTB has led 15 bonds internationally this year, 12 of which have been for Chinese issuers. That brings its total number of transactions for Chinese companies up to 27 over the last three years. It plans to do more deals for Chinese entities before the end of this year.
VTB has been ranked in the top 20 of M&A advisors in China for the first time this year. It has advised on two deals, according to Dealogic.
“In reality, the restrictions, as far as the financial sector is concerned, are not intended to be client-facing, [so] it doesn’t affect our client relationship business,” said Alex Metherell, co-head of global banking at VTB Capital.
“You’re clearly seeing, in a macro political sense, a stronger relationship between China and Russia,” he added. “We’re getting quite a lot of Chinese corporates looking at investing and doing joint ventures or partnerships across Russia and CIS.”
VTB said its focus reflected the growing closeness between China and Russia. Yuri Soloviev, first deputy chief executive, said that trade between China and Russia had increased by about 30% in a year, and that if it continued to grow at the same rate he saw huge potential for the bank linked to this.
“We didn’t necessarily aim to become a local franchise in the region, but since we execute many deals channelling mutual investment between Russia and China, we naturally became one of the leading banks in China,” said Soloviev. “By bringing clients into Russia we’ve become important internationally.”