VTB to focus on infrastructure investment

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14:15 18.12.2007
text: Gazeta.kz
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VTB is seeking a bigger role on Russia’s infrastructure financing market,hoping to account for 5 percent of the market by 2012, a source close to the bank told RBC Daily. In addition to funding large infrastructure projects based on public/private partnership, VTB will also buy controlling interests in companies involved in infrastructure projects.

Over the next three years, direct private and public investment in Russia’s infrastructure will amount to $200 billion, the source said citing estimates from western experts.

“The bank will buy large stakes of over 50 percent in private/public companies, which will allow it to control projects and receive mandates to issue of bonds and other derivatives, and debt financing. In addition, compared with investment in the private sector, investment in private/public companies is less risky, as the government will act as a guarantor,” he told RBC Daily. This strategy will allow the bank to earn up to 8 percent of net financing, as well as a credit margin.

In 2012, long-term financing projects are expected bring in up to $200 million in commissions to VTB. “The main source of income will be from an increase in the share prices of private/public companies and their sale. As a rule, the price of such shares increases two- or three-fold from the beginning until the end of the project,” the source said.

Another reason for VTB’s interest in such projects is low competition. “There are two potential rivals, Vnesheconombank and Sberbank. Other banks do not have enough cash. In addition, VTB can invite a number of international construction companies to the project, such as Vinci,” a source in the bank said.

VTB refused to comment on its infrastructure financing plans, only saying that an infrastructure capital group had been created in VTB Bank Europe recently.

Valery Petrov, General Director of Ingosstrakh Investitsii, estimated the government’s investment in infrastructure projects (such as housing and nanotechnology projects and the construction of Olympic facilities in Sochi) at about RUR 1 trillion (approx. $40.8bn), with another RUR 1 trillion expected to come from private investors. “This will make at least RUR 2 trillion (approx. $81.6bn). Looking at existing state corporations, we can see that their value has increased many times over since they were founded, which is why the bank’s strategy to buy shares in such companies at the beginning of their existence seems reasonable,” Petrov believes. At the same time, he said it was unclear which state corporations would go public through an IPO, and whether controlling interest will be offered for sale.

Evgeny Gavrilenkov, chief economist at Troika Dialog, agrees that involvement in Russia’s infrastructure projects is an attractive investment strategy. “Revenue from such projects could be much higher compared with less important projects for the country. Infrastructure investment will be ahead of the market. I think direct public and private investment will exceed $200 billion by 2010,” he concluded.

Source: RBC