Renaissance Capital, one of the oldest Russian investment firms and the nation’s biggest equity underwriter, is helping place Chinese funds in natural resources companies across Africa and the former Soviet Union as part of a strategy to become a multi-regional emerging-markets bank.
Renaissance is hiring bankers in Beijing and opening an office in Hong Kong, said Chief Executive Officer Stephen Jennings, who co-founded the bank in 1995. Renaissance advised African Minerals Ltd. on a stake sale to China Railway Materials Corp. this week and Moscow-based United Co. Rusal Ltd. on its share offering to Chinese billionaire Li Ka-Shing in January.
Jennings is turning to China after the bank survived the 2008 credit crisis by selling a 50 percent stake minus one share to Mikhail Prokhorov, the Russian billionaire owner of the New York Nets basketball team. Chinese companies did the most mergers and acquisitions among developing nations this year, announcing or completing 619 deals worth about $56 billion, according to data compiled by Bloomberg.
“We are putting a lot of people on the ground in Hong Kong and we will need a number of senior bankers in Beijing because the M&A integration between Asia and our geographies will be one of the biggest themes globally,” Jennings said in an interview from his 49th-floor, glass-enclosed office in the Moscow City financial district of Russia’s capital. “I don’t think the Chinese will want to buy a lot of assets in the U.S. or Germany, but they are going to want to get their hands on a lot of infrastructure.”
Jennings, a 49-year-old New Zealander, founded Renaissance with former bankers from Credit Suisse Group AG, including Boris Jordan, after moving to Russia to work as co-head of the Swiss bank’s Moscow office. Renaissance slashed the number of bankers to 190 from 650 after Russia’s debt default in 1998, and cut staff again in 2008 by 40 percent from 1,150. The bank, which now has 900 employees, has hired more than 100 bankers this year and plans to add a total 200 to 250 in its offices from New York to Lagos, Accra and Almaty.
Renaissance is in the process of getting a license for operations in Hong Kong and will “very shortly have metals and mining bankers on the ground in Hong Kong, so we will be originating deals throughout Asia,” Jennings said in the June 16 interview.
At least 24 initial public offerings worth $5.5 billion were priced in Hong Kong this year, data compiled by Bloomberg show. While shares of Rusal, the first Russian company to sell new equity in Hong Kong, have since tumbled 37 percent, Russian companies from VTB Group, Russia’s second-biggest lender, to iron ore producer Petropavlovsk Plc say they may follow suit.
“The center of global capital for emerging markets will move from London to Hong Kong within three years,” said Jennings, who returned to his position in February after stepping down as CEO in 2007 to pursue expansion projects. “The logic is compelling because so many of these businesses have a strategic link with Asia, the biggest pool of incremental savings is coming from Asia, and Asia is the low-cost tax and regulatory environment, which London certainly isn’t.”
The bank is still assessing how to do business in Brazil and the Middle East, while Egypt and Turkey “are gaps for us” and “Pakistan and Bangladesh will become important,” Jennings said. The only place where Renaissance has closed an office is in Dubai, he said.
Renaissance ranks No. 1 for equity underwriting in Russia this year, up from fourth in 2009 after Morgan Stanley, VTB Capital and Deutsche Bank AG, according to data compiled by Bloomberg. While VTB can be “very disruptive” as a competitor for Renaissance’s business in Russia, Jennings said he expects to be the only “multi-regional” emerging-markets bank.
VTB Capital Chief Executive Officer Yuri Soloviev said in an interview yesterday in St. Petersburg that his bank will focus on business in Russia and the Commonwealth of Independent States, with some hubs for sales and distribution in selected markets such as Hong Kong, Dubai and New York.
China, the world’s third-largest economy, has wealth to invest, while Russia, the biggest energy exporter, has a surplus of natural resources, creating an “overwhelming” logic for increased economic ties, according to Jennings.
“The Chinese need to buy large iron ore reserves and deposits,” said Jennings. “Who will find and package these things? It won’t be a bunch of guys sitting in New York. You have to be out there on the ground and be very specialized.”
About 70 percent of the M&A deals managed by Renaissance have no U.S. or European company connection, a change from three years ago when 75 percent were linked to a western company, Jennings said.
Renaissance’s role in China will mostly be to find buyers for assets outside the country rather than to sell Chinese assets, he said.
“It doesn’t fit with our strategy to be placing deals for Chinese companies but I would like to think in a year or so that we will be in the mix for any big metals and mining or oil deal,” Jennings said. “Our home markets are pan-CIS and pan-Africa but overlaid on that is a very strong franchise in metals and mining, oil and gas and agriculture.”
Renaissance has advised on deals in 18 countries in the past 12 months, including Perth, Australia-based Coal of Africa Ltd.’s sale of about 55 million pounds ($81 million) of shares in Johannesburg, London and Sydney this week. Renaissance was the sole adviser on a sale of a 12.5 percent stake in Guernsey, Channel Islands-based African Minerals to China Railway in Beijing on June 16.
Africa and the CIS will remain Renaissance’s “core markets,” Jennings said. Economic growth in Africa is helping to reduce the risk of violent conflict, he said.
“As you get growth of 6 to 8 percent, it’s very costly to have conflict,” said Jennings. “Africa is the only region in the world that didn’t have a single quarter of negative growth during the crisis. For us, it’s about global convergence. With the exception of some strange places like North Korea, Myanmar and Somalia, there are very few countries in the world that are not caught up in accelerating growth.”