Prokhorov Said to Rebuff Rencap Funding Pleas Before Buy
Stephen Jennings, who founded Russia’s Renaissance Capital 17 years ago, will step down after billionaire Mikhail Prokhorov rebuffed his requests seeking more cash for the money-losing investment bank, said two people with knowledge of the talks.
Prokhorov’s Onexim Group, which purchased almost 50 percent of the lender for $500 million four years ago, received two approaches for additional funds in the past year from Jennings, said the people, who requested anonymity because the talks are private. The billionaire instead sought full control and plans to return the securities unit to profit, the people said.
RenCap lost market share to domestic competitors with state backing during the past four years. They include VTB Capital and OAO Sberbank (SBER), which in January purchased Troika Dialog, Moscow’s oldest securities firm. Jennings’s company responded by eliminating jobs and cutting costs by 47 percent this year, one of the people said.
“Renaissance Capital now has an ownership structure and funding base that will enable the firm to quickly realize its full potential,” Jennings said in an e-mail to employees confirmed by RenCap. “Renaissance will be much more part of ‘the system,’ reducing risk and increasing revenue opportunities.” Calls to his mobile phone weren’t answered and he didn’t return messages left with his assistant.
John Hyman, deputy chief executive officer of the investment bank, will replace Jennings as CEO, Onexim said yesterday in an e-mailed statement. Jennings, a 52-year-old New Zealander, will remain as CEO of RenCap parent Renaissance Group, which will focus on asset management. Terms of the deal weren’t disclosed.
“It’s the end of an era for Renaissance and Russia,” said Dmitri Kryukov, the Verno Capital founder who worked at RenCap with Jennings as head of equity trading in the 1990s. “It won’t be the same without Stephen, but the investment-banking landscape had changed, and they had been squeezed so much by the state banks.”
Hans-Joerg Rudloff, who was then CEO of Credit Suisse First Boston, sent Jennings and Boris Jordan to Russia in the early 1990s to scout for deals. The pair became involved in the state’s pilot voucher auctions, which helped establish the foundations for Russia’s capital markets, and left to set up Renaissance Capital in 1995.
Renaissance reduced the number of its bankers to 190 from 650 after Russia’s debt default in 1998 and cut staff again in 2008 by 40 percent from 1,150.
Andrey Kostin, CEO of VTB Group, Russia’s second-biggest lender, said he offered Jennings as much as $2.5 billion for Renaissance in 2007. Instead, he founded VTB Capital the following year, hiring more than 100 bankers from Deutsche Bank AG, and became the top arranger of domestic debt and equity sales in 2010.
Sberbank, the nation’s largest lender, acquired Troika Dialog in January for an initial $1 billion and has since hired senior RenCap bankers, including Dmitri Sredin, head of Renaissance Advisors, and Eduard Jabarov, head of debt capital markets. RenCap fell to 18th in Russian debt and equity sales this year from fifth in 2011, data compiled by Bloomberg show.
“It was more and more difficult for them to compete,” Kostin said yesterday in an interview at Bloomberg’s New York headquarters. “He has to compete on one side with the Russian institutions like VTB and on the other with giants like JPMorgan or Morgan Stanley. (MS)”
International firms are also scaling back in Moscow. ING Groep NV, the biggest Dutch financial services company, said last month it will close its Russian equities unit following UniCredit SpA, which said in June would shutter its Russian securities operation. RenCap has been closing offices in India, Bejing and Hong Kong, as well as shutting sales, trading and research operations in Kazkahstan and Ukraine, people with knowledge of the discussions said earlier this year.
“RenCap is finding that state investment banks have been a threat in the short term, but globally we have yet to see state institutions become leading innovators in the market over the long term,” said Neil Withers, head of investor relations at OAO Promsvyazbank, a Russian lender that hired RenCap to organize its initial public offering next year.
Onexim Group extended its influence at the Renaissance parent in February by taking minority stakes in its consumer- finance unit, London-traded miner Beacon Hill Resources Plc (BHR) and Ukrainian Agrarian Investments. Prokhorov, 47, has said he wants to concentrate on politics and running for Moscow mayor.
“Russia’s capital markets today are undergoing dramatic changes that will open its doors to a wide array of broker- dealers around the world,” Luis Saenz, a former RenCap banker who now heads equity sales and trading at Russian broker BCS Financial Group, said in an e-mail. “The wide margins that brokers in Russia historically claimed due to high barriers to entry and opaque trading infrastructure are either no longer there or will quickly disappear.”
BCS, owned by Siberian banker Oleg Mikhasenko, is seeking to expand from its retail base to attract institutional clients. The firm, previously known as BrokerCreditService, overtook Otkritie Financial Corp. as the largest Russian broker on the Micex Index in August, according to data posted on the Moscow bourse’s website. RenCap was ranked fourth in October, behind BCS, Finam and Otkritie Financial Corp., which is partly owned by VTB.
Renaissance Capital has no relation to Greenwich, Connecticut-based Renaissance Capital LLC.