Morgan Stanley Aims to Regain M&A Lead After Rosneft Raid

Morgan Stanley, once OAO Rosneft’s favorite investment bank, is seeking to regain its mergers and acquisitions lead in Moscow after losing its two best dealmakers to Russia’s largest oil company.

The New York-based bank, Russia’s top M&A adviser in 2010 and 2011, tumbled to seventh in 2012 after Rosneft hired Morgan Stanley Russia Chairman Rair Simonyan and President Elena Titova to run its financial unit, data compiled by Bloomberg show.

Morgan Stanley lost ground to Bank of America Corp. and Citigroup Inc., which are advising Rosneft on the two halves of its record $55 billion acquisition of TNK-BP from BP Plc and a group of billionaires. Morgan Stanley is advising London-based BP on its deal.

“Russia is a priority area for us,” Gergely Voros, Morgan Stanley’s co-head for Russia, said in an interview in Moscow on Jan. 24. “We have, by and large, avoided the cuts that you have seen elsewhere in the industry here, and we would selectively hire where there is a business need.”

Russian companies did 373 mergers and acquisitions valued at $109 billion last year, the most since 2007’s record $128 billion and 60 percent more than 2011’s $68 billion, according to data compiled by Bloomberg.

Deutsche, VTB

Deutsche Bank AG advised on 15 transactions valued at $70.1 billion, making the Frankfurt-based company the largest dealmaker in the country last year, a position it last held in 2006. Bank of America’s Merrill Lynch unit was second with six transactions valued at $66.3 billion, followed by VTB Capital, a unit of Russia’s second-largest lender, with 20 deals at $65.5 billion.

Voros, 41, a Harvard-educated Hungarian citizen, declined to comment on why Morgan Stanley isn’t advising Rosneft on the TNK-BP deal.

Morgan Stanley was one of the first U.S. financial firms to enter Russia after the collapse of the Soviet Union, opening an office in Moscow in 1994. It has benefited from more than a decade of close relations with state-run Rosneft, which is headed by Igor Sechin, a longtime ally of President Vladimir Putin and a former deputy prime minister.

The bank advised Rosneft on its $10.4 billion initial public offering in 2006, the biggest in the world that year and the largest by a Russian company. It also advised on Rosneft’s debut $3 billion euro bond in December.

No ‘Shock’

Rosneft has poached senior Morgan Stanley bankers in the past. Last June, Dmitry Avdeev left as co-head of investment banking to become Rosneft’s vice president for finance, a role previously held by Morgan Stanley alumni Peter O’Brien and Pavel Fedorov, who is now a deputy energy minister.

Simonyan, 65, who joined Morgan Stanley in 1998 after serving as first vice president of Rosneft in 1996 and 1997, has been a director at state-run companies including pipeline monopoly OAO Transneft and OAO Zarubezhneft. Titova joined Morgan Stanley in 2006 from Goldman Sachs Group Inc., where she ran its Moscow office.

“It wasn’t a shock,” said Voros. “Rair’s departure was a natural transition from more than a decade of investment banking with us. The reality is that there is a very strong bench of bankers in our business.”

Rosneft Bank may in the future compete for investment banking mandates, Simonyan told reporters in Moscow in November. Its priority is to hedge its parent’s oil-trading risk, he said. The pair were joined by 10 support staff from Morgan Stanley’s Moscow office and Walid Chammah, the former chairman of Morgan Stanley’s international business.

Sberbank, MegaFon

Morgan Stanley named Voros and Mikhail Soloviev co-heads of its Russian business in August, with responsibility for investment banking and debt sales and trading, respectively. It hired Oleg Vyugin, a former head of the country’s markets watchdog, as a senior adviser this month.

The bank was No. 2 in organizing Russian equity sales last year, behind Credit Suisse Group AG, thanks to its work on the two biggest deals, by OAO Sberbank and OAO MegaFon, Bloomberg data show. As well as Rosneft, Morgan Stanley advised on bonds issued by state development bank VEB, coal producer OAO Raspadskaya and billionaire Vladimir Evtushenkov’s AFK Sistema holding company.

The lender, which has been focusing on the Ukraine debt market, has had a lower market share in Russia euro bonds. It was the 15th biggest arranger of Russian euro bonds last year after not making the rankings in 2011, the data show.

“We’ve invested in Russian corporate coverage and in the past year or so we brought many deals in Russia to the market,” said Voros.

As well as Rosneft, Morgan Stanley last year advised on bonds issued by state development bank VEB, Credit Europe Bank, coalmaker OAO Raspadskaya and billionaire Vladimir Evtushenkov’s holding company AFK Sistema.

Voros said he is confident of being appointed to advise on the privatization of OAO Sovcomflot, operator of the world’s largest tanker fleet, later this year. Morgan Stanley is one of 23 banks hired by Russia’s government to help it sell assets.

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