Sanctioned Russian Bank Courts London Investors in Sign of Thawby
VTB re-establishes annual conference in European epicenter
Bonds erase political risk premium associated with penalties
In European investor circles, it’s starting to look like sanctions against Russia have already been lifted.
VTB Bank PJSC, one of the lenders hobbled by U.S. and European penalties for the past two years, is kicking off its annual investment forum in London on Tuesday for the first time since Moscow’s role in the Ukraine crisis in 2014 put many state companies on blacklists.
It’s not quite business as usual, though: unlike the showy events of past years, this year’s conference, hosted in the affluent Knightsbridge district, is closed to the media and has barely been publicized. The former name, Russia Calling, has also changed to a more sober VTB Investor Day.
“There’s a perception in the market that after two years of rapid deterioration, Russia risks have now stabilized,” said Christopher Granville, who runs the Trusted Sources research group in London, and will speak at this week’s event. “There’s scope for a bounce back.”
Bonds suggest sanctions matter little to investors. The political premium on 10-year notes in rubles since July 2014 disappeared in the past week, underscoring investor demand that transcends the hostile reception the government received when it tried to hire foreign underwriters for a Eurobond earlier this year. The penalties closed foreign capital markets to some of the biggest state-owned companies including oil producer Rosneft OJSC even though the government is exempt.
With the economy forecast to expand 1.2 percent in 2017 as it emerges from a two-year recession, and oil rebounding 75 percent since touching a 13-year low on Jan. 20, the Russian ruble is outperforming every other major world currency this year with a gain of 13 percent. Its bond and stock markets are among the top two.
“It’s impossible to ignore Russia,” Greg Saichin, who manages $2.2 billion of emerging-market bonds at Alliance Global Investors in London and recommends corporate bonds on non-sanctioned Russian companies. “When and if the sanctions go away, there will be enormous pent-up demand.”
VTB Capital, whose office next to the Bank of England in London’s financial district is embossed with a giant Russian flag, began holding its Russia Calling conference in 2009. The May 2013 event included more than 400 delegates, according to the bank’s website. The investment unit of VTB also holds a bigger event in Moscow every October with a keynote speech from Russian President Vladimir Putin, whose birthday usually falls in the same week.
Today’s forum at the Jumeirah Carlton Tower hotel, on the fringes of London’s Hyde Park, is being webcast to VTB clients. In addition to sessions on privatization, economic prospects and the market outlook, the bank is organizing one-on-one meetings for investors with senior officials at several major Russian companies, including Gazprom PAO and retailer Magnit PJSC.
“The agenda-setting meetings and discussions held during the event serve as our continuing effort to build on our established relationships with the investment community in Russia and abroad,” VTB’s press office said in an e-mailed statement.
The return of the conference may have more to do with Russia’s need for investment than investors’ need for Russia, according to Paul McNamara, a London-based money manager at GAM UK Ltd. with about $4.5 billion of assets under management. Russia is running the widest deficit since 2010 after effectively being locked out of foreign capital markets while oil prices plunged.
An attempt by the sovereign, which is not sanctioned, to raise $3 billion through a Eurobond sale fell through last month when U.S. and European banks were warned off by compliance departments from underwriting the deal. The government in Moscow also has plans to raise as much as 1 trillion rubles ($14.6 billion) by selling stakes in several state-owned companies, including VTB and Rosneft.
“Russia has got an uphill battle ahead of them in terms of attracting investment,” said McNamara, who has a market-weight position on Russian local-currency sovereign bonds. “They are trying to pursue a privatization program and foreign participation in that would be welcome.”
Soured relations with the U.S. and European governments have muted the events laid on by investment banks aimed at drumming up support from foreign investors. Sberbank CIB, the investment arm of Russia’s biggest bank, also under sanctions, has canceled its Russia Forum in the past two years, while attendance has dropped at the St. Petersburg Economic Forum.
The Moscow Exchange, which has filled the gap for a Russia-focused investment event in London in VTB’s absence, says it has seen a pick-up in interest, with its conference this year oversubscribed. Investors are keen to get first-hand access to Russian officials and company representatives, but have few opportunities, spokesman Andrey Braginskiy said by e-mail on Friday.
The VTB conference “is a sign that investor appetite towards Russia is returning,” said Dmitri Petrov, a strategist on Nomura International Plc’s emerging-market trading desk in London. “We’re seeing big interest from all directions in Russian assets.”