VEB refuses to “Olympic” loans

Strategic idea

Tuesday, March 29, Vnesheconombank Chairman Sergey Gorkov will announce the Supervisory Board some of the ideas on the development strategy of the Corporation. According to Gor, the Corporation shall not issue from its balance of large loans for funding large projects. Their default risk is high, because the project can be well calculated.

Of the proposal Gor has told a source close to VEB, and was confirmed by another top Manager of the Corporation. If the Council approves this idea, it will be included in the draft strategy of Vnesheconombank, which the Board of the Corporation shall prepare by July 1 of this year.

To Finance large projects, according to Gor, you should create a special investment Fund managed by VEB. This will not weigh down large and risky loans, the balance of the Corporation and to exclude the probability of a simultaneous default by the borrowers obligations to the Bank. The minimum loan amount, in the opinion of Gor, it makes sense to reduce from 2 billion to 500 million rubles to increase the number of projects to attract more borrowers.

The amount from which the project can be considered “massive”, yet to be determined, as the maximum amount of risk for these loans. Most likely, according to the source close to VEB, the magnitude of the risk (maximum amount of loans to capital) will be 25% and the risk of lending to related borrowers.

Vnesheconombank rich negative experience of lending to mega-projects. For example, in preparation for the Olympics in Sochi, he issued the “Olympic” investors 20 loans totaling 248,6 billion rubles, most of which was non-refundable. From 2007 to 2013, the cost of the governmental program of preparation of Sochi to the Olympic games and development of the city as resort increased from 314 billion rubles to 1.5 trillion. The projects financed by the Bank were originally on the verge of a recoupment, and then began to rise in price because of additional requirements of the International Olympic Committee.

Already at the end of 2014 “Olympic” credits to 183 billion rubles VEB were classified as problematic. Formally they are not expired, but only thanks to a moratorium on the servicing and repayment of these loans, as extended recently till mid-2017. Without this extension, these credits were officially unemployed, and, in fact, we are talking about deferred losses indicated rating Agency Fitch.

At the same time Sergey Gorkov insist on closer monitoring of risk per borrower or per group of related borrowers (loans “in one hand”), an employee of VEB and reiterated his colleague. Vnesheconombank does not have a banking license and the idea does not have to abide the Central Bank regulations. At the same time, VEB is the covenants on the loans market, for which he, as the borrower, is required to observe the requirements imposed on commercial banks, in particular the ratio for credits to “in one hand”.

Covenant violations, the lender may demand the immediate return of the remaining amount of loans with interest. “VEB has an agreement with the Bank of Russia, which allows it to participate in the financial services sector. In accordance with this agreement, he shall be guided by the same prudential principles, and conventional banks”, — explained earlier by Minister of economic development Alexei Ulyukayev.

Financial plan

According to the newspaper “Vedomosti”, the state will spend for support of Vnesheconombank in 2016 150 billion rubles. These funds already accounted for in the financial plan of the state Corporation, which on March 29 will examine the Supervisory Board, report sources. Proposals for state support is, in financial terms, told “Vedomosti” the press Secretary of the Prime Minister (head of the Supervisory Board) Natalia Timakova. The financial plan for 2016 will be the main issue of the Supervisory Council, said a source at VEB.

As told the top Manager of the Corporation, will be based on financial plan, which was to be discussed in December of last year, but was never submitted to the Supervisory Board. The reason is the decision of a question of resignation of Vladimir Dmitriev, who headed VEB since 2004 and was dismissed by presidential decree in February 2016.

To resolve some of the problems of Vnesheconombank, Sergey Gorkov offer to consider converting short-term loan of the Central Bank’s long subordinated loan, to account for it in equity. That this issue will be discussed at the Supervisory Board, said earlier a source close to VEB, and confirmed the government source.

We are talking about several loans totaling about 500 billion rubles., each of which was issued for six months at 6% per annum. A significant portion of this amount was received by the Bank in the crisis of 2008 on the rehabilitation of GLOBEXBANK and Sviaz-Bank. The balance owed on the loan recovery of these banks is 212,6 billion rubles subordinated loan the management Board of Vnesheconombank proposes to register for ten years at 1% per annum and to include it in the capital of the Corporation.

Also the Supervisory Board will discuss whether to prepare proposals for the implementation of a number of assets of VEB, told “Vedomosti” a source, familiar with the agenda of the meeting. The Supervisory Board will be approved and first deal with the funds of the national welfare Fund (NWF), which were placed in the Vnesheconombank (300 billion rubles). It comes to lending, “Transmashholding” for the construction of subway cars on 26 billion rubles.

Press office of Vnesheconombank the agenda of the Supervisory Board has not commented.