China’s Russian buying spree to continue, says leading Moscow investment bank

Commodity prices rebounding from industry cycle lows is helping further cement the nations’ ties, says co-head of global banking at VTB, the investment banking unit of Russian government-controlled VTB Bank

PUBLISHED : Sunday, 19 November, 2017, 3:12pm
UPDATED : Sunday, 19 November, 2017, 11:00pm

The recent acquisition spree by Chinese firms in Russian energy and commodities companies is set to continue into next year as relations between the two nations grow closer, and both continue to show strong support for projects involved in the “Belt and Road Initiative”, according to a senior banker at the Moscow-based, Russian state-backed investment firm VTB Capital.

The fact commodity prices have rebounded from industry cycle lows is also helping further cement the nations’ ties, said Alex Metherell, co-head of global banking at VTB, the investment banking unit of Russian government-controlled VTB Bank.

Levels, however, are still trading significantly below the lofty heights of a few years ago, making it easier for buyers and sellers to agree on a price for complex assets and projects,

“We have definitely seen increased cross-border investments by Chinese firms in Russia in the past 18 to 24 months,” he told the South China Morning Post in an exclusive phone interview.

“Strategic asset owners in Russia, Eastern Europe and Central Asia are increasingly coming to China, too, as their first port of call before going elsewhere in search of potential long-term strategic investors.”

There have been six major stake purchases by Chinese corporates in Russian firms so far this year, involving total investment of US$9.1 billion, up from US$1.1 billion last year and US$2.7 billion in 2015, according to data compiled by Dealogic.

The largest deals over the past decade between the nations have predominantly been in the oil and gas sector, made by state-owned Chinese buyers.

Resource-rich Russia has been looking for investments in Asia, mainly in China, since the West imposed sanctions on its businesses, individuals and officials due to Russia’s annexation of Ukraine’s Crimea peninsula in 2014.

Russia ranks among the world’s top producers of oil, natural gas, nickel, gold, diamonds, platinum and palladium, while China is the world’s largest consumer and importer of many commodities.

“I expect next year to be exciting for [deal] announcements – a product of increasing dialogue [and due diligence] in the past two years,” Metherell added.

His investment bank is currently advising a Russian miner of a steel-related commodity on selling some of its assets, which is being studied by five Chinese firms, he said, that have shown more interest than their Japanese and South Korean competitors.

Recent examples of Sino-Russian deals include privately-held CEFC China Energy’s US$8 billion purchase of a 14.16 per cent stake in state-backed Rosneft – the world’s largest listed oil firm by output – from commodities trading major Glencore and Qatar Investment Authority in September.

VTB Capital advised Shanghai-based energy-to-financial services conglomerate CEFC on the deal.

Asked if VTB Capital could provide financing for CEFC’s purchase, and sister firm AnAn Group’s US$500 million investment in an initial public offering of energy and metals major EN+, Metherell said only that his firm “has been in ongoing discussions to line up financing options to help Chinese acquirers finance their deals”.

VTB Bank is a major lender and minority shareholder in EN+, which is majority-owned by oligarch Oleg Deripaska and has already used most of its listing proceeds to repay a loan owed to VTB.

Under a 2013 agreement, VTB Bank has the right to sell its entire minority stake in EN+ to Deripaska’s firms before December next year.

The latter, as a selling shareholder in EN+’s flotation, will use part of proceeds to buy VTB Bank’s minority stake, the listing prospectus said.