The European Bank for Reconstruction and Development (EBRD) signed a record number of projects across its countries of operations in 2006, making an unprecedented level of investment and promoting further the process of economic and financial transformation by boosting its equity participations.
Investments grew particularly strongly in Russia. Throughout the region, the bank increased its emphasis on projects that support energy efficiency and the development of sustainable energy sources. The EBRD also stepped up its programme of local currency funding and lending.
The EBRD’s total investments in 2006 rose to €4.9bn from €4.3bn a year earlier and there were a record 301 projects, compared with 276 in 2005. In 2006, 167 standalone projects were signed and 134 were made under framework agreements.
The methodology for calculating the number of projects has been changed to include individual projects signed under framework (multi-project) agreements, as well as independent projects. The old system used a weighted measure that assigned proportional values rather than counting each sub-project of a framework separately. Under this new methodology, there were 156 standalone projects in 2005, compared with the 151 previously reported.
The number of equity investment projects rose to 64, from 61 in 2005, while in volume terms equity investments rose by 76% to €1bn, up from €572mn in 2005.
The bank, set up in 1991 to help the transition to the market economy of countries in central Europe and the former Soviet Union, has now invested a total €
33.3bn since its inception. The total amount of investment mobilised in the region, including funds raised via commercial co-financing, has now exceeded €
100bn, reaching €102.9bn, compared with €94.4bn at the end of 2005.
The EBRD’s 2006 earnings rose to €2.4bn from a previous €1.5bn, mainly as a result of the realisation of previous equity investments. This allowed for a significant addition to reserves to support future business activities. Earnings also included nearly €800mn in unrealised gains on share holdings, leaving around €1.6bn in realised profit.
Reserves rose to €7bn at the end of 2006 from €4.7bn a year earlier. Future earnings remain vulnerable to changes in the economic environment and in financial markets.
In the course of 2006, the EBRD expanded its geographic reach, with Mongolia joining the bank as a country of operation last October. Following its independence, Montenegro also became a separate country of operation, bringing to 29 the number of countries where the EBRD is active.
Last year the bank unveiled its strategy for the next five years, which foresees a shift in its investments further to the east and south of its areas of operations. This will result in a focus of activities on Russia, Ukraine, Central Asia, the Caucasus, the Western Balkans and Southeast Europe along with a decline in activity in Central Europe.
This trend was reflected in Russia, where investments rose to €1.9bn from €1.1bn and spanned right across the country. Three quarters of the bank’s investments were outside the cities of Moscow and St Petersburg.
Russian commitments represented 38% of total EBRD business volume in 2006, compared with 26% the previous year. In support of the regional and sector diversification of the economy, the Bank doubled its direct investments in the industrial sector and contributed to strengthening and consolidating the Russian financial sector. Some 75% of investments in Russia last year were with Russian-owned companies.
The bank trebled its equity investments in Russia. These included a stake in Concern Sitronics, Russia’s largest high-tech industrial conglomerate, a transaction underlining the bank’s commitment to investments promoting the commercialisation of Russian technology. It also took a 20% stake in the country’s first budget airline, Sky Express.
The rise in EBRD investments in Russia coincided with a doubling of bank staff in Moscow and plans to open three new regional offices in Russia in 2007 in the south, in the Volga region and in Siberia.
Investments in Central Asia, southeastern Europe and Western CIS and the Caucasus took a 48% share of overall business volume. Total investments of €2.4bn in this region were close to the record level achieved in 2005.
The share of investments in central Europe and the Baltics dipped to 14% from 16%, totalling €701mn.
The EBRD unveiled a major Sustainable Energy Initiative last year under which the bank will aim to invest at least €500mn per year between 2006 and 2008 in sustainable energy projects, with the bulk going to improving energy efficiency. In 2006, the bank invested close to €750mn in projects that are helping energy utilities, companies and households to become more energy efficient, a key goal in a region where in many countries energy costs are rising and the wastage of energy remains endemic.
In support of its work to promote energy efficiency in its countries of operations, the EBRD has to date provided €155mn to local banks in Bulgaria to help entrepreneurs and households improve energy efficiency and renewable energy. To date nearly 70 corporate projects and over 6,000 residential projects have been approved, and following this success a similar initiative is now being rolled out in Ukraine. The bank aims to do the same in Croatia, Georgia, Romania, Russia and Slovakia.
This initiative also included the creation of the €165mn Multilateral Carbon Credit Fund, set up in December 2006 in partnership with the EIB to cut carbon emissions in the countries in which the bank operates by financing carbon emission reduction projects and generating carbon credits for MCCF members, including governments and private businesses.
On March 13/14 the EBRD will host a conference bringing together the heads of multilateral development banks, high-ranking government officials and senior corporate executives who will discuss concrete initiatives to combat climate change in a partnership between the public and private sectors.
The bank continued its drive to support the development of local capital markets. In this context, the EBRD issued its second and third domestic rouble bonds last year and followed this up at the start of 2007 with its first ever rouble issue on the Eurobond markets. The bank has now issued Rb19.5bn worth of bonds and has been instrumental in establishing the Mosprime money market index for use in the rouble inter-bank, loan, mortgage and derivative markets.
The rouble borrowing enabled the bank to step up its critically important domestic currency lending, with two landmark syndicated loans to power utilities Mosenergo and Hydro OGK, both of which had maturities unseen previously in the Russian domestic market.
Throughout its areas of activity, the EBRD is steadily increasing its operations outside of the national capitals and main cities, a trend reflected in the bank’s decision to hold its annual meeting in May 2007 in Kazan, the capital of the Russian republic of Tatarstan.