Related News

Santander brings in ING exec to lead Apac structured trade

DBS sets up structured trade facility for Indonesian petrochemical firm

ADM boosts Emea structured trade finance team

Miller expands political risk and structured credit insurance team

ANZ makes specialist appointment in Japan

Ruben Vardanian was just 22 years old when he became CEO of Troika Dialog in 1992 and began to build up an investment house from scratch. His aim was to create an international company that would ensure Russia would become a key player in the globalised world.

“Our vision is unique for several reasons,” Vardanian explains.

“First, our company has always taken a client-oriented approach to its business. Second, we base our operations and customer service approach upon long-term goals. Third, we always strive to uphold international standards in everything we do – both client operations and within the company.

“Finally, we have a strong corporate culture that attracts premier talent from the market and ensures a high staff retention rate.”

Maintaining a long-term outlook with high international standards was never going to be an easy goal given the tough get-rich-quick environment of the post-Soviet 1990s.

However, the investment house has succeeded in establishing itself as Russia’s oldest and largest investment house. For the full year 2008, Troika Dialog had an average 45.7% share of the total amount of deals on the Russian stock exchange.

Then the current credit crisis took hold of Russia’s economy, credit markets stalled and foreign investors began to pack their bags. The country’s stock market fell by more than 70%, sending waves of panic through the banking sector and wider economy.

Rumours grew, before being vehemently squashed, that the state-owned bank Sberbank would buy out Troika.

The investment house also saw its main rival Renaissance Capital sell a 50% stake to one of Russia’s richest men, Mikhail Prokhov, in September 2008 for US$500mn.

Amid the chaos, an attractive option appeared to Troika in the shape of the South African bank, Standard Bank. In early 2009, negotiations between the investment house and the bank began, concluding in the decision made in March for Standard Bank to acquire a 33% stake in Troika in a US$200mn deal. This decision then obtained full regulatory approval on September 28, 2009.

Under the terms of the alliance, Standard Bank has merged its Russian business into the investment bank. Troika’s capital base has increased by US$300mn as a consequence of the transaction.
Both companies will now operate under the Troika Dialog brand, and ZAO Standard Bank’s team cleared their desks and moved into Troika’s offices at the end of September.

The terms of the partnership will see Vardanian join the board of directors of Standard Bank, while Standard Bank’s Rob Leith and David Duffy will join Troika Dialog’s board.

The two financial institutions previously had very different focuses. “We were a pure investment house before this deal with Standard,” explains Vardanian.

“The overlap with Standard Bank is very small, which makes this alliance a very good combination,” he adds. Troika Dialog will now be taking its first steps into the commercial banking world.

In an official press statement, Vardanian refers to the deal with Standard as a “watershed” for the bank, creating a “new kind of financial institution adapted to new global markets”.

Among other trends, one development in these new global markets, Vardanian notes, is the definite shift of focus among Russian companies away from the struggling European markets, and towards the emerging markets in Brazil, Hong Kong and Singapore.

Just a few weeks after our meeting in Moscow in September, Vardanian flew out to Singapore to attend Troika Dialog’s fourth annual Russia-Singapore business forum, an event that illustrates the importance Vardanian places on the role of Asian markets in supporting Russian recovery.

New business and trade flows
The partnership with Standard is expected to further capitalise on these growing Russia-Asia links, as well as help increase Russian corporates’ presence in Standard Bank’s natural territory, Sub-Saharan Africa.

The Chinese bank, ICBC, is a major shareholder in Standard Bank, and with this in mind, Vardanian hopes that under the alliance he will see more business flows between Russia, Africa and China. “We are the local champion in Russia, we can use the local champion in China, and Standard Bank is the local champion in Africa. There is a great opportunity to use this network to secure more business.”
Not only will Troika’s geographical focus change in the coming months, its product offering will inevitably evolve. These product developments will be overseen by Peter Ghavami, the new head of global markets at Troika. He was formerly the head of capital markets in Russia at Lehman Brothers, and hired by Standard Bank to control its investment in Troika.

“The partnership with Standard Bank is allowing us to significantly increase our product capabilities, both in investment banking and capital markets,” Ghavami tells GTR.

He comments that trade finance is a good example, among many, of the new capabilities of the bank.

“Standard Bank has traditionally been very strong in trade finance, and the depth of the Troika franchise in Russia, together with the product and balance sheet capabilities of Standard Bank, will allow us to provide a deeper product suite to our core clients,” he explains.

The focus of the new trade finance offering will naturally be on these developing cross-border flows between Russia, Africa and China. “Given Standard Bank’s strong historical presence across the African continent, we have a unique ability to provide trade finance to Russian clients desiring to access this market place and vice versa.

“Similarly, Standard Bank’s largest shareholder is ICBC, the largest bank in China and in the world. This naturally lends another dimension for our trade finance efforts – Russia-China,” he adds.”

Russian recovery
Troika has now adapted to new market conditions, expanding to the commercial banking area, and Vardanian is now hopeful that broader nationwide economic recovery might lie on the horizon.
“Because the Russian economy is linked to the oil price, and the oil price per barrel is rising, recovery will happen,” he suggests.

In terms of the financial markets, he sees increasing activity in the debt financing markets, and anticipates recovery will move from the debt markets, into the convertibles markets before finally reviving the equity markets.

In the short term, he remains relatively pleased with the government intervention in the banking sector. “Not only are the results impressive, but so too is the level of communication. The government spent a lot of time listening to the private sector, and the decisions made managed to increase the level of liquidity in the market.”

However, he adds: “The banking sector problems are not over yet, there are a lot of bad and non-performing loans of banks’ balance sheets, which will only prolong the situation.”

Talking about Russia’s long-term prospects, he remarks: “The next problem is to restart local markets and restart domestic demand for consumer services, and secondly there needs to be huge investment in infrastructure, modernisation, capex and fixed assets. This is the main challenge for the next three to five years – infrastructure and capital investment.”

“So much of Russia’s infrastructure was built during Soviet times, and has not been renovated at all over the past decade,” he adds.

“This will require huge amounts of long-term money from the private market and the government.”

Russian risk
Talking to Vardanian about how he sees the financial markets evolving, he comments on how perceptions of risk have been turned upside down.

“You realise there are no more safe havens, everywhere is risky.

“It used to go without saying that US mortgages were a risk-free asset class and Russia was a high-risk environment. Now it is apparent that risks exist everywhere, and comparable ones at that. Investors need to take a different view on many things and invest in a number of different countries and assets based upon the new realities.”

As faith in traditional western markets has perhaps been diminished, Vardanian is keen to promote the potential of the emerging markets, and it is this strong belief that fuelled his involvement in a project to develop the Moscow School of Management Skolkovo.

The school is being financed purely through private money, although the Russian President Medevedev does hold a position on the school’s board.
Troika Dialog is one of the founding companies of the school, along with Novatek, TNK-BP, Severstal, and the First Czech-Russian Bank.

The land for the school was provided by one of the founding partners, and a total of US$120mn was raised from the private market.

The school aims to compete with the top-tier business schools in the US and Western Europe, and the philosophy behind the venture really reflects Vardanian’s own sentiments about the heightened importance that should be placed on emerging markets, given their increasing relevance in global financial markets.

The school aims to give students an immersion in the emerging markets environment, with students spending a certain number of months studying in Moscow as well as in China and India, with a few months spent in Europe or the US.

“The basic idea is that if you want to learn how emerging markets work, don’t go to Boston or Chicago, rather go to Moscow to get a better understanding of the emerging markets,” Vardanian explains.