Дата: June 2004
Best borrowers adapt to investor worries (cont’d)
Best financial borrower
Russian Standard Bank
Russian Standard Bank (RSB) is one of the great success stories of Russian business in the past three years. It is an unlikely one ’ it was set up by Roustam Tariko, a Russian entrepreneur who made his fortune importing luxury alcoholic drinks brands into Russia and establishing his own vodka brand, Russian Standard. But despite the initial market scepticism about a vodka manufacturer setting up a bank, RSB has asserted a surprising and impressive grip on the consumer finance market, controlling 51% of the consumer loan market and 77% of the credit card market in Russia.
Consumer finance is a good market to dominate in Russia. The average monthly wage has risen from $60 in January 2000 to $180 in January 2004. Household consumption has grown by over 5% quarter on quarter for the past four years. However, consumer finance is still relatively undeveloped, with consumer loans accounting for just 2.2% of GDP in Russia, compared with 20% in eastern Europe and 74% in the US. Thus RSB thinks the loan market could grow by 50% annually over the next five years.
RSB has been capitalizing and driving the growth of the consumer finance market since it was founded in 2000. Its consumer loan portfolio has grown from $45 million in 2001 to $349 million in 2003, while its credit card portfolio has grown from $3 million in 2001 to $127 million in 2003. The bank’s CEO, Dmitri Levin, says: ’We’re issuing 10,000 consumer credits and 2,000 credit cards a day.’ Its total assets grew from $193 million in 2002 to $518 million in 2003, and the company had a return on equity of 70% last year.
The challenge for the company has been to find ways to finance this rapid expansion. Levin says: ’The business is growing fast, at around 200% annually, and we need more financing.’
The company has risen to that challenge with one of the more innovative financing strategies of any eastern European financial institution. It has tapped all the obvious sources of funding ’ the domestic and international bond and loan markets, as well as finding capital from the European Bank for Reconstruction and Development and the International Finance Corporation, and even breaking ground with securitizations.
The company raises 70% of its debt on the domestic market. A lot of this is through a promissory note programme that the bank set up three years ago. Several of the more innovative financial borrowers in Russia, such as last year’s winner in this category, MDM Financial, also use promissory note programmes for short-term borrowing.
RSB also does an annual rouble bond issue, and has so far issued about $100 million in rouble debt. This includes an innovative asset-backed-type issue it launched in July 2002, of a rouble bond backed by the bank’s consumer loan portfolio, which was arranged by Renaissance Capital. The company is preparing a R1 billion ($34 million) bond, lead managed by Citigroup, for launch later this year.
However, the rouble bond market is limited in terms of the maturity and amount of debt that can be raised, and interest rates are often in the 20% range.
To find cheaper and longer-term financing, the bank visited the Eurobond market in April, when it launched a $150 million three-year bond at an impressive coupon of 8.75%, which compared favourably with similarly sized Russian financial institutions. The deal was lead managed by Barclays Capital and Citigroup.
Levin says: ’The key point of our presentation to investors on the roadshow was that we’re not a classic Russian bank. We specialize in consumer finance and credit cards, so in some ways we’re more like a corporate.’ He adds that investors liked the bank’s international-standard management and accounting.
The timing of the bond was prescient ’ lead managers launched it just weeks before the Russian corporate bond market took a 100-basis point dive on fears of steep Federal Reserve rate increases. Several new issues, scheduled to be launched just after RSB’s bond, have now been put on hold. Levin says: ’I wouldn’t issue right now.’
The bank has also sought financing from the syndicated loan and credit-linked note markets. It is preparing a $50 million one-year floating-rate loan, lead arranged by Citigroup, which should close by the end of June. It also issued a $30 million credit-linked note, lead managed by Dresdner Kleinwort Wasserstein, in November 2003. Levin says: ’We did the CLN because it was cheap and very easy from a documentation point of view.’
And the bank has managed to secure a good relationship with both the IFC and the EBRD, which appreciate its good corporate governance and its role in encouraging the consumer boom in Russia and thus diversification of the Russian economy away from the energy sector. Their support has not only provided the bank with cheap financing but also the approval of foreign investors.
Levin says: ’We’ve had a relationship with the IFC and EBRD for more than three years. Their financial expertise and participation has been very positive for us, and for our debt issues.’
For example, in December 2003, the IFC issued its first ever rouble-denominated transaction, a $40 million rouble-linked revolving loan. That was the IFC’s fourth loan to the bank, in addition to its $10 million equity investment into RSB. The EBRD, meanwhile, issued its latest RSB loan, for $20 million, in September. RSB’s total debt from the two banks is about $100 million.
Its competitors, such as Rosbank-owned OVK or Home Credit, must be wondering what RSB did to deserve such lavish attention from the multilaterals. It’s simple ’ the bank has shown an aptitude for understanding how foreign bankers think, what they like to see, how they communicate. It has shown an ability to leverage financing from abroad using these skills, to then make money through its knowledge of another group, Russian consumers.
Levin says the bank plans more visits to the international capital markets soon, probably in the third quarter. He says the bank is considering issuing a securitization of offshore credit card receivables, in a deal worth perhaps $100 million, though the bank might opt for a straight Eurobond.