Banca Intesa's acquisition of a majority stake in Russia's KMB (Small Business Credit Bank) last month is just the sort of deal that Hubert Pandza, the EBRD's most senior official for the CIS, likes to be involved in. The Italian bank bought a 75% minus 1 share in KMB.
"It's important from the point of view of the Russian investment climate", Pandza, business group director, told Emerging Markets in an interview. "The fact that Intesa is prepared to invest $90 million is indicative.
"It is also interesting that an international bank wanted to buy KMB, which operates predominantly in the small and medium enterprises (SMEs) sector. The deal indicates the high level of interest in the banking sector by investors."
It certainly does. Intesa's $90 million outlay together with EBRD's holding puts KMB's value at $120 million – or 3.7 times KMB's price/book value. The stakes were previously owned by the Soros Economic Development Fund, the German development bank DEG and the Dutch foundation Triodos Doen.
Analysts commented that the valuation was similar to the rate paid by GE Capital for Delta Bank of Russia last summer, and to that being discussed for BNP Paribas's deal with Russian Standard before it fell through. Russian banking is booming, and the international banks don't want to miss the party.
The EBRD now holds 25% + 1 share and is KMB's only other shareholder besides Intesa. Pandza sees the role the bank played in this deal as one of the things it does best. "Intesa needs us. Toyota [with whom the EBRD has agreed to take a 20% stake in an assembly plant project near St Petersburg] needs us. We are there not only to help with any problems, but to develop strategies."
Investors may be queuing up for exposure to Russian banking, and some large state-owned corporates. But in other respects – and in particular, the political risks generated by the conflict of statist elements in government with private business – the waters in the EBRD's largest market are choppy.
Pandza says the bank's job is to explain both risks and opportunities. The main "deficiencies" in the investment climate that the bank has discussed with the government are corruption, the level of bureaucracy and the difficulties in implementation of laws and decrees.
The Yukos case highlighted two problems with the investment environment: "the political issue – the perception that [former Yukos boss Mikhail] Khodorkovsky was a competitor", and the issue of "redistribution of assets".
He added: "Any decision of government should be predictable, transparent and consistent. It's no good if the laws and rules we had two months ago do not work any longer." Any businessman needs to be clear what the rules of the game are, Pandza believes.
Pandza closely follows economic policy discussions, and the challenges generated by an over-reliance on oil and gas. He observes that in president Putin's first term, during which the stabilization fund was established, the finance ministry was "very successful" in its conduct of fiscal policy. "But there is always pressure to spend more in the social sphere."