Russia’s Vnesheconombank is dumping assets at fire-sale prices and relying on emergency government assistance to avoid default. It has virtually stopped new lending and cut off financing to most existing projects, according to two people close to the bank.
VEB’s travails are the latest reversal for President Vladimir’s Putin system, hit by the plunge in oil prices and US and European Union sanctions. A hybrid of tight state control and reliance on cheap market funding, VEB was the hallmark of the boom years, Bloomberg reported.
Now, with the price tag for its bailout rising above initial estimates of 1.3 trillion rubles ($20 billion), top officials are considering shrinking the bank to a shadow of its former self, according to four people involved in the discussions. The Russian president recognizes there’s no alternative to deep cuts, one of them said. Given the sensitivity of the issue, all spoke on condition they not be identified.
‘Quasi-Budget Fund’
“In its current form, VEB is a quasi-budget fund for financing priority projects,” said Karen Vartapetov, analyst at S&P. “This business model effectively requires constant support from the budget.”
A new management team is cutting about 20% of VEB’s staff and has given up its private jets and limousines. It is dropping a range of projects picked up during the fat years, including a sovereign-wealth fund and mandates to finance small business. Some of the failing commercial banks are also likely to be offloaded in the future.
To help raise cash, the bank is unloading whatever assets it can sell easily, even ones long considered strategic. First to go was a 3.6% stake in Gazprom, which VEB is selling back to the gas giant for 132 billion rubles, or just over half what VEB had paid for it years earlier. VEB is hoping to raise another 18 billion rubles by selling its 8.4% stake in the Moscow Stock Exchange.
Bigger investments will be harder to liquidate. The $8 billion VEB put into long-secret deals for metals assets in Ukraine starting in 2009, for example, is still being traced by the new management. Some of the plants purchased were damaged in the war there. VEB hasn’t fully written off its likely losses on these, according to the people close to the bank, let alone found potential buyers.
Internal estimates show about a third of VEB’s balance sheet—as much as 1.5 trillion rubles—are debts and losses that the bank will probably have to write off. Recent efforts to find alternative sources of money in Asia and the Middle East so far haven’t yielded much beyond pledges of possible future deals.
With the budget deficit growing, Putin limited help from the Finance Ministry to 150 billion rubles this year. VEB is expecting another 300 billion rubles in liquidity support from the sovereign-wealth fund.
