National Reserve Bank has set its sights on the top five after resolving a major legal wrangle. Ben Aris reports.It almost collapsed during the 1998 financial crisis but, having settled the last row with its former foreign client last month, National Reserve Bank (NRB) is back in play and positioning itself to be a top five Russian bank and the leading light in Russia’s aviation industry. “We are more of a group than a bank at the moment,” says NRB chairman Alexander Lebedev. “Altogether we have $1.5bn of our own assets invested in various businesses in Russia and the Ukraine, which puts the bank on a solid footing.”
Trouble spot
NRB’s business has been largely suspended since the 1998 blow out, after which it was caught up in legal wrangles over $111m of forward contracts signed with French banking giant Credit Agricole Indosuez (CAI).
Some $300-$500m in NRB’s foreign correspondent accounts were frozen in 1999 after CAI sued. But the funds were released last month after the two sides patched up their differences, allowing NRB to join Russia’s elite $1bn-plus club of financial-industrial groups.
Mr Lebedev has not given any details of the deal, but Russia’s deputy finance minister Sergei Kolotukhin was reported to have said that the settlement involved a $70m payment.
“Now everything is settled after we reached an agreement and we are back in action,” says Mr Lebedev.
NRB moved into aviation when it bought a 28% stake in the national carrier Aeroflot from Russian oligarch Roman Abramovich’s Millhouse Capital in March for a reported $130m.
NRB added the Aeroflot stake to its majority control of the Voronezh Aircraft Building Association (VASO) – which manufactured the Ilyushin 86, the workhorse of the Russian aviation fleet – and has restructured its debt, putting the plant back on its financial feet.
In addition to a big position in Russia’s sovereign Eurobonds, the bank also has significant investments in Russian and Ukrainian real estate and holds small but significant stakes in Sberbank, Gazprom and United Energy Systems.
Aviation business
The production and sale of planes has fallen from a Soviet-era peak of more than a few thousand a year – Russia used to have by far the largest fleet in the world while Aeroflot charged a meagre $10 for a flight from Kiev to Moscow – to a mere handful in recent years.
There have been several attempts to set up a leasing company as the only way for cash-strapped airlines to raise the money to replace their ageing fleets, but so far all have flopped. A large part of Russia’s ageing 6000-strong fleet will have to be replaced by 2006.
NRB owns 44% in the newly created Ilyushin Finance, an aviation leasing company, and is hoping that the government will announce definite plans to support a last-ditch effort to get the aviation industry back on its feet this year. If the bank pulls off a deal, it would mark the creation of the first serious leasing company in the country.
Mr Lebedev met with president Vladimir Putin in the middle of June to garner political support for both state support of aviation leasing and a plan to unite Russia’s various aviation production facilities into a national aviation company. In the same week, Mr Lebedev also met with Ukrainian president Leonid Kuchma because in Soviet times many of the biggest producers were located there. The plan is to bring the Russian and Ukrainian producers together and maybe tie up with European producers as well as using Paris Club debt to back a joint venture.
Rationalisation
As Russia’s banking sector begins to grow quickly, and freed of Credit Agricole Indosuez’s litigation shackles, NRB is in the process of rationalising its structure into holding company form and will boost its capital from the current $160m to $500m by the end of 2003 through issuance of additional shares, putting it into the top five banks in the country.
“By 1998 we had made $2bn and lost $1.5bn during the crisis, while most of the rest was frozen. Now we have paid our debts and don’t owe anything to anyone,” says Mr Lebedev.