Mikhail Fridman and Aval bank / Getty
Russia’s Alfa-Bank is in the news a lot these days it seems, and in the few days it has been popping up all over the place. Last week for example, the Bank announced it had signed a memorandum of Understanding (MoU) with the very prestigious British Government backed Export Credit Guarantee Department (ECGD) to receive from them a US$50 million line of credit.
The line, which will on favourable terms consistent with OECD guidelines for Officially Supported Export Credits (a.k.a. government subsidized export credits to you and me), is to be used to finance Russian purchases from British exporters.
The financing, which will be made available by ECGD, and by Alfa-Bank’s own contributions under these arrangements, is intended to help promote growth in trade between Russia and the United Kingdom.
This is the first such MoU signed by ECGD with any Russian banking institution, in a sign of the maturing of financial and trade relations between Russia and the West.
Also just today the Moscow Times reports that Raiffeisen Bank International (RBI), the international banking arm of Austria’s Raiffeisen banking cooperative, is in talks to sell its Ukrainian subsidiary “Aval” to Alfa-Bank for as much as US$1.8 billion.
Nobody is talking officially to confirm this yet though, with a spokesperson for RBI simply saying “We do have several offers for Aval, which we are looking at at the moment. No decision has been taken whatsoever, though.”
In this case it sounds though that where there is smoke there is probably fire. Alfa-Bank itself had said about a month ago it was looking for European banking assets whose value has been beaten down by the continent’s debt crisis, particularly in the former Soviet Union and Eastern Europe, according to a report at the time by Reuters. This likely fits that bill one may well conclude. We will see if the deal closes and let you know.
The name of Raiffeisen’s banking unit in the Ukraine “Aval” is also instructive to some extent of European economic history, as it literally means a “promise to pay”. It also relates directly to the concept of personal obligation developed under the Napoleanic Code and later spread far and wide in the path of his armies, including in Eastern Europe, ending up in this case even as part of the name of the bank itself.
A very powerful concept in finance a personal Aval can transcend even formal grants of security for loans. As far away as Brazil, on a very distant continent, for example anyone who defaults on his personal “Aval” can subsequently find it hard to do banking business there again for a long time.
Next up for Alfa-Bank news; their Kazakhstan subsidiary is issuing a US$100 million unsecured bond issue, for which ratings agency Fitch has assigned a rating of BBB(kaz) – whatever that means. I think it may mean “quite good, but… it is still Kazakhstan”.
Finally back home in Moscow news agency Interfax there reports that Alfa-Bank has just indefinitely postponed a planned issue of 10 billion rubles (about US$300 million) of three year bonds, a few days before they were expected to be placed publicly. No reason was given for the postponement, though they may prefer to wait for better pricing terms from the markets.
About Alfa-Bank and Alfa-Group
Alfa-Bank is the largest private bank in Russia by total assets, total equity, customer accounts and loan portfolio. At the end of June, 2013 total assets of the Alfa-Bank Group comprising Alfa-Bank, subsidiary banks and financial companies, stood at about US$45 billion. The group’s equity was $4.5 billion and its loan portfolio totaled $33 billion.
Alfa-Bank has over 100, 000 corporate customers and nearly million private customers. The bank operates from 552 branches and offices in Moscow, Russias many regions and abroad, including a subsidiary bank in the Netherlands and financial subsidiaries in the United States, the United Kingdom and Cyprus.
It is the banking arm of the Alf-Group, which is controlled by a group of private Russian businessmen, led by Mikhail Fridman who is Chairman of the Alfa-Group’s Supervisory Board.
Alfa Group is one of Russia’s largest privately owned investment groups, with interests in oil and gas, commercial and investment banking, asset management, insurance, retail trade, telecommunications, water utilities and special situation investments.
The ownership of the group is unusually straightforward and illustrated clearly by this pie chart from the company’s web site:
Alfa-Group ownership structure
All intelligent men and aggressive business partners, they became personally immensely wealthy in the rough and tumble world of Russian business at the time of the Yeltsin P:residency and then after the final fall of the Soviet Union, when many state assets were privatized on the cheap.
Mikhail Fridman is today worth an estimated US$16.5 billion, German Khan an estimated US$10.5 billion billion, Alexei Kuzmichev an estimated US$8.2 billion and Pytor Aven, who acts today as the Chairman of the Alfa-Bank’s Supervisory Board is worth an estimated US$5.4 billion (all according to the Forbes billionaires list).
Alfa-Group was also part of the “AAR Consortium” that had partnered with British Petroleum in the TNK-BP joint venture. The joint venture was sold to the Russian State controlled oil company Rosneft earlier this year in February, for US$55 billion.