Reuters | Sat Jun 26, 2010 | 4:50am IST
Russian, Indian and Chinese companies snap up African natural resource assets. Kazakh and African companies seek capital in Asia. Middle Eastern money eyes opportunities in Russia. The way Russia’s top investment bank sees the world, Europe and North America are fading into the background as emerging markets increasingly invest in each other and bypass the traditional centres of banking in London and New York. "The big theme is the huge movement of capital towards these regions and away from the West," Renaissance Capital CEO Stephen Jennings told Reuters in an interview. "We see an enormous amount of M&A happening now between and within those (emerging) countries. On the financial side, we very much believe the capital markets are going to move into the emerging markets and away from London in particular."
Jennings points out that Hong Kong last year had more IPOs than London or New York and rattles off a string of deals that RenCap has done across Africa and the former Soviet Union. The $955 million sale last year of Congolese copper miner CAMEC to Kazakhstan’s ENRC, Rwanda’s first-ever IPO, a Brazilian iron ore sector transaction in Guinea and Russian aluminium giant RUSAL’s IPO in Hong Kong are among recent RenCap deals. Jennings sees Africa as the hottest investment destination now for companies looking to build natural resource assets quickly. He says Renaissance has multiple mandates from Indian and Russian investors who want more exposure there. "Three-quarters of the meetings I’m having with oligarchs and state companies have an African element," he said. "In terms of being able to get big resources very quickly, African is in a class of its own at the moment."
Speaking from the bank’s headquarters on the 48th floor of a sleek, newly built tower in Moscow’s emerging financial district, Jennings was critical of higher taxation and tighter regulation in London, saying this will only accelerate the City’s inevitable demise as a financial centre. "At the end of the day, the majority of savings and
the majority of investment opportunities will be in Asia," he said. "Now the end of the day may be about 10 years away but each week we get a bit closer to that point." RenCap now plans to move out from its established franchise in the former Soviet Union and in Africa into Turkey and Egypt. In addition to organic growth in the ex-Soviet Union and Africa, RenCap has bought South African broker BJM Securities, allied with India’s Kotek for cross-border M&A, and joined forces with Macquarie Securities Korea to pursue Korea-CIS M&A.
RenCap’s structure, with hubs in Moscow and Johannesburg, and offices in the ex-Soviet Union and Africa, reflects a desire to profit as emerging markets invest in each other. "The same team that is working with a Russian state oil company on a rouble bond here … is advising them on their expansion strategy in Africa," he said. "The same team doing RUSAL’s Hong Kong IPO is talking to the Africans about their first Hong Kong IPOs and that’s a very powerful thing." A long-term bull on Russia, Jennings believes that investors are undervaluing the country’s growth potential at this stage of the cycle and should remember its positive track record. "From 1999 to 2007, GDP went from $200 billion to $1.7 trillion, so in dollar terms it was the fastest-growing of the BRICs," he said. "If you’d lined up 100 forecasters in 2000, maybe one would’ve been as optimistic as the actual outcome."
Jennings believes that pundits pay too much attention to Russia’s politics ("who sits in what seat and whether they smiled or frowned – I think it’s a bit irrelevant") and thinks the country’s government will change little in the near term. "We have a set of arrangements, to put it politely, that are very stable," he says. "They are entrenched and they are convenient for a lot of players including, whether the West likes it or not, the majority of Russians." Russia, he says, will see some more gradual privatisation and a big redistribution of assets as owners who survived the crisis and saw the value of their assets recover decide it is time to sell out to acquisitive, cash-rich rivals. Many Russian players are ready to go to market with IPOs and $5-10 billion of issuance could come in the third quarter if market conditions improve, Jennings says. Despite its rapid expansion, RenCap is not hungry for cash. Jennings, who along with his original partners owns 50 percent plus one share of the firm, says the bank is if anything over-capitalised. He says he is "very very happy" with its other big stakeholder, Russian oligarch Mikhail Prokhorov, who bought a 50 percent stake for $500 million in the depths of the crisis.