EDB is the face of close ties between Russia and Kazakhstan

By bne IntelliNews October 5, 2010

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Relations between Russia and Kazakhstan are tight as the two counties have become strategic partners - and the Eurasian Development Bank (EDB) is the face of that.

The two partners founded the EDB in 2006 to help finance cross-border projects between that would develop and promote "sustainable economic growth and mutual trade and economic ties." Since then, the bank has added new members Armenia, Belarus and Tajikistan, in the process assuming the role of the Commonwealth of Independent States' (CIS) answer to the European Bank for Reconstruction and Development (EBRD), funding investments in core sectors such as power, transport, high tech, agriculture and finance.

Russian President Dmitry Medvedev travelled to Kazakhstan in September to meet his Kazakh counterpart, Nursultan Nazarbayev, in the town of Ust-Kamenogorsk, where the two presidents cemented relations by signing off on 27 investment agreements. "There is no alternative to deeper integration [with Russia]," Nazarbayev said, adding that the two economies are more commodity oriented than he would like and that one solution is to develop innovation technologies.

This was Medvedev's second trip to Kazakhstan. During the previous trip in September 2008, he attended with Nazarbayev the opening ceremony of an ore mining and processing works at the Voskhod chromite deposit in Aktyubinsk Oblast. This was one of the first investment projects by the EDB, which, in addition to its direct investment, also acted as arranger and secured the participation of the German banks WestLB and Bayerische Hypo- und Vereinsbank.

Since then, the EDB has invested in dozens of projects, including industrial development of the Zarechnoye uranium deposit in Kazakhstan and reconstruction of the hydropower plant of Ekibastuz GRES-2, as well as similar investments in Russia such as the construction of a wagon works in Leningrad Oblast and a wood processing complex in Tomsk Oblast. "Of all project investments being considered by the bank presently, 47% relate to projects in Russia, 39% to projects in Kazakhstan and 14% to projects in other EurAsian Economic Community (EurAsEC) countries," says EDB Chairman of the Executive Board, Igor Finogenov.

Better terms

With its infrastructure focus, the EDB is providing crucial financing for many of the economies of its member states. Moreover, with its strong financial credentials and semi-sovereign status, it can raise money on the international capital markets that are currently inaccessible to commercial banks, and so acts as a conduit for cheap capital.

The bank's solid credit rating was underscored in August when Standard & Poor's confirmed EDB's long-term and short-term ratings assigned to the bank's foreign currency liabilities at 'BBB' and 'A-3' respectively, with a "stable" outlook. S&P said the bank's reputation was bolstered by its strong capitalisation, which "reduces risks associated with difficult operating conditions."

And the bank has continued to improve its creditworthiness by increasing the average duration of liabilities from one year to approximately five years, through shifting its emphasis from borrowings under bilateral and multilateral agreements to market debt issues. The bank has been actively raising money from a number of sources, including syndications from international banks and several large bond on the Russian and international capital markets. The EDB issued a $500m, five-year Eurobond in September 2009, which was priced to yield 7.375% - the lowest level among CIS issuers at the time.

The Russian government's Eurobond issue in May is a boon for the EDB, as it sets a new benchmark for interest rates and lowers the bar for quasi-state issuers like the EDB. "There is money there available if we want it and following the Russian sovereign deal, it is much cheaper than before," says Finogenov.

More recently, the EDB has been put in charge of administering the EurAsEC's Anti-Crisis Fund, a fund set up by member states to help ameliorate the effects of the global economic crisis. Since the crisis, the bank has found itself on the front line of dealing with the fallout. "It was the newest branches of the Kazakh economy that were hurt the most - real estate and finance. The post-crisis economy is now being driven by the traditional pillars of the economy - oil and metals," says Finogenov.

Tajikistan was especially hard hit, as its economy was already reeling from two extremely severe winters; the EDB made its first $70m loan to Tajikistan earlier this year on extremely favourable terms. "A good bank knows its own markets and the global market. Our commitment is to foster economic development and enhance integration processes in our member states. To do this, we utilize our global scope and our specific knowledge of the Eurasian markets. We are investing in the future of our region," says Finogenov.

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