Russia's RenCap sees UK profits plunge as China suitor hovers

Russia's RenCap sees UK profits plunge as China suitor hovers
By Jason Corcoran in Moscow October 7, 2016

Profits at Moscow-based investment bank Renaissance Capital’s UK operation plunged by 45% in 2015 amid reports that a Chinese suitor may take over the Russian investment bank, bne IntelliNews can reveal.

The London-based business generated a profit last year of $717,000 compared with $1.3mn a year earlier, according to a recent filing made at UK Companies House. The filings also show the operation’s working capital almost halved to $5.4mn from $10mn a year earlier.

“There are no indications to suggest that the company may cease to continue in operational existence,” RenCap said in the filings. “The directors expect the company to continue for the foreseeable future.”

Group net profits for the first half of this year tumbled by 74% to $2.7mn from $10.5mn for the same period a year ago, according to statements published in September this year and in 2015 on RenCap’s corporate website.

The investment bank is controlled by billionaire oligarch Mikhail Prokhorov, who is shedding assets after his businesses were raided by the Federal Security Service (FSB) earlier this year. Vedomosti reported in August that Prokhorov is in talks with the Chinese firm Fosun International over the possible sale of his controlling stake in RenCap.

RenCap, which celebrated its 20th anniversary last year, has lost ground to state-controlled investment banks VTB Capital and Sberbank CIB. Both Sberbank and the VTB parent group were slapped with sanctions over the Kremlin’s interference in the Ukrainian conflict, but that hasn’t stopped them pulling away from RenCap on the domestic market.

RenCap earned a meagre $1mn from investment banking fees in the first half of this year, according to data compiled by New York-based consulting firm Freeman & Co. By contrast Sberbank CIB raked in $38mn while VTB Capital took home $9mn. Even Gazprombank, Otrkitie and small boutique firm Xenon Capital earned considerably more on deals than RenCap.

RenCap, which has operations in Africa, the Middle East and on Wall Street, is still reeling from the sudden departure of its chief executive Igor Vayn in May after three and a half years in the role. Anthony Simone, CEO of the RenCap subsidiaries in London and New York, was appointed as acting CEO while a special committee was formed to find a replacement. Simone is still in charge five months later.

Prokhorov’s problems

Dubbed the “Great Gatsby oligarch” in a bne IntelliNews profile in June, RenCap owner Prokhorov fell foul of the Kremlin following a series of investigative reports by his RBC media holding into individuals close to the seat of Russian power.

A source close to Prokhorov’s Onexim investment group told bne IntelliNews that the group believes the raids were authorised by President Vladimir Putin himself after RBC reported on the business dealings of his daughter Ekaterina and her husband Kirill Shamalov.

Prokhorov, whose fortune of $15bn has more than halved since 2011, has already put his 20% stake in potash producer Uralkali, his power utility Quadra, as well as RBC up for sale. His stakes in miner Rusal, consumer lender Renaissance Credit, real estate holding OPIN and the high-brow online magazine Snob are also reportedly up for sale.

Negotiations for the RenCap stake already started several months ago, Vedomosti reported. Fosun is not said to be looking to take control of RenCap – which bases its operation in London while still having a large office in Moscow – but the Chinese company’s main interest is gaining access to the emerging markets platform that the bank can offer. As such, Fosun is intending to buy a minority stake in the bank with an option to increase its stake later. A valuation for the bank has not been agreed yet, reported Vedomosti. But the deal is complex and negotiations are going slowly, sources close to the Chinese said.

“Morale is pretty low and they are not telling us what is happening with the Chinese,” a RenCap trader told bne IntelliNews. “We have stopped all hiring, apart from filling essential roles, and it looks like Prohorov has his hands full elsewhere.”