Has the tide turned for Rustam Tariko, the owner of both Russky Standart vodka and a bank by the same name? The vodka business is booming, largely thanks to the fact the government has almost completely eradicated illegal vodka production.
The pioneer of unsecured consumer loans in Russia, Tariko earned his first fortune with the premium brand vodka Russky Standart in the noughties. He then christened his bank with the same name in 2001 and surprised Russia’s financial community by the explosive growth of his unsecured retail loans business.
Initially thought to be a flash in the pan, the high street banks quickly discovered Russky Standart was wiping the floor with them and found that even after throwing considerable resources at retail lending they couldn't quite catch up with Tariko, who followed up by becoming a pioneer in the credit card market too.
Unusually for a Russian businessman, when it came to the bank Tariko hired consultants McKinsey to draw up the business plan and then simply did what they told him – hiring several of the consultants to come and actually run his business as well.
However, the western consultants were unhappy with the idea of naming the bank after a bottle of vodka. “You can’t do that,” they complained according to bne IntelliNews sources. To prove their point they went out and did some market research from which they came back rather sheepishly. “It's a really good idea,” they had to confess. Russian focus groups had concluded that most of the big banks are backed by oil oligarchs and they were well aware that the price of oil is volatile. However, a bank backed by vodka sales will always do well, even in a crisis, the focus groups concluded.
As it turned out, Russky Standart was as prone to the volatility that the whole Russian banking sector has been through since the 2008 global financial crisis as its peers, and was fighting for its life following the massive devaluation of the ruble at the end of 2014.
Tariko injected RUB22.98bn ($360mn) worth of capital into his troubled bank in October 2015 amongst a string of actions to boost the capital of one of Russia's top 20 banks.
Of all Russia’s banks, Russky Standart was amongst the most exposed to the currency risk as it heavily financed its retail loans business using international wholesale borrowing, while lending in rubles. Following the devaluation the cost of this borrowing skyrocketed while at home demand for credits dropped like a stone during the crisis. Net losses soared to RUB22bn ($330mn) in the first half of 2016 from RUB4.8bn in 2015, the bank reported. Its capital fell by 96% from the beginning of 2015 to RUB637mn from RUB16.1bn in 2016, while net interest income fell by 73% to RUB6.8bn
Tariko was forced to take drastic action and controversially restructured two Eurobond issues worth $350mn and $200mn in October 2016, allowing it to increase the capital by $450mn. The vodka business' outstanding debts were restructured, and Tariko's share in the company declined to 61.4%.
Also in 2016, Tariko was forced to sell the group’s pension fund to cover the obligations. The pension fund was taken over by Mikhail Shishkhanov's B&N Bank after it was pledged to them as collateral for previous loans. Tariko was scrambling to sell assets in a bid to stave off his lender's bankruptcy and pay its bondholders, including offloading a management company to BCS Financial Group. The pension fund has assets of about RUB5.5bn ($70mn) representing about 139,000 clients, according to RBK.
However, the worst now seems to be over for Tariko thanks to soaring vodka sales. His drinks holding, Roust, is the world's second largest vodka producer and saw its US GAAP revenue jump 16.8% to $131.5mn in January-March, the company reported on September 1. The company's Ebitda was also up 8% to $7.9mn.
At the same time retail credits have been growing this year after more than two years of contraction, which will also bolster the bank’s bottom line.
"The January-March 2017 period saw a record growth in [vodka] sales in all markets," Tariko said in a press release.
Roust's growth comes against the backdrop of the Russian vodka market's recovery. In 2016, vodka production grew 16% y/y to 73.2mn decalitres (daL), and retail sales increased by 0.5% to 81mn daL. In January-June 2017, vodka output continued to grow, adding 24% y/y.
The government's crackdown on illegal vodka production thanks to the EGAIS excise duty system is among the main factors benefiting the industry, Vedomosti reported. Previously illegal vodka production accounted for an estimated 40% of all sales, but Vedomosti reports that illegitimate vodka sales in Russia are now insignificant.