President of Russia Vladimir Putin: Mr Shuvalov, good afternoon. How is your organisation faring?
Chairman of the State Development Corporation VEB.RF Igor Shuvalov: Thank you, Mr President. Everything is ok. Regulation of the banking sector and the corporate sector in general allows us not to publish our financial statements. We understand that this is a provisional measure and the Central Bank constantly says as much, too. However, since we see our 2022 results as positive, including for collaboration with our counterparts on the capital market, we have decided, as agreed with the Government, to disclose certain data. I want to report these data to you.
Vladimir Putin: Please do.
Igor Shuvalov: Currently, VEB’s own capital amounts to 785 billion rubles and its capital adequacy ratio (CAR) is high – 15.1 percent. The law requires us to keep our CAR at least at ten percent. When capital adequacy falls close to 11 percent, we have to discuss this situation with the Central Bank and the Government, but today our margin of safety is high enough. We have notified all creditors we have worked with, including foreign ones, about this. Moreover, we signalled our readiness to provide an even greater amount of information as a move to create a more trusting relationship.
What is happening with our instruments now? The Project Finance Factory: this year, the Government has decided to give it a bit of a break for a period. You spoke about this, this is your instruction, because the current situation is one where businesses want to share more risks with the development bank.
Under its original rules, the Project Finance Factory required 20 percent of a project initiator’s capital. So far, it has been decided that for the next two years an investor can provide 15 percent. Thus, it is a certain break for investors.
Last year, you also spoke about the need to establish equity funds. All decisions to this effect were taken. Now we are launching the first two funds. The total lending limit, with VEB’s participation, at these funds will amount to 200 billion rubles. So, it will be possible to combine the initiator’s initial instalment made with their own money and those of these equity funds. We think this will be rather effective.
We are currently operating in a way that allows us to work with the market using a leverage of up to 10 rubles to one ruble of our own capital (we treat our capital carefully) and attract additionally up to 30 rubles through loans from commercial banks. Thus, up to 40 rubles can be invested in a project for every ruble of our capital. For us, this has become an established practice.
Our main partner banks that we work with include Sber, VTB and some other banks, with public ownership and without it. We will be trying to promote the Project Finance Factory mechanism now not with major banks, but with some regional ones. We have all we need to do so.
Also, at the meetings on developing innovative and high-tech sectors that you held there was an issue that the legislation does not generally encourage us to participate in such projects. The Government issued a directive that the market has dubbed as the “right to risk:” we can now form a portfolio and be responsible for its overall performance, rather than for individual transactions. This decision has been made. The lack of it has always held us back from making investment decisions whereas now we have a tool to invest in creating high-tech holding companies and operating with the best players. Also, we are currently reviewing a project to create a major cybersecurity company.
When the development bank was in the making, we mostly dealt with complex industry projects or projects like Sochi before to the Olympic Games. Now it includes both major projects and projects that are closer to people, such as public urban transport and modern urban environment. We engage in joint programmes with DOM.RF and regional governments. In general, everything related to urban economic development is a priority for us.
Vladimir Putin: Very good.
What role do you think this new tool that you have mentioned will play? I understand that it will promote investment activity, but what other options and projects are available in addition to the ones that you mentioned?
Igor Shuvalov: Right now, there are many interesting projects in education. The area that is called EdTech – high or innovative technology in education – is quite promising. We need to think about what we should be teaching the students. We need to remain in communication with the Ministry of Education and the Ministry of Science and Higher Education, and we are working with them. However, modern forms of education and other methods of sharing knowledge are precisely about the cutting-edge companies that exist on the market either in the form of fairly small start-ups or as established companies. So, this new rule will allow us to create a conglomerate and to help investors acquire both small and medium-sized companies as well as large companies which will feel at ease not only on the Russian market but also be widely represented on international markets.
Vladimir Putin: Excellent. Thank you.