By the end of 2016, the commissions of banks for investment transactions in Russia amounted to almost $350 million, according to data from Thomson Reuters. This is the maximum amount of remuneration since 2013. In 2015, the investment banks were able to earn one and a half times less — about $230 million. The first quarter of 2016 was for the investment banks the worst for 16 years, they managed to earn at least $17 million. However, in subsequent quarters, earnings rose to $100 million. “The Russian investment banking market has recovered after the strong fall in the previous two years”,— says senior Vice-President VTB Riccardo Orcel.
The majority of investment bankers earnings came from syndicated loans. The results of the four quarters in this sector was more than $121 million – two and a half times higher than that in 2015. However, this growth was primarily a large deal with China Development Bank, which participated in the organization of a syndicated loan of $12.1 billion for the project “Yamal LNG”. From underwriting on the bond market, investment banks earned slightly less — $120 million (compared to $80 million a year earlier). While in previous years the main source of income was contributed by the domestic market, in 2016 the center has shifted to the Eurobond market. At the end of last year, Russian issuers attracted $15 billion from the international market – almost four times higher than the 2015. The market of equity capital (ECM) also demonstrated good dynamics, although the amount of revenues remains an outsider in overall earnings. The revenues of investment banks in this segment grew more than twice — to $35.3 million. As noted in Sberbank CIB, “the tripling of the Eurobond market, by definition, increased over all earnings, the increase in commissions in the stock market outpaced the growth in the market due to high margins of certain transactions”.
Only in the segment of consulting on mergers and acquisitions (M&A) investment bankers were unable to boast growth in revenues. During the year they earned less than $70 million, which is 15% lower than in 2015. As noted by the head of department of market analysis “Otkrytie broker” Konstantin Bushuev, in 2015, at the “bottom” of the crisis market saw lot of mergers and acquisitions, particularly in the financial sector, so we can assume that the decline in transaction volume in 2016 is due to the high base last year.
In General, the year 2016 was favorable for all classes of Russian assets, rouble and foreign currency debt and stocks. “However, in contrast to 2015, when activity was mainly based on the demand of domestic investors, we saw a gradual return of foreign investors into Russian assets,”— said the Director of debt capital markets at ROSBANK Anton Kiryukhin. According to the Emerging Portfolio Fund Research, the total volume of foreign investments which came to the funds focused on Russian shares over the past year reached $800 million. “The easing of geopolitical tensions and the relief of expectations by tightening monetary policy the fed has set the stage for increased demand for Russian assets, which was partially satisfied by new transactions in the capital markets, primarily debt, the second — equity”, said Mr. Kiryukhin.
Expectations for 2017 remain optimistic. As noted by the Deputy General Director IK “Aton” Pavel Sokolov, the Russian market remains the most attractive among developing ones in terms of dividend yield and investment mutiplier. In addition, the warming of relations between the US and Russia should attract more foreign investment into the country. “We expect positive investor sentiment translated into greater activity in capital markets and mergers and acquisitions next year”,— said Mr. Sokolov. We will see an increase in activities in the debt capital market. “Compared to 2016 the volume of transactions in the domestic market could grow by 10-15%, and the market of Eurobonds — by 30-50%,” estimates Mr. Kiryukhin. According to the forecast of Ricardo Orcel, in the absence of external shocks this year, the largest increase will be demonstrated by the ECM market.