from russia with love

Renaissance Capital, the Russian investment firm led by New Zealander Stephen Jennings, is helping to place Chinese funds in natural resources companies across Africa and the former Soviet Union in a push to be the biggest multiregional emerging-markets bank.

Renaissance is hiring bankers in Beijing and opening a "major" hub in Hong Kong, says chief executive Jennings, who co-founded the bank in 1995.

The firm advised African Minerals Ltd on a stake sale to China Railway Materials Corp last week and Moscow-based United Co Rusal on its share offering to Chinese billionaire Li Ka-shing in April.

Jennings, 49, founded Renaissance with former bankers from Credit Suisse Group, including Boris Jordan, after moving to Russia as co-head of the Swiss bank's Moscow office. He ranks eighth on the National Business Review Rich List with a fortune of $800 million.

He is turning to China after Renaissance survived the 2008 credit crisis by selling a 50 per cent stake minus one share to Mikhail Prokhorov, the Russian billionaire who owns the New York Nets basketball team.

Chinese companies did the most mergers and acquisitions among developing nations this year, announcing or completing 619 deals worth about US$56 billion ($79 billion), according to data compiled by Bloomberg.

"We are putting a lot of people on the ground in Hong Kong and we will need a number of senior bankers in Beijing because the M&A integration between Asia and our geographies will be one of the biggest themes globally," Jennings said in Moscow.

"I don't think the Chinese will want to buy a lot of assets in the US or Germany, but they are going to want to get their hands on a lot of infrastructure."

Renaissance slashed the number of bankers to 190 from 650 after Russia's debt default in 1998, and cut staff again in 2008 by 40 per cent from 1150.

The bank, which now has 900 employees, has hired more than 100 this year and plans to add a total of 200 to 250 in its offices from New York to Lagos, Accra and Almaty.

Renaissance was in the process of getting a licence for operations in Hong Kong, Jennings said, and would "very shortly have metals and mining bankers on the ground in Hong Kong, so we will be originating deals throughout Asia".

At least 24 initial public offerings worth US$5.5 billion were priced in Hong Kong this year, data compiled by Bloomberg show.

"The centre of global capital for emerging markets will move from London to Hong Kong within three years," said Jennings, who returned to his position in February after stepping down as chief executive in 2007 to pursue expansion projects.

"The logic is compelling because so many of these businesses have a strategic link with Asia. The biggest pool of incremental savings is coming from Asia, and Asia is the low-cost tax and regulatory environment, which London certainly isn't."

The bank was still assessing how to do business in Brazil and the Middle East, while Egypt and Turkey "are gaps for us" and "Pakistan and Bangladesh will become important", he said. The only place where Renaissance had closed an office was Dubai.

Renaissance ranks No 1 for stock underwriting in Russia this year, up from fourth in 2009 after Morgan Stanley, VTB Capital and Deutsche Bank, according to data compiled by Bloomberg.

While Moscow-based VTB could be "very disruptive" as a competitor for Renaissance's business in Russia, Jennings said he expected to be the only "multiregional" emerging-markets bank.

VTB Capital chief executive Yuri Soloviev said in St Petersburg that his bank would focus on business in Russia and the Commonwealth of Independent States (CIS), with some hubs for sales and distribution in selected markets such as Hong Kong, Dubai and New York.

China, the world's third-largest economy, has wealth to invest, while Russia, the biggest energy exporter, has a surplus of natural resources, creating an "overwhelming" logic for increased economic ties, according to Jennings.

"The Chinese need to buy large iron ore reserves and deposits. Who will find and package these things? It won't be a bunch of guys sitting in New York.

You have to be out there on the ground and be very specialised."

About 70 per cent of the M&A deals managed by Renaissance had no US or European company connection, a change from three years ago when 75 per cent were linked to a Western company, Jennings said.

Renaissance's role in China would mostly be to find buyers for assets outside the country rather than to sell Chinese assets, he said.

"It doesn't fit with our strategy to be placing deals for Chinese companies but I would like to think in a year or so that we will be in the mix for any big metals and mining or oil deal. Our home markets are pan-CIS and pan-Africa but overlaid on that is a very strong franchise in metals and mining, oil and gas and agriculture."

Renaissance has advised on deals in 18 countries in the past 12 months, including Perth, Australia-based Coal of Africa's sale of about 55 million ($115 million) of shares in Johannesburg, London and Sydney last week.

Africa and the CIS would remain Renaissance's "core markets", Jennings said. The bank was in "very advanced" talks to acquire a second brokerage this year in Africa, where economic growth was helping to reduce the risk of violent conflict.

"As you get growth of 6 to 8 per cent, it's very costly to have conflict. Africa is the only region in the world that didn't have a single quarter of negative growth during the crisis. For us, it's about global convergence.

"With the exception of some strange places like North Korea, Myanmar and Somalia, there are very few countries in the world that are not caught up in accelerating growth."

Stephen Jennings

* Chief executive, Renaissance Capital.

* Age: 49.

* Born: Taranaki.

* Former Treasury policy analyst.

* Moved to Russia with Credit Suisse Group.

* Founded Renaissance in 1995 with former bankers from Credit Suisse Group.

* Ranked 8th on NBR's 2009 Rich List, with a fortune of $800 million, down from $1.4 billion the previous year.
By Jason Corcoran
New Zealand Herald 21 June 2010