MOSCOW (Reuters) - The Rothschild Group is looking at taking on new hires for its Russian operation later this year, bucking the trend for big Western money advisers to scale back, partly because it feels it can make money out of the struggling economy.
Giovanni Salvetti, head of Rothschild operations in Russia and the Commonwealth of Independent States (CIS), told Reuters he believed the firm could perform well advising on debt restructuring, asset swaps, and distressed sales - all activities that can see an upturn in times of economic hardship.
A wave of restructuring was likely to last until the middle of next year, he said in an interview, but business prospects after that were uncertain, with everything depending on global prices of the energy and other commodity exports on which Russia relies so heavily.
The Russian economy shrank 3.7 percent last year due to weak oil prices plus Western sanctions imposed over the Ukraine crisis and a lack of access to international capital markets for Russian borrowers.
Salvetti said he anticipated that the economy overall could improve somewhat in the second half of this year, though many other international investors do not share that optimism.
Most economists expect GDP to fall another one percent in 2016 before returning to growth from 2017.
Rothschild Group’s financial advisory group has nine bankers in Russia, Salvetti said, some of whom were hired recently from Deutsche Bank which has been scaling back its Russia operations.
Expansion was possible. “We are currently looking to possibly hire additional people in the second half of the year, especially as I expect some improvement on the market,” he said.
The hiring plan, which would look to recruit staff in Moscow and also for possible project work in other parts of the wider region, comes as other global players such as Royal Bank of Scotland, Barclays and Deutsche are either leaving or scaling back their presence in Russia.
MORE PAPER, LESS CASH
Rothschild, which has been in Russia since 1994, has been active in advising on equity sales including public offerings, debt restructuring, asset swaps and other types of deals.
Its main competitors in Russia are the investment banking units of the country's two largest banks, Sberbank SBER.MM and VTB VTBR.MM, as well as global players such as Citi or Deutsche, depending on the deal.
Much traditional investment banking business has dried up in Russia due to Western sanctions which have sharply limited foreign capital inflows and curbed domestic firms’ activity globally as well as international borrowing.
In recent times, Rothschild has advised on Russian steel and coal company Mechel’s debt restructuring and was involved in UniCredit getting a stake in Alfa Bank’s parent firm in exchange for UniCredit’s Ukrainian bank, among other transactions.
Salvetti, in Moscow since 2012, said he expected more of those type of deals - paper transactions involving less cash - to emerge in the region as “people are also driven by the geopolitical situation in this part of the world”.
“People don’t want to use cash these days in the CIS but rather to do deals which fit more with the new geopolitical situation. There are a lot of assets which could be swapped for other assets,” he said.
INVESTMENT BANKING FUTURE
Salvetti said Rothschild is working on restructuring about $15 billion in corporate debt in Russia and the CIS, a group of former Soviet republics. He said he expected the second part of the year to be mostly dominated by debt restructuring and what he described as geopolitically-driven mergers and acquisition (M&A) activity.
A number of Western companies have divested their Russian assets, partly in response to the Western sanctions, while Asian investors have bought into Russian firms.
“We are pitching for some projects so cumulatively we can get another $2-3 billion in corporate debt restructuring on top of the current $15 billion,” Salvetti said.
“Now there is a wave of restructuring but you cannot restructure till the end of your life. At least for us, in 18 months, at the latest, all the big restructuring will be done.”
Salvetti said he expected Ukrainian restructuring to be completed by the end of this year and Russian deals by next June. “The big question is what is next? I don’t have an answer, frankly speaking - this depends on how the market will develop, essentially since everything is driven by the commodity prices.”
Editing by Andrew Osborn and David Stamp
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