Qatar’s sovereign wealth fund has hired UBS to advise on a possible $3bn investment in Russian state-controlled bank VTB, three people with direct knowledge of the matter said.
Russia’s second-biggest lender, advised by Citigroup, has been working on a capital increase to support day-to-day operations. Analysts say the Moscow stock exchange is too small to supply VTB’s needs.
Qatar Holding has a history of investing in large banks in need of capital. At the peak of the global financial crisis, it invested in banks such as Barclays and Credit Suisse on terms regarded as favourable to the fund.
“Talks are very advanced”, one of the people told Reuters yesterday about Qatar Holding’s discussions with VTB.
The sources said the deal may still be called off on price disagreements - Russian news agency Interfax reported Qatar wanted to invest at a 25% discount.
VTB had planned to issue new shares equivalent to at least 10% of its equity this spring, raising $1bn-$3bn. After President Vladimir Putin last month urged state asset sales be held in Russia, VTB chief executive Andrei Kostin said the deal might be delayed.
VTB shares were down 0.2% late on, having traded in a 4% range.
One source involved with the situation said while Qatar Holding was an attractive investor, VTB was talking to other sovereign funds. “If they make a co-investment (agreement) with VTB there could be plenty that Qatar can do (in Russia) which is mutually beneficial - good to attract capital and good for them to have opportunity in Russia,” the source said.
“Qatar relishes these type of investments. They tend to get involved in situations where the seller is seen as a bit desperate and in need of funds. That helps in their negotiations for downside protection and guarantees from seller,” said a banking source who has done business with the sovereign fund.
Bankers are working on a deal that would appeal to Russia and the Qatar, such as mandatory convertible bonds providing Qatar with a substantial return via interest payments, one of the people said.
The sovereign fund, believed to have assets in excess of $100bn, has been one of the most active institutional investors in recent years, deploying Qatar’s riches from natural gas to buy stakes in companies ranging from carmaker Porsche to miner Xstrata.
UBS’s mandate from Qatar Holding will be good news for the Swiss bank, which is under pressure to win business and put its investment banking unit back on track after its new head, Andrea Orcel, announced a big restructuring including 10,000 job cuts.
UBS currently ranks 22nd in M&A advisory worldwide, against 11th in 2012 according to Thomson Reuters data.
Orcel built his career on financial deals including ABN Amro’s acquisition by an RBS-led consortium in 2008. His brother Riccardo is deputy CEO at VTB.
Qatar Holding declined to comment, as did UBS and VTB.
Citigroup was not available to comment.