Interview to The Troiker magazine
Andrei Sharonov, Managing Director at Troika Dialog Group
– In the turbulent economy, many are saying that investment companies will have to change their strategy. Has this topic been discussed recently at Troika?
– A three-day strategic session took place in May, where Troika Dialog’s management discussed the company’s strategy for the next three years. We confirmed the company’s main postulates regarding business growth and staying independent. Our partnership with Standard Bank does not make us affiliated with any major financial or industrial group. We are well aware of the reduced business volumes in our core areas, but we aren’t withdrawing from any of them. Also, we are trying to find synergy with our new partner by developing services that previously were not represented in our portfolio. Just recently, a small delegation headed by Ruben flew to China, where we met with Standard Bank’s Chinese business and with the ICBC, Standard Bank’s largest shareholder and the biggest bank in the world. Meetings were held with Chinese companies representing the oil and metallurgies industries, as well as with the ICBC and other financial institutes. This may lead to partnership possibilities in both Russia and China, and maybe the African continent as well. This would involve, on the one hand, participation by Russian companies with their expertise in the oil and gas and metallurgies sectors, and on the other hand participation by the ICBC and Standard Bank with their balances and capabilities to finance and bridge various deals. Many new opportunities are opening, and our task is to get the most from them.
– What should the focus be?
– I repeat that all of our business lines remain intact, and that all of our traditional divisions are continuing their work. It’s true, however, that the focus is changing. For example, it would be na?ve to expect the kind of IPOs we saw in 2007. Still, there are great opportunities for M&A deals right now, particularly with distressed assets, but in other areas like non-cash deals as well. All of these possibilities are intriguing, to say the least.
For quite a while, equity investors held their money in debt instruments, preferring these over stocks both in terms of yield and reliability. Now, however, interest in corporate equity is rising. Inspired by the recent growth on Russian and global stock markets, investors are lining up for the rewards. I’m guessing this is a temporary rally involving speculators’ funds. But the money is out there, and our job as an investment bank is to catch it.
As for the New Projects Group, I can say that venture investments are growing. One year ago, when we had money and a strategy in place, there weren’t any portfolio companies. As of today, however, we have invested in seven companies. All of them are highly promising, and many in recent times have acquired quite a good name for themselves. This is inspiring. Our task is not to lose them during the financial crisis, and to guarantee new rounds of financing with our own money, or to bring in new investors. And we are aiming by the end of the third quarter to make investments in three more companies. The number of portfolio companies will thereby reach ten.
– How is Troika Dialog working with the state during the crisis? Is the company prepared to help with strategic planning? Or is it purely financial work such as raising investments and restructuring debt?
– Our Group traditionally has held strong positions in the regions. At the same time, in some regions the expectations regarding partnership with Troika are unrealistic. In particular, local authorities seem to prefer direct investments over portfolio investments. They say, “Look, here’s a building site, now raise the necessary investments and build a factory.” This isn’t quite our specialty. We can only participate in the project if it has an anchor investor and a proprietor, as well as a name capable of attracting investments. This is where Troika comes in – attracting investments from the Russian and global markets.
In addition, regional powers sometimes mistake us for a consulting company capable of strategic planning work. This isn’t our job either, but we try not to reject such proposals out of hand. Instead, we seek partners whose spheres of expertise and expectations would make a better match with these proposals. Actually, we have to watch these situations, since these strategies can offer opportunities for investment banking services.
– When Troika signs partnership agreements in the regions, are these moves for image’s sake? Or is this a profitable area of business?
– Right now, I would say this is mostly for image. But this is just one of the things that can lead to mandates for administrative loan placements and financing deals with big regional corporations. This has already happened in several cases. We also work with these companies directly, of course. PR campaigns with regional politicians are important, because they impact how people perceive us.
– What is a higher priority right now: exploring new regions like before, or becoming fortified in the regions where agreements are already in place?
– We will consider every possibility, but I would say that Troika is already represented in all of the more or less interesting regions. Sometimes we go half-way on proposals from local authorities, who also like to send positive signals and point out that the directors from one of Russia’s leading companies flew in from Moscow to sign an agreement. These image moves may be reduced in number, but the expenses are minimal, and it’s something we won’t rule out.
– Now a question about staff. In a recent magazine article, out of work financial specialists voice complaints such as “there won’t be any jobs in the next few years,” and that new expertise must be acquired. In your opinion, what areas of expertise are most in demand on today’s market?
– In my opinion, it’s always possible to gain new expertise and acquire new skills, for example – work with distressed assets, like we mentioned before. In addition, Troika is currently overtaking a bank, and it takes certain expertise to create synergy between investment banks and commercial banks. Another growing area is infrastructure investments. In my view, this is a long-term topic, since there are very few specialists in the world capable of conjoining the interests of two disparate sides like, for instance, a teacher-investor from the U.S. and a drainage canal in the city of Uryupinsk. However, in theory it is possible to create a financial mechanism that would create strong yield under reasonable risks, and one that would make infrastructure projects more transparent and predictable in terms of tariff regulation, how the authorities behave, and corporate transparency. This is an untilled field requiring a lot of work and a market of unfathomable dimensions.
– What do you enjoy most of all in your work? Considering that investment banking isn’t the most stable business right now, do you regret leaving the government two years ago?
– No, I don’t regret it. I didn’t come to Troika thinking that it would be growth all the time. The point was to enter the financial sector and to try to achieve something. And the crisis has led to new expertise, offering opportunities to work on a “down” market. In addition to my work with the New Projects Group, I work with the debt and equity markets, and also with M&A projects, lobbying for potential deals.
The crisis is a time of opportunities. This might sound trifling to some, but it’s a call to action for others. I think Troika is among the latter.