Exclusive: Russia's VTB plans to expand grain business and then exit - CEO

By Tatiana Voronova and Katya Golubkova
FILE PHOTO: VTB bank Chief Executive Kostin attends a session of the VTB Capital Investment Forum "Russia Calling!" in Moscow

By Tatiana Voronova and Katya Golubkova

MOSCOW (Reuters) - Russia's VTB bank <VTBR.MM>, which is expanding in commodities in a bid to create a national grains champion, will exit the sector once it has built up the assets in the next few years, its CEO told Reuters.

Andrey Kostin also said in an interview that VTB plans to start trading wheat via its Swiss operation and that it is in the final stage of talks to purchase half of the Taman grain terminal on the Black Sea.

VTB, Russia's second largest bank, is now a major physical grain exporter after buying a local grain trader in August, and became the largest operator of Russia's grain export terminals and other infrastructure this year.

"Oil is going to run out one day but not the grain," Kostin said in the interview, conducted last week and authorized for publication on Tuesday. "With that in prospect over the next few years, while the business is being built, we will still act as a player in the grain market."

In June the state-controlled bank asked President Vladimir Putin to help it create a Russian grains champion to curb the role of foreign traders and give the state greater control over exports, according to a June 26 letter seen by Reuters. However, Kostin told Reuters that once the business has been built up, VTB plans to hand it over.

"We have not finished the expansion yet. We do not rule out building new grain terminals in the Black Sea," Kostin told Reuters.

"After we consolidate and wrap up this business, we will exit these assets," he said. He did not elaborate on the options to leave the business or potential future owners.

In its letter to Putin, VTB said it would need another two to three years to consolidate and acquire more grain assets.

The bank plans to start trading wheat through its "fairly well-developed commodities trade business in Zug (Switzerland)", Kostin said, adding that supplies to Russian traditional buyers - the Arab countries and Vietnam - have been its main focus.

VTB is also in the final stage of talks to purchase half of the Taman grain terminal from Ukraine's Kernel group <KER.WA>, Kostin said. Global trade giant Glencore <GLEN.L> owns the other half of the terminal, located in Russia's part of the Black Sea.

Kostin, who said he sees his bank as a "kind of investment fund" backing the state in big and complicated deals, told Reuters he believed the grain market "should be civilized, with transparent processes."

"Recently, Vietnam suspended Russian wheat imports due to its low quality... In the end the reputation of all Russian grain exporters suffers," Kostin said, adding that VTB's goal was to create trust between grain producers and buyers over margins and quality.

"To achieve this, you need a qualitative infrastructure, serious and quite large players, including in trade."


BIG CLIENTS

This month, VTB exchanged debts with Sberbank <SBER.MM>, taking on the latter's 50 billion rouble ($784 million) exposure to steel and coal producer Mechel. The miner said in August that it had asked VTB, Sberbank and Gazprombank to push back debt payments to 2024-2026 from 2020-2022.

The debt exchange deal left VTB and Gazprombank as Mechel's two biggest creditors. Mechel has also agreed to pay around 30 billion rubles for Gazprombank's 34% stake in the Elga coal project and needs to find cash to pay for it.

"We said this from the very beginning: we don't want to manage Mechel. Looking into the future, Mechel is quite an effective company," Kostin said. VTB does not plan to give Mechel a loan to buy Gazprombank's stake in Elga, he said.

VTB also holds a 22% stake in En+ Group <ENPLq.L>, after the bank became part of the deal helping En+ avert U.S. sanctions imposed on Russian tycoon Oleg Deripaska, who controlled the company, last year. The sanctions were lifted in early 2019.

Kostin said that VTB may consider selling its stake in En+ once the company's shares rise in price from the current $9 per share, adding that the bank may also consider selling its En+ stake to another state entity if such an opportunity arises.





(Reporting by Tatiana Voronova and Katya Golubkova; writing by Katya Golubkova and Polina Devitt; editing by Veronica Brown and Susan Fenton)