Mikhail Prokhorov’s Onexim Group is taking control of Renaissance Capital, the billionaire’s holding firm announced in November. Although the investment bank will not change its name, the acquisition ushers in a new era for RenCap, which co-owner Stephen Jennings set up in Moscow 17 years ago.
New Zealand-born Jennings is now stepping down from the investment bank. John Hyman – an equities capital markets specialist who was at Morgan Stanley for 17 years – is taking over as chief executive. Hyman joined RenCap as co-head of investment banking and financing just over a year ago.
Prokhorov will now indirectly own 100% of Renaissance Capital, as well as 89% of Renaissance Credit, a Russia-focused consumer finance lender until now another part of Jennings’s Renaissance Group.
"We strongly believe in the strategy of Renaissance Capital and that the financial resources of Onexim will only strengthen the unique position of the bank in the markets in which it operates," said Dmitry Razumov, Onexim’s chief executive, in a statement regarding the acquisition.
This latest deal, whose financial terms have not been revealed, follows Prokhorov’s purchase of 50% of RenCap a week after the collapse of Lehman Brothers, for a reported $500 million. Under that agreement, Jennings retained management control of RenCap as Renaissance Group maintained 50% plus one share of the voting rights.
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| Mikhail Prokhorov’s Onexim Group is taking control of Renaissance Capital |
With Russia’s stock market losing about two-thirds of its value in 2008, RenCap cut staff numbers rapidly. But partly thanks to Prokhorov’s investment, it began hiring more aggressively again in 2010, in a strategy to develop a wider, emerging markets franchise, not just focused on Russia.
Since then, as in other global markets, equity-trading volumes in Russia have still failed to recover from the 2008 crisis, adversely affecting broker profits. Moreover – partly thanks to international fears about instability and corruption – the Russian stock market has fallen around 20% in the past 18 months, roughly equal to Spain’s performance, despite wealth flowing into Russia from high oil prices.
Added to this, independent investment banks in Russia such as RenCap have come under increased competitive pressures from the rapid expansion in investment banking since 2008 by state-owned banks. This year, state-owned Sberbank bought another prominent independent local investment bank, Troika Dialog, officially rebranded as Sberbank CIB in October.
RenCap’s overall revenues seem to have failed to cover the cost of new hires in 2010 and it has announced annual losses for each of the past two years. This summer, it appeared to be retreating from its expansion in Asia in particular. Reports in June suggested a 12% reduction in staff numbers at the investment bank. Jeremy Sparrow, head of the Asian operation, was one of the bankers to leave the firm.
In emailed responses to questions from Euromoney, Renaissance says the sale of RenCap was a result of market malaise and the subsequent need for stronger shareholder backing. The firm says: "When it became known that Onexim was interested in acquiring the investment bank and Renaissance Credit, Stephen Jennings felt that the time had come for him to focus on investments into other emerging markets, primarily Africa."
Jennings, in fact, will retain Renaissance Group’s other businesses. These will now be separated from the investment bank and Russian consumer credit business.
Renaissance Group will therefore now comprise: Renaissance Asset Managers, focused on global emerging markets; Rendeavour, an urban real-estate developer in Africa; and finally, Renaissance’s Russia real estate funds. A consumer credit business in Nigeria launched in mid-November, also branded Renaissance Credit, will be part of Renaissance Group too, and so under Jennings’s control.
A spokesperson says: "While the acquisition becomes final, the companies are entering a period of transition and separation. However, there are a number of synergies that can continue to exist between some business units, which eventually could have advisory agreements with each other."
In a statement on the new structure, Hyman indicated that the focus on Africa as well as Russia, CIS, and central and eastern Europe would continue. RenCap has continued to hire in Africa this year even as staff have departed elsewhere. This summer RenCap hired another former Morgan Stanley equities banker, Ronnie Golan, as head of Africa investment banking.
In Russia, the ascendancy of state-owned or state-linked financial firms seems to be accelerating. In the summer, VTB emerged as a key backer in the takeover by Otkritie Financial Corporation of Nomos, which was previously held up as an example of how independent banks could still thrive in Russia. State oil company Rosneft is also acquiring one of the biggest private oil firms in Russia, TNK-BP.
Prokhorov ran for the Russian presidency this year against the incumbent candidate, Vladimir Putin. But sceptics and other opposition politicians argue that his candidacy had the tacit blessing of the Kremlin, which might have viewed votes for Prokhorov as a relatively harmless vent for middle-class frustration at Putin’s return.
"Renaissance Capital now has an ownership structure and funding base that will enable the firm to quickly realize its full potential," Jennings said last month in an email to employees, according to Bloomberg. "Renaissance will be much more part of ‘the system’, reducing risk and increasing revenue opportunities."
