Vneshekonombank has requested permission from the government to begin gradually selling off the shares that it bought last fall using money from the National Welfare Fund, sources in the Finance Ministry and VEB said.
The fund made a five-year deposit with VEB on Oct. 21, 2008, at 7 percent interest to buy shares as the stock market was plummeting. The interest could reach 61 billion rubles ($2.1 billion), and would need to be paid as the loan expires, a Finance Ministry source said.
“The state corporation is saying it wouldn’t make sense for it to handle the deposit any longer,” which is why they are considering possibly closing it, the sources said.
A source close to VEB confirmed that the talks were being held. “It’s already clear that VEB has earned as much as it can from the shares, there’s no point in holding money in these instruments anymore,” he said.
Last fall, when prices for most shares were falling through the floor, VEB made daily purchases of blue chips such as Gazprom, Sberbank, VTB, Norilsk Nickel, Surgutneftegaz and LUKoil. The deals were done through brokers, but market participants could see what was happening and many earned quite a bit on these deals.
VEB also invested in bonds and notes from reliable companies, including Gazprom, LUKoil, Russian Railways, VTB, VTB Leasing Finance, Bank of Moscow, Rosselkhozbank and Gazprombank.
The portfolio has earned at least 60 percent to date, VEB spokeswoman Yekaterina Karasina told Vedomosti.
“By and large, VEB’s investments as an anti-crisis measure have already justified themselves. They supported the market and earned a lot for the National Welfare Fund,” a Finance Ministry source said.
But Finance Minister Alexei Kudrin has been cool to the idea of closing the deposit, the ministry source said.
“The fate of the deposit depends on a whole range of decisions that have not yet been made,” Kudrin told Vedomosti.
One possible solution, said the source close to VEB, would be reforming the deposit as a portfolio of securities that would be handed over to VEB for management.
But that would raise the question of incentives for the portfolio manager. “So far, all of the profit earned goes to the National Welfare Fund, as was agreed earlier, but that’s not entirely fair. VEB has done it’s job very well, and it wouldn’t be entirely fair to leave it without a bonus,” one of the Finance Ministry officials said.
As of Oct. 1, VEB ha 148.6 billion rubles ($5.1 billion) of National Welfare Fund money invested in securities, Karasina said, down from 161.6 billion on Sept. 1 and 168.5 billion on Aug. 1.
VEB chief Vladimir Dmitriyev has said VEB is constantly managing the National Welfare Fund portfolio, and that the sum invested is decreasing not just because of sales — some of the securities are also being redeemed.
Market participants, when asked whether it made sense to continue holding borrowed funds in the market or to fix a profit, chose the second option. “Based on historical data, it’s theoretically possible that the market could fall from its current levels by 50 percent. That means that at the moment, the percentage of [the portfolio invested in] shares shouldn’t be more than 10 percent to 15 percent,” said Vladimir Kirillov, general director of KIT Fortis Investments.
“The thinking at VEB is that it would make sense to sell off the shares in small blocks slowly over the next year, so as not to do any harm to the market,” said the source close to VEB. “Getting out of the market is much more difficult than entering it.”
A large sale of shares could negatively affect share prices and drive the market down,” said Oleg Vorotnitsky, chief trader at UralSib Capital. If a decision was made to take profits and sell some of the shares, investors have nothing to worry about if VEB limits itself to a reasonable volume, said a trader at a large investment bank.
VEB sales won’t have any psychological influence on investors, said Nikolai Kiryushkin, a trader at Metropol. “There’s really a lot of free liquidity and investors, on the contrary, will welcome the fact that this won’t be hanging over the market in the future.”
The state corporation intended to stabilize the market, and VEB is trying to close its anti-crisis programs that have served their purpose, said a source in the government.
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