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2004, the tenth year of Renaissance Capital’s operations, was marked by continuity and growth, and the further consolidation of the Firm’s position as Russia’s leading investment bank. We strengthened our market position in each of our main business areas – debt, equity and investment banking. In addition, we developed our asset management business into one of the strongest and fastest-growing in Russia, and established Renaissance Capital as the leading investment banking franchise in the rapidly-developing Ukrainian market.
A private investment bank, owned by management and employees, we focus exclusively on the Russian and CIS capital markets. Our business model gives us the potential to attract superior talent and to maintain a medium-term business focus. This, in turn, enables us to deliver what we believe is unmatched specialist knowledge and to provide a level of commitment and consistency through the business cycle that is beyond the reach of generalists.
The major credit rating agencies have recognised the strengthening of Renaissance Capital’s balance sheet and business model. Most recently, in December 2004, Standard & Poor’s upgraded our credit rating to B from B-, the highest rating for any privately-owned financial services firm in Russia. In so doing, S&P noted that “RenCap has had the most success of any Russian securities house in building an infrastructure to service international and domestic clients”, and that, “strong business relationships, reputation and market knowledge are the core drivers of RenCap’s business flow.” In 2004, Fitch Ratings also upgraded Renaissance Capital to B+.
Our ability to continue to realise our potential in the Russian and CIS markets is derived from a commitment to, and the consistent application of, our core business principles: a determination to strengthen client relationships; a recognition that we are only as strong as our team and the way it works together; and the need to be constantly on guard against the extreme volatility of the markets in which we operate.
Our recruitment of the very best talent available from around the world is at the heart of this process. We focus on individuals who share the business values and commitment which underpin our success. Our ownership structure then ensures our key employees’ objectives are aligned both with our goals and those of our clients. These business principles are relatively simple, but applying them requires dedication, patience and tenacity. In such a dynamic market, however, we believe our approach is, without doubt, the most effective way to create sustainable value for our clients and shareholders.
Our Debt Product Group continued to grow rapidly in 2004, both in absolute terms and relative to our competition. Our total trading volumes grew by 2.3 times. We are the leading arranger and distributor of high-quality rouble-denominated bond issues: the RUB10 billion Gazprom bond we arranged in February 2004 is the largest to date in Russia. We also completed a RUB5 billion bond for Gazprom in October 2004 and a RUB6 billion bond for LUKOIL. In addition, we are the leading domestic financial institution in the primary distribution of eurobonds. On the secondary market, our share of rouble corporate bond trading on the Moscow Interbank Currency Exchange (MICEX) has reached approximately 21%, placing us far ahead of the closest competitor. In 2004 we also hired a strong international structuring team and successfully launched a range of new structured products into the Russian market place.
Renaissance Capital confirmed its leadership in the Russian equity market by maintaining its No.1 ranking for the third year in succession for Russia in the 2005 Institutional Investor All-Europe Research Team survey. In addition, we dominated the 2004 Institutional Investor All-Russia Research Team survey, being voted No.1 in 8 out of a total of 11 industry categories. Our strong market position was evidenced by the 39% increase in our total equity trading volumes and the 22% increase in our ADR trading volumes in 2004. We have a leading market share in all
Russian ADRs and are one of the major market makers in all domestic stocks. Equity capital markets transactions in the past 12 months included the USD1.35 billion IPO of Sistema, the largest-ever offering by a Russian company, and the IPO for Kalina, the first true Russian IPO, which offered primary and secondary shares listed domestically. We are certain that this market will experience a major boost in the next 12 to 18 months. To match the market expansion we have increased our capabilities by adding two new world-class specialists to our Equity Capital Markets team.
In addition, we launched a suite of equity finance and structured products and began trading a full range of Russian equity derivatives.
The past year also represented a further period of success and development for the Firm’s investment banking franchise. Major transactions were again completed in the Firm’s key industrial sectors of oil and gas, telecommunications, utilities, metals and consumer products. These included advising Soros Funds Management on the sale of its 25% stake in Svyazinvest, the national fixed-line telecommunications holding company, and advising Gazprom on the successful resolution of disputes surrounding the ownership of Stimul, a major domestic gas asset. Investment banking business flows have strengthened dramatically over the past six months and the Firm currently has an unprecedented book of advisory and capital markets business.
Renaissance Capital’s asset management business also experienced strong growth in absolute size and market position in 2004: total assets under management increased from USD143 million to more than USD600 million. This growth was supported by strong outperformance against both the relevant asset return benchmarks and our peers in virtually all of our fund and managed account product range. In addition, by bringing international levels of professionalism into a previously highly domestic industry, we were able to set new market standards for service and product innovation. Given the highly underdeveloped state of the Russian asset management industry, we expect this area to continue to be one of our fastest growing over the next several years.
During 2004 we witnessed the sale of some of our domestic competitors to international investment banks. The scale and growth potential of the Russian and CIS capital markets means that the greater involvement of the major international investment banks in the region is an inevitable and desirable consequence of the development of these markets and their full integration into the international financial system. At the same time, the development of the capital markets and industry in our region is still at an extremely early stage, and specialised knowledge and long-standing relationships are critical to business success. Accordingly, we believe that the focus, specialised expertise and entrepreneurialism provided by our independent ownership will continue to provide us with many decisive competitive advantages for years to come. In fact, we envisage that, with the ongoing absorption of domestic rivals, the leading market positions we hold across our core business areas will increasingly be characterised as unique, with Renaissance Capital being the only market player combining international best practice with long-standing and in-depth domestic experience.
As always, the future in Russia and the CIS is nothing if not uncertain. As we note in every year’s annual report, one of Renaissance Capital’s most important functions is to provide a continuous reliable source of consistent advice and ability to execute transactions. Our principal mission is to build an institution for the long term, based on long-established relationships – relationships that will be developed and strengthened by ensuring the success of our clients during the challenging and exciting times ahead.
Stephen Jennings,
Chief Executive Officer
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