Citigroup (C) Gains Momentum in Russia as Crisis Abates

In an interview at the Reuters Russia Investment Summit, Marc Luet, Citigroup Inc.'s C head of Russia and Central and Eastern Europe, revealed that the U.S. bank's business in Russia is gaining momentum with the abatement of the country's economic crisis. As a result, the bank has now become more involved with Russian mergers and acquisitions. Further, it is planning to stay engaged with Russia as far as the Western sanctions allow.

Evolvement of Russian Debt Issuance

Russian debt issuance slowed down significantly following the imposition of sanctions on the country by the U.S. and European Union over the Ukraine conflict. These sanctions limited the access to international capital for large Russian banks and other businesses. These further alienated the investors and scared the compliance departments of top banks.

Earlier in 2013, Citigroup had earned Russian DCM deals worth more than $15 billion. However, after the imposition of the sanctions, the number of deals dropped significantly. Although the bank does not expect to return to the 2013 level, it anticipates seeing more issuance than this year, going forward.

With the evolvement of better pricing conditions, economic stabilization and the maturity profile of outstanding debt, Luet stated that the bank now plans to enter into the corporate debt issuance business in Russia. Notably, Citigroup seeks to expand into the Russian debt capital market, through liability management and new issuance of debt.

Odds Against the Expansion

A restrictive factor on the expansion is that many Russian companies have cut down their capital expenditure since the economy entered a deep slump and the global oil prices tanked in 2014. In addition, a gradual economic recovery this year is yet to stimulate considerable increase in investment plans.

Nonetheless, the investors have now become accustomed to the sanctions and the banks are now clear about the deals that they can handle and the ones that they should leave.

Encouraging Performance & Support to Russia Will Sustain the Drive

In 2015, Citigroup's Russian operations earned around 14.55 billion roubles ($225 million) in profit, better than the performance of many domestic Russian banks. Further, the bank has always stuck to its strategy of serving multinationals and large Russian blue-chip companies as well as affluent retail clients.

Currently, Citigroup carries a Zacks Rank #3 (Hold).

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