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Resources for Growth and Investment Prospects: An Analysis of Asset Realization Practices in Russia’s Regions
14 February 2019
14:30—15:45
KEY CONCLUSIONS
Investors demonstrate a bigger interest in bad assets

The trend of the recent years is an active growth of the bad asset market. We believe this trend will stay. The most important objective is to make this market more liquid as far as asset investment attractiveness and sales procedures are concerned. <…> In Russia we have over 7,000 signed deals amounting to 60 billion roubles — Andrey Stepanenko, General Director, Auction House of the Russian Federation.

Bad assets no longer scare away investors. <…> 1000 deals account for the Central District, roughly 822 – for the Siberian District, 737 – for the Volga District, 615 – for the North-Western one. <…> This gives the regionally located business the opportunity to buy assets and form their business — Andrey Stepanenko, General Director, Auction House of the Russian Federation.

Ability to work with bad assets is a key tool to ensure economic and investment growth

It is known that the Deposit Insurance Agency has an array of assets amounting to almost 4.5 trillion roubles. Those assets could be actively involved in completing numerous tasks: it is businesses <…> and significant properties <…> that should become part of the economic turnover, which is important. At the same time, procedures for that must be as transparent, efficient and flexible as possible — Anatoly Aksakov, Chairman of the Committee of the State Duma of the Federal Assembly of the Russian Federation on Financial Markets; President, Association of Regional Banks of Russia (Association ‘Russia’).

Our main objective is to bring back the accumulated asset array to the economy through better transparency and public disclosure. They may become really interesting for regions as well, because frequently it is the small business, and an opportunity to start it over — Yury Isaev, General Director, State Corporation Deposit Insurance Agency.

ISSUES
Lengthy procedure to sell bad assets

We have to keep balance between procedures and pace. If we violate procedures to speed them up, we will get trapped in further audits. We will never be able to act fast without changing the legislation. In our today’s situation, we sell maximum 1% of assets in the first year of liquidation procedures; about 20% in the second year and roughly 30% in the third one. These timelines have a highly negative impact on two main parameters of our performance. First of all, it is cost; secondly, not a single sane and reasonable agent will plan asset acquisitions with a 3–4-year horizon. They want to buy it now — Yury Isaev, General Director, State Corporation Deposit Insurance Agency.

The tendering procedure – the bankruptcy timeline – results in the land value, the price for hectare going down over those 2–3 years the procedure takes. If the land has not been farmed for 3–4 years, it takes additional 5,000 roubles per hectare to put it back to work. While the price of land – let’s say in Kaluga Region – is about 20 thousand roubles per hectare — Alexander Krasnov, Head of the legal Department, Miratorg.

Investors demonstrate a low interest in working with bankrupt banks’ loans

Unfortunately, as of today foreclosures can be sold, and buyers purchase them for reasons other than further developing small and medium business. Many buy their own foreclosures, some buy secured debts <…> some profit off it, bill collectors, per say — Dmitry Golovanov, Chairman of the Board, SME Bank.

Sometimes it happens so that a bank goes bankrupt, and the borrower immediately gets a demand to repay the loan. If the loan stays, it is a win-win situation — Anatoly Aksakov, Chairman of the Committee of the State Duma of the Federal Assembly of the Russian Federation on Financial Markets; President, Association of Regional Banks of Russia (Association ‘Russia’).

Imperfect norms for selling certain assets

The Russian Government sells some assets as basic shares, where it is irrelevant to keep their profile or business, while some assets are sold as assets, but at investment tenders <…> and only a profile investor can purchase this type of asset. The federal government allowed itself to do this to federal assets, but not to regional or municipal ones — Andrey Stepanenko, General Director, Auction House of the Russian Federation.

When it comes to bankruptcy of enterprises that have socially significant facilities, best case scenario is when the bankrupt enterprise is followed by the major creditor – the bank, because the bank will be covered by the DIA. <…> It is impossible to resolve the issue of pre-emptive sale of socially significant facilities through any bank or secured lender that is not bankrupt yet. <…> For two years one could not transfer security assets to a building cooperative, because banks did not have the procedure for transferring property to building cooperatives — Alexey Chibisov, Deputy Chairman of the Government of Perm Region.

SOLUTIONS
Simplifying asset sales procedures

We need to change the auction procedures. For that purpose, we need to adopt the model that is efficiently functioning all over the world – it is the Dutch auction, or the swing technique, when you start with a certain price – it may even be the top one, but you trade it down quickly. You get one buyer, the auction stops, and you bull the market. I believe we need a decision and certain amendments that are hard won. We need to separate them from the general legislation and adopt them now — Yury Isaev, General Director, State Corporation Deposit Insurance Agency.

We need to change the existing principle that a bank with a revoked license first gets a temporary administration from the Bank of Russia, and only then it is us. <…>As of today, there is no need for this two-stage procedure — Yury Isaev, General Director, State Corporation Deposit Insurance Agency.

For a number of years, we have been discussing introduction of the English auction or the Dutch one, which will help to reduce the cost significantly. But unfortunately, the regulator <…> now has about a dozen amendments, so this has been going in circles, or put away, and we hardly progressed at all — Andrey Stepanenko, General Director, Auction House of the Russian Federation.

One-stop-shop principle for sales

Assets are now sold at 10–20 platforms at the same time. Such sales only confuse buyers. <…> All assets will be sold under the one-stop-shop principle, it will make the procedure more convenient for buyers — Yury Isaev, General Director, State Corporation Deposit Insurance Agency.

Improving sales norms for socially significant assets

We need to refine the bankruptcy legislation in the following sense: if a bankrupt’s assets involve socially significant facilities, <…> those assets should be sold before all the auction procedures are completed – that is one. And secondly, they should be sold through an auction instead of a tender to keep the designated use — Alexey Chibisov, Deputy Chairman of the Government of Perm Region.

Creating mechanisms to transfer SME loans to special banks

We do care about further life of those entrepreneurs who participate in programmes. <…> When a bank goes bankrupt, its license is revoked, and what happens to that loan is beyond anyone’s control. <…> We have developed special standards <…> our objective is to enable those entrepreneurs, who got money under those standards, to promptly transfer the foreclosures to the organization that would be able to further support them, and to keep those deals from being challenged — Dmitry Golovanov, Chairman of the Board, SME Bank.

We have entered a new stage of our development, we issue securities backed by SME foreclosures <…>. It means if we can buy foreclosures, and we are interested in it, we can agree on certain conditions with DIA that would allow us to buy existing foreclosures — Dmitry Golovanov, Chairman of the Board, SME Bank.

The material was prepared by the Russian news agency TASS