RenCap targets African resources in expansion push

Russian private investment bank Renaissance Capital is in the midst of a sweeping expansion into the resource sector in Africa, betting on a surge of deals between emerging and frontier markets sidelining traditional Western institutions.

RenCap plans to hire 200 people across its investment banking operations this year, boosting numbers by 25 to 30%, with many of them targeting mining and oil/gas sectors, group deputy chief executive Andrew Cornthwaite told Reuters.

The investment bank will expand offices in Africa by 50 to 100% to as many as a dozen, adding further local expertise in a vast continent rich with minerals and oil, he added in an interview late on Thursday.

“We think the days of people just sitting in London or New York waiting for the business to come to them are over,” said Cornthwaite, also head of investment banking at RenCap.

The bank was one of the most active dealmakers in Africa last year, executing 18 transactions in 10 countries, including the sale of Central African Mining and Exploration to Kazakh mining group ENRC for $955-million.

“There are five or six other transactions of that kind of magnitude, billion-dollar-plus type trades. I don’t know if they will close in the next quarter or even this year,” he said.

Since it entered Africa in 2007, RenCap has scoured the continent for world-class assets to sell and has a strong pipeline that has sparked interest from Chinese and other emerging market buyers.

“When they do close, I don’t know if the buyer is going to be Chinese. Camec for example … That could have just as easily been the Brazilians or the Indians or the Chinese.”

Rising deals between emerging markets
A key to RenCap’s success in resources has been on-the-ground presence in Africa, linked to an expanding emerging markets network.

“We’ve done it the hard way, from having people in Lusaka, Harare, Lagos, Nairobi, Accra.”

In February, an office was opened in Johannesburg, which will act as a hub on the continent.

The bank has also forged joint ventures with investment banks in India and Mongolia and has plans for further expansion in Asia, said Cornthwaite, previously with Credit Suisse before joining RenCap in 2005.

The strategy is based on a view that the flow of capital between emerging markets has only just started.

“The inter-linking, interdependence of emerging markets between each other has happened without much of a political impetus. When politicians and countries wake up to what they’re capable of doing … we think there’s no obvious limit to where it will go.”

A good example of the future is the Camec deal.

“A Kazakh company buys a Congolese copper company using a Russian adviser. Where does that leave the UK and US banks?”

Resource listings have been dominated by London, Toronto and Sydney, but firms with African assets are also due to gravitate towards emerging markets such as Johannesburg and Hong Kong.

“It will be a big opportunity for Hong Kong. We’re seeing it already with the Russians and it will happen with the African countries as well,” he said.

“We’ve got four or five more deals that are going to list in Hong Kong, coming out of Kazakhstan, Mongolia and Russia, in the next six months.”

RenCap was a bookrunner for the flotation of the world’s biggest aluminium group, Russia’s UC Rusal, in Hong Kong this year.

The swing to Africa has meant that the share of the investment bank’s revenue from outside the CIS is due to grow to about 50% from virtually nothing three years ago.

RenCap investment bank revenues this year are due to bounce back after they slid during two years of difficult times from about $1-billion in 2007, Cornthwaite added.

“In the last couple of years we’ve not been below half a billion and hopefully this year we’ll be somewhat between those two numbers and more like the billion than the 500-million.” – Reuters

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