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. Last Updated: 07/27/2016

EBRD Head Signs 3 Deals Worth $38M

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In his first official visit to Russia, the president of the European Bank for Reconstruction and Development, or EBRD, signed off Monday on three deals worth a combined 43.8 million euros ($38.04 million).

Flanked by contracts the size of encyclopedias, president Jean Lemierre put his signature on a 17.3 million-euro loan to the Chelyabinsk Electrolytic Zinc Plant, 23 million-euro loan to the Moscow subsidiary of Raiffeisenbank Austria, and 3.5 million euros to the capitalization of KMB-Bank.

"This means a lot to us," Lemierre said about the contracts. "This means long-term financing is back in Russia."

"This is for real," he added. "And the fact that we are here will give other investors confidence, because we offset their risk."

The loan to the Chelyabinsk zinc plant is a landmark in post-crisis investing in Russia because it is the bank’s first long-term loan to a Russian industrial enterprise since the August 1998 crisis, Lemierre said.

The Chelyabinsk zinc plant, the largest zinc smelter in Russia, is currently going through "full-blown" transition to automation and a major restructuring of the plant’s processes, said Vsevolod Geikhman, general director of the plant.

The price tag on the plant’s modernization investment project — which includes bringing the plant’s emissions in line with Russian and World Bank environmental standards — is $37 million.

The plant has already invested $9 million of its own resources into the project, which aims to bring the quality of the zinc it produces up to London Metal Exchange standards.

However, plant management hasn’t been successful in courting Russian investment, Geikhman said. "EBRD offered us conditions that we could live with," he said.

With its loan to Raiffeisenbank, the EBRD forayed into Russia’s burgeoning banking sector. The loan is earmarked for increasing the bank’s capital so the bank, in turn, can finance an anticipated increase in loan volume.

The bank, which specializes in trade financing, has recently expanded its consumer banking services, said board chairman Michel Perhirin. And the bank will use the loan to widen the range of products and services offered to attract more depositors.

Through its contribution to KMB-Bank, the EBRD is increasing the scope of its Russian Small Business Fund, which doles out most of its loans through KMB-Bank. This latest $3 million loan comes on the heels of a five-year $30 million loan that the EBRD extended to KMB-Bank last month.

The purpose of these loans is to expand the number of micro and small businesses serviced by KMB-Bank, said Christoph Freytag, KMB-Bank’s chief operating officer.

Currently, 2,500 such businesses have received loans that range from $30,000 to $125,000. The total loan volume as of September is $37 million. The bank wants to increase the number of clients to 4,000.

Lemierre said that while the future for Russia look bright, one thing still keeps him up at night.

"It’s the laws," he said.

"The government still has to make sure that the courts are upholding the legal system. This is still the biggest risk in Russia."

Lemierre took the post of EBRD president in May. The Frenchman, who previously headed the French treasury, came joined the EBRD as Russia was beginning to accelerate its recovery from the August 1998 crisis. He has promised to increase investment in Russia to 30 percent of the EBRD’s portfolio, which is between 700 million euros and 750 million euros per year.