Who bought the Asia-Pacific Bank in Russia?

In October, Pioneer Capital Invest LLP (PCI) acquired 100% of Asia-Pacific Bank (APB) shares from the Bank of Russia for 14 bil­lion rubles, the largest deal in the bank­ing mar­ket in recent years. A for­eign com­pa­ny has become the buy­er of a Russian cred­it insti­tu­tion for the first time in the past few years, a land­mark deal for the bank­ing mar­ket. Who stands behind the buy­er is in Lenta.ru’s story.

We pos­i­tive­ly assess the results of the trans­ac­tion and believe that the deal was suc­cess­ful,” Mikhail Alekseyev, Deputy Governor of the Central Bank, said recent­ly in his inter­view to Izvestia news­pa­per. The pur­chase and sale agree­ment with PCI was signed on October 5, and mar­ket par­tic­i­pants imme­di­ate­ly raised ques­tions about who is behind the buy­er of a cred­it insti­tu­tion of the Russian Federation and what goals they pursue.

“We are opti­mistic about the results of the deal and believe that the trade was suc­cess­ful,” Mikhail Alekseev, Deputy Governor of the Central Bank, said recent­ly in an inter­view with Izvestia news­pa­per. On 5 October, fol­low­ing the sign­ing of the con­tract for sale and pur­chase with PCI, mar­ket par­tic­i­pants won­dered who was behind the buy­er of the Russian Federation cred­it insti­tu­tion and also what goals it was pursuing.

Investors

Pioneer Capital Invest Limited Liability Partnership is an invest­ment and finan­cial hold­ing com­pa­ny found­ed by three non-prof­it char­i­ta­ble funds: “Nazarbayev Fund” Endowment Fund (61.8%), “Social Development Fund” Corporate Fund (20.55%), and “Development Fund” Corporate Fund (17.65%). PCI man­ages the mon­ey of these funds, and their ben­e­fi­cia­ries are Nazarbayev University and Nazarbayev Intellectual Schools, which in effect earns mon­ey for the edu­ca­tion­al devel­op­ment of these aca­d­e­m­ic insti­tu­tions in Kazakhstan.

Endowment

Why did PCI, with Nazarbayev University and Nazarbayev Intellectual Schools behind it, and what do Kazakh edu­ca­tion­al insti­tu­tions have to do with it? The answer to this ques­tion lies in the idea of endowment.

Endowment is a spe­cial cap­i­tal of a non-prof­it orga­ni­za­tion formed through dona­tions. The orga­ni­za­tion invests such cap­i­tal (usu­al­ly in man­age­ment), and uses the income from invest­ments to its statu­to­ry pur­pos­es. The inter­est on this cap­i­tal pro­vides a secure and long-term income by pre­serv­ing the cap­i­tal itself.

The word “endow­ment” means “con­tri­bu­tion”, “gift”, “dona­tion”. About $53.2 bil­lion makes up the endow­ment and, with invest­ment income from these funds, finances about a third of Harvard University’s annu­al bud­get, where the first endow­ment funds in the US orig­i­nat­ed. Yale’s endow­ment esti­mates at $42.3 bil­lion, Stanford – $ 42 bil­lion, Duke University – $12.7 bil­lion and Cambridge University at around $9.5 bil­lion. On the scale of the American econ­o­my, such amounts are quite significant. 

Education always requires sig­nif­i­cant resources. Not only advanced uni­ver­si­ties are gen­er­a­tors of knowl­edge, con­duct­ing applied and fun­da­men­tal research, they are also the nucle­us of inno­va­tion spi­rals that bring togeth­er busi­ness, sci­ence and soci­ety, grow tech­nol­o­gy start-ups, cre­ate world-class sci­ence cen­ters as well as final­ly teach the skills need­ed in the future. Therefore, the main task of endow­ments is to ensure devel­op­ment through sus­tain­able financ­ing of uni­ver­si­ties. In essence, uni­ver­si­ty endow­ments have become huge invest­ment eco-sys­tems, a small­er spe­cial­ized ver­sion of nation­al wealth funds or even funds for future generations.

The core cap­i­tal is invest­ed in shares, hedge funds and PE invest­ment. The mis­sion of the funds is to pro­vide resources to all gen­er­a­tions of stu­dents, fac­ul­ty and staff now and in the long term. Each year, funds allo­cate 5–5.5% of assets to uni­ver­si­ties, and Kazakhstan adopts the best prac­tices of the world’s best universities. 

These endow­ments – “Social Development Fund”, “Development Fund” and “Nazarbayev Fund” – have been estab­lished in accor­dance with inter­na­tion­al best prac­tices by Nazarbayev University and Nazarbayev Intellectual Schools and accu­mu­late the endow­ment of part­ner com­pa­nies, spon­sors, uni­ver­si­ty grad­u­ates, bud­get funds, as well as dona­tions. The endow­ment itself is pre­served, while the income from the man­age­ment of the endow­ment is used for the institution’s needs. The Endowment Fund Board of Trustees decides on the pur­pose of the endowment.

Founded at the end of 2009 on the ini­tia­tive of the country’s pres­i­dent, “Nazarbayev Fund” is the first of its kind in the Republic of Kazakhstan to be reg­u­lat­ed by sep­a­rate laws. The Foundation’s activ­i­ties are based on the prin­ci­ples of auton­o­my, self-gov­er­nance, col­le­gial­i­ty in deci­sion-mak­ing, social respon­si­bil­i­ty and trans­paren­cy. Research pro­grams, schol­ar­ships, grants and oth­er statu­to­ry pur­pos­es are the main focus of the fund. “Social Development Fund” and “Development Fund” are essen­tial­ly the same.

From School to university

In March 2006, President Nursultan Nazarbayev first put for­ward the idea of cre­at­ing an inter­na­tion­al­ly ranked uni­ver­si­ty in Kazakhstan. The new insti­tu­tion was reg­is­tered in the autumn of 2009 and class­es began in September 2010. The goal of the uni­ver­si­ty is to become an inter­na­tion­al-lev­el research uni­ver­si­ty, a leader in reform­ing the edu­ca­tion sys­tem in Kazakhstan. And today it is the first uni­ver­si­ty in the coun­try whose activ­i­ties are based on the prin­ci­ples of auton­o­my and aca­d­e­m­ic freedom. 

Nursultan Nazarbayev chairs the Supreme Board of Trustees, which in turn is the supreme gov­ern­ing body of the uni­ver­si­ty, the intel­lec­tu­al schools and the foun­da­tion. The Board approves devel­op­ment strate­gies, University char­ters, intel­lec­tu­al schools and the fund, the order of dis­pos­al of prop­er­ty, estab­lish­es Regents of the University, intel­lec­tu­al schools and the foun­da­tion. The gen­er­al man­age­ment of the uni­ver­si­ty is car­ried out by the Board of Trustees. Its com­pe­tence includes approval of bud­gets, deter­mi­na­tion of the num­ber of mem­bers of the exec­u­tive body of the uni­ver­si­ty, elec­tion of their man­agers and mem­bers, as well as ear­ly ter­mi­na­tion of their pow­ers. In fact, the first pres­i­dent of Kazakhstan gave the uni­ver­si­ty his name, but now it is already devel­op­ing independently. 

“Nursultan Nazarbayev has always paid great atten­tion to the devel­op­ment of human cap­i­tal and he was not afraid of exper­i­ments, and that’s how our uni­ver­si­ty appeared. It is not just an edu­ca­tion­al insti­tu­tion, but also a large research cen­ter,” Mr. Shigeo Katsu – for­mer Vice-President of the World Bank, and now Rector of Nazarbayev University said in his inter­view to the “Lenta.ru”. “Autonomy is a big respon­si­bil­i­ty, but at the same time we can deter­mine what and how to teach, select inter­na­tion­al-lev­el pro­fes­sors. That is why teach­ing is exclu­sive­ly in English. Generally speak­ing, what comes to mind about Nazarbayev University is the fol­low­ing: the high­est lev­el of edu­ca­tion and strict aca­d­e­m­ic require­ments for stu­dents and researchers. We are open to tal­ents, about a quar­ter of our stu­dents are from vul­ner­a­ble social class­es, and no use­ful con­tacts will help with admis­sion, every­thing is as trans­par­ent as pos­si­ble. And final­ly, we do appre­ci­ate and devel­op the entre­pre­neur­ial spir­it in our stu­dents – after all, this is Kazakhstan’s future,” Shigeo Katsu con­tin­ued. – Creation of “Nazarbayev University” is an invest­ment in the future, in the human cap­i­tal of Kazakhstan, devel­op­ment of the entire econ­o­my of the coun­try as a whole and its most impor­tant indus­tries in par­tic­u­lar. We believe that Nazarbayev University can become a key dri­ver for the devel­op­ment of Kazakhstan, as it is designed not only to improve the qual­i­ty of edu­ca­tion, but also to become a plat­form for sci­en­tif­ic and research activ­i­ties. Today, its impor­tance can hard­ly be overestimated”.

Today, Nazarbayev University has more than 4,600 stu­dents enrolled in 48 aca­d­e­m­ic pro­grams, devel­oped joint­ly with glob­al part­ner uni­ver­si­ties, and it can be said that the uni­ver­si­ty, built on the prin­ci­ples of mer­i­toc­ra­cy and aca­d­e­m­ic integri­ty, is a nation­al project for Kazakhstan, capa­ble of chang­ing the entire coun­try through mod­ern­iza­tion of the edu­ca­tion sys­tem. Research is one of the key indi­ca­tors of suc­cess. Since 2011, more than 2,600 research arti­cles have been pub­lished by aca­d­e­mics and stu­dents at NU, where 12.6% of the total num­ber of pub­li­ca­tions are among the top ten most fre­quent­ly cit­ed world­wide. In 2016, Nazarbayev University was rec­og­nized by Thomson Reuters as the most fre­quent­ly cit­ed research insti­tu­tion in Kazakhstan. The top 10 inter­na­tion­al sci­en­tif­ic jour­nals pub­lished 28.4% of arti­cles. Average weight­ed pub­li­ca­tion cita­tion index was 1.23 in 2019, which is ahead of Lomonosov Moscow State University and almost on an equal foot­ing with Seoul National University and the University of Tokyo. This fig­ure is from 20 to 30% of the world rat­ings. There are no ana­logues of Nazarbayev University in the CIS, so its task for the next decade is to enter the top 100 best uni­ver­si­ties in Asia and the top 200 best uni­ver­si­ties in the world.

Although many stu­dents matric­u­late to oth­er pres­ti­gious inter­na­tion­al uni­ver­si­ties in Europe, America and Asia, the role of “Nazarbayev Intellectual Schools” (NIS) in Kazakhstan’s nation­al edu­ca­tion sys­tem, includ­ing as a prepa­ra­tion stage for entry to Nazarbayev University, can­not be over­looked. In 2008, a project was launched to cre­ate NIS intel­lec­tu­al schools across Kazakhstan for excep­tion­al stu­dents aged from 5 to 18 at the ini­tia­tive of Nursultan Nazarbayev, as the country’s accel­er­at­ed social and eco­nom­ic devel­op­ment at the begin­ning of the 21st cen­tu­ry has cre­at­ed an urgent need for pro­fes­sion­als with high lev­els of tech­ni­cal, man­age­r­i­al and lead­er­ship competence.

Modern forms of edu­ca­tion man­age­ment, imple­men­ta­tion of inno­v­a­tive edu­ca­tion­al pro­grams and research projects were not allowed to be prop­er­ly imple­ment­ed due to the exist­ing require­ments and stan­dards of edu­ca­tion in Kazakhstan. In this regard, on 19 January 2011 the law “On the sta­tus of “Nazarbayev University”, “Nazarbayev Intellectual Schools” and “Nazarbayev Fund” was adopt­ed to intro­duce mod­ern form of gov­er­nance in edu­ca­tion, devel­op­ment of aca­d­e­m­ic free­dom and auton­o­my, nec­es­sary for the imple­men­ta­tion of inno­v­a­tive edu­ca­tion­al pro­grams and research projects. According to the law, they have a spe­cial sta­tus, imply­ing the right to inde­pen­dent­ly approve edu­ca­tion­al cur­ric­u­la, estab­lish require­ments for entrance exams, ongo­ing mon­i­tor­ing of aca­d­e­m­ic per­for­mance, inter­me­di­ate and final cer­ti­fi­ca­tion, and more. Principle of aca­d­e­m­ic free­dom allows to accel­er­ate devel­op­ment and test­ing of new pro­grams, mod­ern­iza­tion of the sec­ondary edu­ca­tion sys­tem. And there are no ana­logues of “Nazarbayev University” in the CIS.

Currently, “Nazarbayev Intellectual Schools” com­prise 21 edu­ca­tion­al insti­tu­tions across the coun­try, 16,000 stu­dents and 2,800 teach­ers. A third of grad­u­ates after grad­u­a­tion go to Nazarbayev University, and a quar­ter to for­eign universities. 

Perspective

It turns out that APB was acquired by a real insti­tu­tion­al investor, whose port­fo­lio includes var­i­ous assets, includ­ing inter­na­tion­al ones. In Russia, PCI owns anoth­er bank, Kvant Mobile. “With strong posi­tions in the east­ern regions and Siberia with head offices in Moscow and Blagoveshchensk, the acqui­si­tion of a bank like Asia Pacific Bank pro­vides a good foun­da­tion for expand­ing our finan­cial group’s oper­a­tions in Russia’s promis­ing mar­ket. APB is ful­ly in line with our group’s devel­op­ment strat­e­gy with its high Fitch rat­ing of B+,” said Yevgeny Pan, mem­ber of the Management Board of Pioneer Capital Invest. 

PCI, essen­tial­ly, is pri­vate equi­ty man­age­ment for gen­er­at­ing income for the uni­ver­si­ty. Thanks to polit­i­cal sta­bil­i­ty, sound bank­ing reg­u­la­tion and a high qual­i­ty of human cap­i­tal, they see new oppor­tu­ni­ties and a big mar­ket in Russia. Good rela­tions between the two coun­tries are an addi­tion­al factor. 

APB is the first suc­cess­ful sale of a turned around bank to a for­eign investor. APB’s net prof­it for the first 3 quar­ters of this year reached 2 bil­lion rubles show­ing steady prof­it. Kvant Mobile Bank’s net prof­it for the first 9 months of 2021 reached 330 mil­lion rubles and its loan port­fo­lio stood at around 20 bil­lion rubles.

Elvira Nabiullina, Head of the Central Bank, com­ment­ing on the sale of APB, named the sale price of the bank “good”. She explained that the reg­u­la­tor is com­mit­ted to sell­ing all the san­i­tized banks. In addi­tion, it is an oppor­tu­ni­ty to com­pen­sate for the costs of reha­bil­i­ta­tion. Thus, the sit­u­a­tion turns out to be prof­itable for all par­ties. The Bank of Russia has suc­cess­ful­ly brought the bank to prof­it, put up for sale as a clear and trans­par­ent asset. And the expan­sion of pres­ence of a new investor in the Russian bank­ing mar­ket will help to main­tain com­pe­ti­tion and fur­ther devel­op­ment of the sector.

Experts say that APB is a good asset for fur­ther devel­op­ment of bank­ing busi­ness in Russia, in addi­tion, it can be used to ser­vice Kazakh com­pa­nies oper­at­ing in the Russian Federation. And PCI plans to merge APB with Kvant Mobile Bank. At the same time, the APB brand name will be pre­served, and the man­age­ment team will expand. This will allow the Kazakh com­pa­ny to cre­ate a pow­er­ful finan­cial insti­tu­tion in Russia, where oth­er pur­chas­es of finan­cial assets are pos­si­ble. And the pro­ceeds will be direct­ed to edu­ca­tion­al activ­i­ties in Kazakhstan. “We real­ly see a great syn­er­gis­tic effect in the merg­er of banks,” Chairman of the Board of Directors of APB Yerbol Orynbayev said to “Lenta.ru”. – “Moreover, the work has already begun, but we must under­stand that this is not a quick process. The cur­rent man­age­ment struc­ture remains in place in both banks”.


Original source of arti­cle: European Business Magazine