Russian Fund Hopes to Lure World’s Private Equity Majors

KT CEO says in talks to sell Russian unit

SEOUL, April 22 (Reuters) - KT Corp , South Korea's top fixed-line and No.2 mobile company, is in talks to sell its Russian unit New Telephone Company (NTC), its chief executive said on Friday.

"We are in talks to sell the business," KT chief executive Lee Suk-chae told Reuters. Lee declined to comment on the potential buyer or the size of the deal.

In November, KT appointed Credit Suisse to sell a 80 percent stake in NTC it bought in 1997.

Bankers said at the time that NTC was worth around $500 million, and that Vimpelcom , Russia's second-largest cellphone company, said it would be interested in buying the asset. [ID:nLDE69L1OJ] (Reporting by Hyunjoo Jin; Editing by Jonathan Hopfner)

Foreign banks face hard slog in Russian push

* Barclays, Citi among banks expanding again in Russia

* But foreign banks face meagre fees, revenue pressures

* Rise of domestic investment banks a tough challenge

By Sarah White

LONDON, April 21 (Reuters) - Foreign investment banks expanding in Russia will be confronted by increasingly sophisticated home-grown rivals and have to settle for anaemic deal fees if they are to crack an ever more crowded market.

The lure of $35 billion worth of mooted privatisations in the next three years is leading most banks with a Moscow presence to bulk up again after scaling back after the financial crisis.

Barclays Capital (BARC.L: Quote, Profile, Research) and Citigroup (C.N: Quote, Profile, Research) are two of the banks now making the biggest push to grow their operations in Russia, according to insiders at the firms and rivals.

But while the reputational boost from government-brokered asset sales is attractive, the fees are not. And more than ever before, these must be shared with domestic banks.

The backdrop adds to the pressure to succeed. Banks are grappling with new global regulation that will erode profitability and force them to take a hard line on businesses that do not cut it.

"The times when banks could afford to pursue an expansion strategy that didn't pay off are over," said Michael Ganske, head of emerging market research at Commerzbank. "Even in the short term if it doesn't work out, banks will probably reverse this (Russia growth) strategy."

Barclays is reviewing its portfolio of businesses and has put its Russian retail unit up for sale, saying it was unable to compete in this local field.

But new Chief Executive Bob Diamond instead wants to expand the investment bank and focus on government entities and multinationals in Russia.

There are plenty who have doubts, however, about Russia's potential as a lucrative hub, even as most recognise the need to have a relationship with such a major commodities exporter.

"It's a very, very trying market. It's a very difficult place to make real money, there are no fees and salaries are huge," said the head of investment banking at a top European bank, which worked on several M&A deals in Russia this year.

"The expectation is that at some point in the future things will work out and it will be worth it." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on Russian investment banking fees: r.reuters.com/neg29r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Governments are able to command lower fees from investment banks than the private sector, and in Russia and other emerging market hotspots companies are also known to be fierce negotiators when it comes to paying advisers.

Russian companies have dominated the stream of equity raisings and initial public offerings across Europe, the Middle East and Africa in the last four months -- despite some being pulled -- but they made up just 2.2 percent of the fees.

The Russian M&A fee pool only adds up to $335 million so far this year, or 10 percent of the total EMEA pot, according to data from Thomson Reuters and Freeman Consulting.

The meagre fees must then be split with local advisors and government-backed lenders in particular, such as VTB Capital (VTBR.MM: Quote, Profile, Research).

Sberbank (SBER03.MM: Quote, Profile, Research), which snapped up brokerage Troika Dialog in March, is also cementing its grip on merger and acquisitions, bond and equity deals.

Although always a staple of the Russian banking world, the two are expanding into investment banking like never before, and have the ability to lure bankers with pay packages others struggle to match.

This leaves cooperation with the likes of VTB as the only option to make money, according to Commerzbank's Ganske. That attitude is echoed in the approach some of the established banks in Russia are already taking.

"International banks should not necessarily perceive local banks to be in direct competition, because they will always have a piece of the pie," said Andrew Chulack, head of global banking at Deutsche Bank in Russia.

"On many transactions they are a must-have due to relationship reasons and at the same time not a substitute for an international bank."

Chulack said he was hopeful of a "great year" even if just half his planned pipeline of deals gets done.

In the scrap for deal mandates between local and foreign lenders, Russia's private banks will also end up being bruised, said Ganske.

Renaissance Capital, for example, was ranked as the top adviser on equity and M&A deals this time last year but has fallen to third place behind VTB Capital and Morgan Stanley (MS.N: Quote, Profile, Research) now, Thomson Reuters data shows.

(Editing by David Cowell)