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Russia's VEB asked govt for $34 bln injection

MOSCOW - VEB, the distributor of some of Moscow's $200 billion crisis package, has asked the state for an injection of $34 billion and the economy minister agrees it needs more capital, the Russian press reported on Wednesday.

Citing two unnamed government sources, Vedomosti business daily said VEB's head Vladimir Dmitriyev had written to Prime Minister Vladimir Putin on Nov. 6 asking for a 950 billion roubles ($33.92 billion) capital injection.

Putin, who chairs VEB's board, asked the heads of the central bank, the Finance Ministry and the Economy Ministry to look into the matter and report back by Dec. 6, the paper said.

Dmitriyev told reporters on Monday the bank needs more capital and could soon ask the government for ‘hundreds of billions of roubles’.

The capital injection is required to shore up the bank's own balance sheet, which has been stretched by administering Moscow's rescue package.

Economy Minister Elvira Nabiullina backed the need for the capital injection, Itar-Tass news agency reported on Wednesday.

‘There are plans to support the entities of development. There is some need for this,’ she was quoted as saying. ‘Now the size of support is being discussed.’

VEB is the government's agent for state share purchases. It is also entrusted with distributing 450 billion roubles of subordinated loans to banks and $50 billion of foreign debt refinancing aid to companies as part of Moscow's rescue package for the economy and the financial markets.

The requested capital injection is equal to 7.6 percent of Russia's gold and foreign exchange reserves, which have shrunk by a quarter since early August in part due to capital flight.

VTB Capital said the request was ‘logical’ given VEB's increased responsibilities, but sounded a note of caution.

‘Since the VEB is not a bank per se but a government agent, there is not that much difference for the state where it parks those of its funds which are committed to supporting the economy,’ VTB Capital's analysts said in a research note.

‘However, a further outflow from either the reserves or reserve fund may have a negative impact on the market's perception of Russia's financial stability.’

Vedomosti quoted a source at VEB as saying not all of the capital injection would need to be in the form of cash.

‘It would be possible for some of the obligations to be covered by state guarantees,’ the source said.