Russian President Dmitry Medvedev, left, shakes hands with Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., during their meeting at the residence Gorki outside Moscow, on March 15, 2011. Photographer: Vladimir Rodionov/AFP/Getty Images
Goldman Sachs Group Inc. (GS) is making a third attempt in 17 years to crack the Russian market, this time by leveraging a $1 billion private-equity bet to win deals and wooing the Kremlin for roles in asset sales.
The effort is paying off. The firm has jumped to second place in advising on Russian mergers and acquisitions this year, behind Morgan Stanley, after failing to make the top three for more than a decade, data compiled by Bloomberg show. It has also secured pledges from companies including Mail.ru Group Ltd. (MAIL) and Tinkoff Credit Systems to arrange equity and Eurobond deals in return for investing more than $1 billion of its own money.
The bank, led by Chief Executive Officer Lloyd Blankfein, who visited Russia twice in the past year, struggled after opening its first office in Moscow in 1994. It scaled back soon after as part of a worldwide retrenchment, returned in 1998 weeks before Russia defaulted, withdrew almost entirely after the crisis and ramped up again in 2006. Since then, the firm has more than tripled its workforce in Moscow to 150.
“The old perception of Goldman Sachs in Russia is that we haven’t been consistent in our efforts in this country,” said Christopher Barter, co-head of Goldman Sachs in Russia, in an interview in Moscow May 12. “This is not the reality today.”
Advising Medvedev
Goldman Sachs, the fifth-largest U.S. bank by assets, jumped to fourth place in handling equity sales for Russian companies last year, its highest position ever, behind VTB Capital and Renaissance Capital, both based in Moscow, and Morgan Stanley. The company has underwritten the third-largest amount of foreign debt this year, up from 13th place in 2010.
While Goldman Sachs has been slower to expand in Russia than rivals such as Deutsche Bank AG (DBK) and Credit Suisse Group AG (CSGN) because of concerns about the integrity of financial markets, it may become a co-investor alongside a new $10 billion state-owned private-equity fund, according to two sources familiar with the matter. Blankfein, 56, who along with other bank executives is advising Russian President Dmitry Medvedev on transforming Moscow into a global financial center, is also pushing to win mandates for the Kremlin’s $30 billion privatization program.
The key to success has been private equity, according to Barter, who called it “a major differentiator.”
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