EuroSet Finds a New Synergy
Director of Equity Financing, FINAM Investment Company, Moscow
Logo of EuroSet, the largest cellular retailer in Russia and the former USSR
The last twelve months have witnessed several interesting changes happening in Russian banking. In particular, I wanted to highlight the stories of two prominent Russian businessmen who have established their own banks to expand their business operations in innovative ways.
The first story relates to Euroset - the biggest chain of retail stores in Russia and the Commonwealth of Independent States (CIS) selling mobile phones. Its 2006 sales were around $4.6 billion. Euroset is 100% owned by Dutch Euroset Holding, which belongs to Yevgeny Chichvarkin and Timur Artemyev. Euroset has a very advanced web-site and its owner Yevgeny Chichvarkin is noted in the Moscow business community for his special style. For example, at a recent conference hosted by Renaissance Capital, Mr. Chichvarkin shocked the crowd by wearing a pair of casual torn jeans with holes that revealed his leg hair. Nevertheless, Yevgeny Chichvarkin is an extremely successful businessman and a talented manager who should not be underestimated.
Yevgeny Chimarkin started his business by selling electronics at an open air market. Today he is one of the richest people in Russia under the age of thirty
Last week the Russia's RosBusiness Consulting reported that the company’s sales numbers were about $2.6 billion in the first half of 2007 in Russia and the Baltic states. Today Euroset covers 11 countries with 4,883 sales outlets (in the last year the number of outlets increased by 1,022). Euroset’s sales and number of locations clearly outclass all of its competitors – its nearest rival, Tsifrograd, only has about 1,500 locations. So it is only natural that Euroset should be thinking about some sort of affiliation with a retail bank – especially now that cellular devices and consumer credit/debit accounts are being linked together with new technologies.
Looking around the world, millions of consumers without bank accounts already use pre-paid cellular services everyday, so why not make these accounts payable for other goods and services? Suddenly, whether someone is living in Africa or Siberia, if they had cellular service in their region and could afford it, then they would also be able to make transactions without using cash or barter. This development could prove to be a boon for both the world's next billion consumers and millions of investors worldwide.
Earlier this year at an economic conference in London, Mr. Chichvarkin announced that he will buy a Russian bank to provide consumer credit. Many experts thought that this announcement was just a PR stunt and that Mr. Chichvarkin was not actually serious. However, when analyzing the Euroset business model, experts noted that the company is already engaged in small-scale consumer lending with a number of Russian banks (like Home Credit, Russian Standard, and Bank of Moscow) with interest rates as high as 30%-40%. This lending stream can easily be diverted to Euroset’s new corporate sibling.
Another advantage of establishing a bank under the same roof as Euroset's cellular business would be that consumers could avoid the 1.5% to 2% commissions Russian banks currently charge for processing cellphone bill payments electronically.
Thus, the idea of a Euroset-owned bank seems to be fundamentally sound. Today the press reported that Lou Naumovsky, General Director of the Moscow Representative Office of VISA International in Russia is going to direct the Euroset banking project.
Press conference for a cycling team sponsored by the Tinkoff Group
From Brewing to Banking - The Tinkoff Group
My second story is about Oleg Tinkoff, owner of The Tinkoff Group, who in 2006 acquired a small Moscow based bank and started a private banking business. Mr. Tinkoff is a well-known Russian entrepreneur who introduced the concept of brewery-restaurants in this country when he opened his first bar and grill in St. Petersburg in 1998.
There is some outdated information on the company’s English language web-site, but you can find a concise description of the brewery and restaurant on Wikipedia and at the New York Times Travel Guide site. So, we have a bank that is closely affiliated with a brewery chain by the name of “Tinkoff Credit Systems. The Central Bank of Russia (CBR) lists data about Tinkoff Credit Systems on its web-site. The bank has existed since 1994 and was previously known as Khimmashbank. Oleg Tinkoff has reportedly invested about $50 million and hopes that the bank will drastically expand its activities in credit and debit card services in the near future.
The Tinkoff Brewery in the St. Petersburg region
A news feeds mentioned in April 2007 that the bank has issued its first 1,000 cards, with the goal of issuing 300,000 by the end of 2007. Mr. Tinkoff told reporters that the market capitalization of the Tinkoff Bank is $25 million and some unnamed investors are rumored to have offered as much as $20 million for 10% of its equity. The bank has a quality team of managers headed by Oliver Hughes, a former Vice President of Visa International (CEMEA region). Mr. Hughes joined Tinkoff earlier this year and has already brought on board another VISA ex-employee, Igor Gaydardji.
In conclusion, I believe that both of these stories illustrate the opportunities for rapid growth in Russia's retail banking sector. In particular, this new synergy between providing cellular and banking services presents yet another possibility for Western investors to profit from the rise of the new Russian middle class.
You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.
