Petersburg may become VTB partner in company set up to build subway

The Government of Saint-Petersburg may become a partner of VTB (MOEX: VTBR) in a company being established for subway construction in the city, said Andrei Kostin, head of the bank, at a press-conference during "RUSSIA CALLING!" Forum.

Until recently Metrostroy (MOEX: METP) was the monopolist in subway construction in Saint-Petersburg, and now the company is under credit watch.

In early October VTB set up JSC "Northern Capital Metrostroy" for participation in Saint-Petersburg infrastructure development projects.

"The current Petersburg subway construction company is bankrupt. The company is burdened by debt, this is why it is often required to establish a new company, and we are planning to establish a company with the Government of Saint-Petersburg. We will not be only limited to financing, we will be primarily focusing on subway construction. By all means, the bulk of the funds is to come from the construction budget of Saint-Petersburg, but the company will require initial investments to upgrade production assets, equipment and so on ", - said Kostin.

The Saint-Petersburg subway is the second largest in Russia with five lines and 72 stations. Two new lines are under construction.

"The situation there needs a major overhaul, an intervention, because actually there is nobody to perform construction, this is why construction rates in Petersburg were so low. The city authorities are willing and have an understanding that this type of transport is vital for the city, that’s why we will be doing it. (...) We want to help the city out, this is why we are ready to jump into the fray not only with our money but with our expertise in construction management ", - added the bank’s head.

Answering a question on specific investments, he said: "There will be dedicated funds, allocated by the city. I think anything less than RUB 15 bn per year would be economically inefficient, and it probably makes no sense for the city to allocate less, because the subway needs to be constructed. There are local specifics, very challenging ground etc. ".

VTB also holds shares in a subway building contractor in Moscow. The bank got 49% of Mosmetrostroy shares in 2017 under a settlement of the company’s debt for RUB 26,8 bn. The other owner of Mosmetrostroy is the government of Moscow, which bought 51% of shares of the company in December 2019 from UMMC co-owners Iskander Makhmudov and Andrei Bokarev.

"Our partner in Mosmetrostroy is the government of Moscow. It is unclear what will happen to the company next. Maybe it will have to be reorganized or maybe another company should be established in parallel ", - said Kostin on Friday.