Following is a transcript of a CNBC interview with RDIF CEO, Kirill Dmitriev, and CNBC's Geoff Cutmore.
GC: So, let's start by just talking a little about some of the deals that RDIF is going to announce at this year's St Petersburg International Economic Forum.
KD: Sure, Geoff, it's a very busy time for us. So, we'll be announcing 12 new investments, with some of the leading funds from all over the world, including six new investments with France and President Macron is visiting us tomorrow. And of course there's going to be important set of discussions about Russia-French relations. And French businesses are investing in rehabilitation centres with us, they're investing even in algae production in Russia, and in some of the communal services in Russia. And, we also will be announcing some technology investments, including a new surgical robot for surgeries that will be operating quite a bit in Russia in Japanese and Chinese investors. I invested in this, and many other investments that we are going to be doing.
GC: Does it not strike you as odd that two countries – the French and the Japanese – who are apparently very close partners with the United States, are willing to announce fresh business deals with you, a Russian sovereign wealth fund, at a time when relations with Washington seem to be at a low ebb?
KD: Well, first of all, I think Japan really took a very wise approach, which is, of course there is an island issue discussions that's happening (inaudible), but they basically said let's have economic track separate from political discussions. Because, economic discussions enable for more cooperation between businesses and for some positive stories to be discussed, not just discussing difficult subjects. And, that approach has been working very well. We are working very close with the Japan fund. More than four investments have already been done by Russia-Japan fund, and we'll announce four more tomorrow as well.
And with France, we are working quite a bit with Europe. You know, it's a big trading partner, investment partner for us. One of the investments we done was with Arc International in France. We, and other partners, invested 250 million into this business and then invested some of that into Russia. So France understands that it's important to have go of close positive cooperation with Russia, on trade and investments.
GC: Do you worry that given how aggressive the US Treasury appears to be being now towards Western companies that deal with partners that Washington doesn't like, that there is the risk that these French companies, or Japanese businesses end up being targeted somehow by Washington, just by being associated with you?
KD: Well, first of all, existing restrictions do not preclude from coinvesting with us, do not preclude from meeting with us. And as a sovereign wealth fund, you know sanctioning us, strongly would create a precedent for other sovereign wealth funds to really pull their money out of the US economy. Because, if there is a precedent for sanctioning sovereign wealth fund. What prevents, six months from now, if US doesn't like the Chinese on an island somewhere to sanction their sovereign wealth fund.
So, we believe that frankly sanctions are just a ridiculous thing to begin with and business is against sanctions. But regardless of that, we'll continue to work with top investors all over the world. None of this is restricted activity. And we believe we are doing good for our countries, because we are building economic and investment bridges, that make our countries have good discussions and understand each other much better.
GC: So, in a sense do you think that these western companies, these French businesses have become less worried about being closed out of the US economy, that actually the long arm of the American treasury is getting a little shorter or a little less powerful?
KD: Well I think first of all, the doomsday scenarios of the Russian economy that people predicted turn out to be false. So many people saw (inaudible) sanctions and Russian economy would collapse. Well it didn't happen in many ways because Russia developed a number of useful partnerships, including for example, partnership with Saudi Arabia. We stabilized oil prices. Oil markets are very stable. And that gives lots of opportunity for us and for Saudi Arabia to develop our economies.
So I think different countries just understand that by working together you can address issues much better than if you try to isolate someone. And that doesn't work. So we believe that having a good dialogue, and by the way, including dialogue with the US. We're having lots of meetings with US business people. I believe passionately about restoring US-Russia relations. You know, lots of those kinds of things media tries to portray (about) us (as) very sinister. But we've delivers that frankly lots of people need to try to make US-Russia relations better. It's good for preventing a third world war, and it's good for developing the world economy in a more risk free and positive manner.
GC: You're the second senior Russian executive I've spoken to in the last few days whose brought World War 3 into the conversation. Is that something that is seriously troubling the Russian people?
KD: Well I think that what's troubling wise people all over the world is that, you know, by having very strong confrontation between Russia and the US there is an increased risk of confrontation. And that frankly, I believe, (is) not something anybody would really want. So I think, people just need to understand the trajectory of our relationship right now. It's pretty bad right now. If it continues to deteriorate, you know it's a pretty negative trajectory.
GC: I want to move on to talk about some of the other work that you've been doing. But I just want to close off the subject, a number of very high profile Russians were in the last round of sanctions last month. One of those was Mr Deirpaska. You invested, alongside Asian Pacific and Middle Eastern investors into the EN+ IPO. Do you feel comfortable about that investment now? Could I ask you what your intentions are with that?
KD: Well, first of all, I think there were some sanctions against some individuals, but then the US Treasury was very clear that it really doesn't want necessarily to hurt the working people of business, or investors who invested in this. And, as I understand they basically outlined that if there is no control by certain individuals in the business, then some of the restrictions would be lifted. So, we maintain our position, us investors maintain their position. I think, you know, it's important that there is some kind of respect for rule of law which the US talked about, and it's not fair to attack working people who are you know, working on the factory, for really no specific reason. So, we believe it's a case that hopefully will be solved in a positive manner in the next six to nine month. And I think for the whole world it will be interesting to see how the US finds the right balance, not to punish people who have nothing to do with you know sanction issues.
GC: But, just to be clear, you're not reviewing your position and you're not reviewing your relationship with Mr Deripaska?
KD: While we fulfil all of these, we never violate any sanctions, we never violate any restrictions. We completely comply with everything. So, we are in the full compliance of the imposed restrictions.
GC: You're in a position to help this economy accelerate beyond its current 1.5-2 percent rate of growth. The President put out a bold statement in May saying, I want to get to 4 percent, but it's going to need a lot of investment. How does this economy get to that position given its failure in the past to really implement the reforms that would have all owed it to grow more quickly? Does it have to raise more money through debt? Does it have to find ways of getting you to bring more money in the infrastructure side of this economy?
KD: Sure Geoff, and I think we represent a very good example, because we have created partnerships with more than 16 countries. We brought in more than 17 billion dollars into the Russian economy, and we did it in a profitable manner. And by doing so we really brought lots of the best world corporate practices into the Russian economy. And the future of Russia is about investments; investment in infrastructure. Our current debt is very low, 15 per cent of GCP, versus 100's of percent's of GDP for many other countries. So we're discussing how to increase Russian debt to purchase profitable investments and effective investments. And, in the past lots of people have criticised and said, well, if we invest more how can we do it efficiently? But RDIF produces internal rate of return of more than 15 percent a year. A positive rate of return in US dollars of more than 10 percent a year. And we believe that we can invest this money profitably in the Russian economy and that will help to modernize, and to really continue to bring in best world practices into the Russian economy.
GC: I have to say a lot of outside investors, when they heard the President speak, were encouraged, but thought 'Oh here we go again, it's more words and it won't actually turn into real action when it comes to institutional reform and diversifying the economy away from oil and other mined assets'. And they saw the government appointments and they though, well that's just confirmed our cynicism, because it's the same people who are remaining many of the key positions. Is that cynicism wrong?
KD: Well, we believe so. So we believe (the) President is very serious and focussed about transforming Russia, about increasing infrastructure and technology investment, and about paving this road for modern Russia, as it's a partner with other countries in the world. And there were quite significant changes in some of the people in the government. But, if you follow some of the President's speeches, and some of the government announcements they really now focus quite a bit about the areas of investment, about the areas of efficiency, about how to make our state corporations more efficient. And I think, this efficiency, also another important statement is reducing government involvement in the economy, is much more discussed now than it was before. And (inaudible) where it is right now, there is an opportunity to undertake some of those changes. Mr Kudrin is now head of one of our key audit places and I think he'll use it to drive some of the things from this very strategic position. So frankly, we are quite optimistic about the future of positive changes in the Russian economy.
GC: so, give me a quick insight into your travel schedule for the rest of this year then. Because you've been in the Middle East a lot. You've done a lot of deals with Middle Eastern countries. You've been in Western Europe as well. And obviously Japan. Through the rest of this year, where are the deal's going to be made for RDIF? Where do you see the greatest opportunity?
KD: Yes, so we'll continue being quite active with our Middle East and Asian partners. I think this year is a year of focusing on Europe quite a bit. And we'll be announcing a number of investments with German businesses, with French businesses, with Italian businesses, and I mentioned. So this is the focus. With the United Arab Emirates, we have done 40 investments together. Profitable with more than 12 percent (inaudible) in US dollars. So we will continue to make those profitable investments, and really utilizing our network of partners throughout the world, particularly in technology. Technology is a big sector, and we have seen partners in different countries all over the world to vet. Different Russia technologies decide which is world class, and how to help them grow in the world. So, it's a very focussed return driven approach, positive for Russia and positive to make Russia, and continue making Russia a good positive partner for the rest of the world.
GC: It sounds very much like business as usual regardless of what Washington is trying to do…
KD: Well, our GDP is growing 2 percent. Oil price is significant. I think Russia has been consistent in its policy and its approaches, and attempts to change the policy and approaches that have not worked. So basically, we just hope the world understands Russia a little bit better, understands that we want to be a positive partner for the rest of the world, and takes advantage of this positive side of Russia.
GC: And just very briefly, as you look at the economy, you are obviously involved in a lot of sectors. We have an investment audience on CNBC that looks at the relatively low valuation of the Russian market compared to many other international markets. And on the one hand the worry interest rates may be rising in the United States, which could be a difficult story for growing emerging economies. But on the other hand they're always looking for a value proposition. Where are the best places in this economy right now to park money if you're a foreign investor?
KD: Well, we believe that Russia is very undervalued our OP ratio was half of what it is in the world. And there are many top businesses, including Gazprom and Transneft, and many others, that provide very attractive dividend yield. So, we have dividend yields of 7 percent, plus in US dollars and some of the instruments. So I think, focussing on some of those investments with good dividend yields that have significant upside potential, makes sense. And particularly given that oil price is going to stay, we believe, at very reasonable levels. The Russian economy is definitely an opportunity. It's a volatile opportunity, but an opportunity.
GC: What level do you think the oil price will stay at for the rest of the year?
KD: Well, it's difficult to predict. But I think given what's been going on with Iran and different dynamics of the oil market, I think we expect to see oil price pretty much at this level, even higher, until the end of the year.
GC: And given the way the world is going are we going to see more deals done in other currencies than the US dollar…
KD: Yes, and we're seeing the major move of people using Renminbi, of people using basically their national currencies. And mainly sovereign wealth funds are thinking about doing more trading and investment in their currencies, and I think some of it comes from US using some of the sanctions very actively. And frankly, it's like they've given the world an instrument for settling transaction, but then said 'well, this can be pioneers, this can be pioneers, this can be risky'. And I think people who, very good people, who are good sovereign wealth funds, they still see some element of risk in the sanctions being applied sort of randomly. So, I think there is definitely an interest Renminbi and other currencies.
GC: And that's something you would encourage?
KD: Well, we don't encourage, just observe. And this is what we observe.
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