Party hasn’t stopped for Russians at Davos even with Ukraine Sanctions

VTB Bank (VTBR) isn’t letting a bad year get in the way of a good party.

VTB Bank is one of the leading universal banks of Russia.

Executives at the state-controlled Russian bank, which has cut hundreds of employees following U.S. and European Union sanctions, are betting a little jazz and vodka with the world’s elite will dull the pain. Last night, VTB threw a soiree at the World Economic Forum in Davos, Switzerland, where guests were treated to what an invitation sent to delegates called a “modern Russian atmosphere” at the ski town’s InterContinental Hotel.

Partygoers were greeted by women in conical, gold-flecked outfits with strips of neon-LED lights wrapped around them, served caviar, and serenaded by Grammy-winning guitarist Al Di Meola, Russian crooner Leonid Agutin and Serbian star Emir Kusturica and his No Smoking Orchestra.

“As a strategic partner of the World Economic Forum in Davos, we have organized a reception dedicated to its opening ceremony,” the VTB press office said in a statement.

Russian billionaires and business leaders aren’t planning to lower their profile in Davos this year despite economic sanctions placed on the country following President Vladimir Putin’s annexation of the Crimea region of Ukraine in March. Their country’s isolated status has been amplified by the escalating battles between Ukrainian and Russian troops since an effort to restart peace talks collapsed last week.

Targeted Companies

The country’s delegation this year will consist of 73 business leaders, down from 82 in 2014. Among them are executives from companies that have been targeted by the U.S. and EU, including VTB chairman and chief executive officer Andrey Kostin and OAO Sberbank (SBER) CEO Herman Gref, who will host a reception tonight and a breakfast on Friday titled “2015: How to attract investment in a geopolitically unstable region?”

The atmosphere in Davos so far has been positive, Kostin said at the party.

“It’s only the first night, but we have friends here. Ukrainian friends, European friends, American friends,” he said. “Some business relationships are restricted” because of the Ukraine crisis. “But that doesn’t affect personal relationships.”

State-owned Vnesheconombank, another Russian entity to be targeted by U.S. sanctions, is sending a pair of executives. Alexander Dyukov, CEO of sanctioned oil producer Gazprom Neft, also will be in attendance.

‘Tough Sledding’

The Russian contingent could put attendees from countries that have rebuked the nation over what they say is its fomenting unrest in Ukraine in a sticky position.

“It’s definitely going to make things awkward,” Ian Bremmer, the chief executive officer of political consultancy Eurasia Group, said in an e-mail last week. “It’s going to be tough sledding for the Russians this year.”

The Russian delegation will feature at least eight billionaires, including Vagit Alekperov, CEO of OAO Lukoil, Russia’s largest privately owned energy firm. The company was sanctioned by the U.S. and EU in September.

Aluminum tycoon Oleg Deripaska, the country’s 15th-richest person, also will attend. Deripaska, who has a $7.7 billion fortune, according to the Bloomberg Billionaires Index, usually hosts a Davos party.

‘Putin’s Machinery’

Russians have been fixtures on the forum’s panel discussions for more than a decade, and have hosted some of its most lavish parties. In 2011, Russian investment bank Troika Dialog, now part of Sberbank, put on what it called a “spectacular ice show” performed by Russian figure-skating stars. One of the forum’s first major parties last year was a Russia-themed cocktail party that previewed the Winter Olympics in Sochi. Sberbank had branded an entire hotel with its logo.

President Putin and Prime Minister Dmitry Medvedev aren’t scheduled to be in Davos this week. Putin used the event in 2009 to highlight Russia’s economic stability during the worst days of the global financial crisis. Medvedev has been attending ever since. The Kremlin this year is represented by a group that includes First Deputy Prime Minister Igor Shuvalov and Alexei Ulyukaev, the minister for economic development.

“A large part of the Russians that go there are basically a part of Putin’s sweetheart machinery,” said Rep. Mario Diaz-Balart, a Florida Republican who’s at the event. The Russian presence in Davos “is just part of the reality.” He said he’ll steer clear of events put on by sanctioned companies.

Better Understanding

In keeping with its longstanding policy of neutrality, Switzerland hasn’t joined in measures to punish Russian companies or individuals.

The World Economic Forum, based in Geneva, says it invites representatives from all parts of the world as part of its mandate to encourage international dialog. One of last year’s notable guests was Iranian president Hassan Rouhani, who was flanked throughout the event’s Congress Centre with a phalanx of advisers and bodyguards.

“They still are here as a force,” said World Economic Forum founder Klaus Schwab in an interview with Bloomberg Television’s Erik Schatzker. “We hope that dialogs can take place to understand better what the Russians really feel and on the other hand to show the Russians how the rest of the world feels about the present situation.”

Schwab, who said in a speech at the VTB party that he doesn’t usually visit private events, said he attended to show “our Russian friends that they are welcome in Davos” and that “after all, Russia is a very important European country.”

‘Final Stage’

VTB and Sberbank are “strategic partners” of the WEF, a group of international businesses that prominently participate in its calendar of events at a cost of 600,000 Swiss francs ($687,500) per year. Other such partners include Goldman Sachs Group Inc. (GS) and Microsoft Corp.

The presence of some Russians “makes it complicated for a lot of global companies, as they won’t want to be having visible meetings. They won’t feel comfortable,” said Laura Tyson, an economist at the University of California, Berkeley, and a former Clinton administration official. “As a Russian, I’d feel that maybe I wouldn’t go.”

Russian delegates said they don’t want their country’s business elite to lie low.

“Davos is kind of the epitome of a country’s strategy to attract investment,” said Anataloy Karachinsky, the CEO of Moscow-based software producer IBS Group. “If a country has such a strategy and its leaders want to attract investment, then Davos is a final stage, when the biggest efforts are made. There is no other such place in the world.”

Fully Involved

Less than five years ago, Russia’s surging economy had U.S. and European companies clamoring to expand there. Some European companies are now reeling from the sanctions. French carmaker Renault SA (RNO), whose CEO Carlos Ghosn will be in Davos, operates one of Russia’s largest car plants. The company’s earnings have been hurt by the sanctions and the fall of the ruble.

Other companies that do business in Russia include Germany’s Siemens AG, which is providing trains for the high-speed railway between Moscow and St. Petersburg, and London-based BP Plc (BP/), which owns 20 percent of Rosneft, the Kremlin-controlled oil producer. Both companies’ CEOs will attend the conference.

Kirill Dmitriev, the CEO of Russia’s main sovereign-wealth fund, plans to be fully involved with the week’s events.

“We have often heard that representatives of Western, primarily European, business oppose sanctions,” he said in an e-mail. “We anticipate that these views will gain further momentum during the Forum.”

Relationship Building

Dmitriev’s Russian Direct Investment Fund will take part in a dinner for sovereign-wealth funds. The executive plans to give a speech and use the event to build relationships with “funds from Asia, the Middle East, and Latin America.”

Governments from those regions have mostly continued to do business as usual with Russia.

Eugene Kaspersky, founder and chief executive officer of Kaspersky Lab, a Moscow-based cyber-security company, said geopolitics won’t affect his ability to do business in Davos.

“We work in a concrete sector, we are global company, and our principal position is to be out of politics,” he said in an e-mail. “We are fighting against cyber-evil, which comes in many forms from many sources. I don’t think that crisis in Ukraine will somehow affect our presence at summit in Davos.”

Eurasia Group’s Bremmer said almost all Russian businesses will be met with caution from delegates from the U.S. and EU.

“Pretty much every client we have is skittish about doing business in Russia,” he said. “It’s very far from business as usual.”

Source: Bloomberg