|RUSSIAN BANKS READY TO GO PUBLIC
By Anatoly Gorev, RIA Novosti
Russian lending and financial institutions were not in a hurry to float
their shares on the open market until it emerged that state-controlled
savings bank Sberbank, which holds more than half of the country’s
private deposits, intends to sell a large number of shares on the open
market in the first quarter of 2007. Part of the issue will be sold to the
Sberbank’s IPO (initial public offering) is expected to be the largest
ever in Russia. The bank will float 2.5-3.5 million shares, valued at
$6.5-$8 billion at current prices.
This fact alone could cause a sensation, because Russian companies that
have placed their shares on the open market in the past have preferred
foreign trading sites, predominantly the London Stock Exchange (LSE).
Russia’s financial and lending institutions did not use to float their
shares at all, initially because they were not sure of success, and in the
last two years because it was more profitable to sell a stake or the
entire business to a strategic investor.
The transactions concluded in the past few months show that such investors
(large foreign financial groups) usually pay 3.5-4% above the market price
for Russian banking assets even though the latter are in huge demand.
There is one more reason behind the banks’ reluctance to conduct IPOs.
Ilya Sherbovich, president of Deutsche UFG, said the Russian banking
sector has profit margins of 30-40%, so bank owners are not eager to go
public and have to share profits with minority shareholders they would
take on as a result of an IPO.
However, the flotation of Sberbank – Russia’s oldest bank, founded 165
years ago – could buck the trend and encourage other banks to follow
suit, especially if its IPO is successful, which the majority of experts
are sure it will be.
Sberbank controls about 35% of the private-loans market, 60% of the
mortgage market, and more than 50% of private deposits. Its president,
Andrei Kazmin, has recently said that the bank’s 2006 net profits are
expected to total 75 billion rubles ($2.8 billion), up 16% on the 2005
figure (64.5 billion). The bank’s owner’s equity should grow more than
30% this year to 330 billion rubles ($12.4 billion).
Sberbank’s shares have lately been the growth leader on the Russian
market (their value doubled in 2005). Sherbovich said the price of the
bank’s common stock had grown 60% as of September this year, while share
values in the banking sector as a whole are expected to increase some 40%
Therefore, Sberbank’s shares will enjoy huge demand among institutional
and private investors, especially because the majority of investment
bankers say its equities are undervalued despite the rapid growth of their
prices in the last few years.
This means that Sberbank will most likely raise a record sum. Experts say
its flotation will be more successful than Rosneft’s IPO in July of this
year, when individual investors (as opposed to institutions) bought only
$600 million worth of shares in the state-controlled oil company instead
of the expected $1 billion.
Sergei Rybakov, an analyst with the Aton Line web brokerage, believes many
factors are to blame for this disappointing result, including the fact
that Rosneft floated its shares on both the domestic and foreign markets,
which hindered the IPO’s promotion in Russia. The expert said
Rosneft’s mistakes would be taken into account during preparations for
Sberbank’s IPO, allowing it to do much better.
Maxim Gorelov, business director of the Business Systems Development (RBS)
auditing and consulting group, said the general perception of state banks
and the confidence they inspire will work to Sberbank’s advantage.
Sberbank’s IPO could reduce demand for shares of VTB (Vneshtorgbank),
which will be offered next May (VTB, Russia’s second-largest bank, had
intended to become the first bank in Russia to float its shares). Experts,
however, say the market is big enough for both banks. Interest in banking
equities is very high among investors owing to the high profitability of
the banking sector and the fact that Sberbank’s securities are the only
truly liquid assets so far available in the industry.
Other leading players in the banking market, including state-owned
Gazprombank and commercial Rosbank and Alfa Bank, could follow the example
of Sberbank and VTB, provided the latter successfully conduct their IPOs.
Analysts say this will benefit both the individual banks and the sector as
a whole, because banks that go public must adjust their operations to meet
certain requirements and standards and disclose their ownership structure.
Alexei Fyodorov, an expert with the listing department of the Russian
Trading System (RTS) exchange, said that after the IPO the issuing bank
will have to continue to supply information about itself, its owners and
affiliated persons to individual and corporate investors. This will raise
the standards of disclosure in the Russian banking sector, which will
therefore become more understandable and attractive to foreign investors.
Taken together, this will increase the inflow of foreigners’ money.
In addition, banks that float their shares on the open market increase
their owner’s equity, which is important now that higher demands have
been set for this norm and in view of Russia’s impending accession to
the World Trade Organization. When it becomes a full WTO member,
competition in the banking sector will grow owing to a massive influx of
foreign financial and lending organizations.
In fact, the latter are already elbowing their way into the Russian
market. President Vladimir Putin said at a recent board meeting of the
State Council that foreign banks accounted for 40% of lending services,
and called on Russian banks to increase their owner’s equity, in part by
conducting initial public offerings. -0-