Page 43 - IFR Opportunities in Russian capital markets

CHAPTER02
ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 2.7: Significant foreign M&A deals with Russian banks, 2004–06 (US$m)
Target
Rosbank Rosbank Investsberbank IMB Impexbank Monchebank Delta Credit KMB Bank Delta Bank
Acquirer
SocGen
SocGen
OTP
Unicredit Raiffeisen
DnB NOR SocGen
Banca Intesa
GE Cons. Finance
Date
Sep 06* Jun-Sep 06 Jul 06
Jun 06
Feb 06 Oct 05 Aug 05 Apr 05 Aug 04
Deal value (US$m)
1,700 634 477 395 550 21 c. 100 90 c. 100
Stake acquired
30 20 96 23
100 97 100 75 100
BV, US$m
1,385** 1,385** 129 477 188 10 47 32 24
Implied PBR
4.1 3.4 3.8 3.5 2.9 2.2 2.2 3.7 4.2
Note: *Option excercisable any time before YE08; **YE06 forecast BV, assuming 25% earnings growth and US$460m raised in a new share issue
Source: Company data, Interfax, Renaissance Capital estimates
Private equity investment into banks took off in 2006 with the establishment of the first fund dedicated to investing into banks. And several more funds were in the works by the start of 2007.
Despite sporting over 1,200 banks, there is only one listed bank in Russia of any weight: Sberbank, which is also one of Russia's blue chip stocks. Banking IPOs were due to begin in 2006, but the global sell-off in May 2006 convinced the banks in the pipeline to delay.
Portfolio investments
Investors have warmed to bank stocks as the leading banks are clearly going to do extremely well on the back of the sector's increased role in the economy.
However, only six banks are listed and the only really liquid bank stock on the market is Sberbank, which accounts for a bit more than 6% of the entire market's capitalisation.
As enthusiasm for banking built in the last decade, Sberbank has seen its share price rocket: between 2000 and the start of 2007 Sberbank's capitalisation has risen over 1,000% and its stock price rose 163% in 2006 alone, against the market's over all rise of 71% for the year.
There are a few alternatives to Sberbank, but all of them are illiquid and have a relatively small capitalisation. Table 2.8 gives details of listed Russian banks.
The most popular newcomer in 2006 was Vozroshdenie Bank (also known as V-bank) that has been listed for years. In 2006, the bank issued more equity in a private placement that saw the price rise from US$27 a share in the middle of the year to about US$41 by the year-end.
St Petersburg-based Promstroibank is another rare example of a listed bank. However, the bank was bought by VTB in 2006 and investors were waiting to see what sort of swap rations VTB was going to offer minority shareholders ahead of merging the bank into the state-owned giant. A second question hanging over this bank is whether VTB will create a single share before or after its own IPO slated for May 2007.
There was supposed to be some fresh supply of new bank stocks in 2006, but the pioneer Rosbank, which was supposed to hold Russia's first true banking IPO in June 2006, floating 20% of the bank, bailed out at the last moment because of poor market conditions. Rosbank sold the stake to French bank Société Générale, which has an option to increase this stake to 30% by the end of 2008.
This year is due to see two really big issues of bank shares. In February, Sberbank successfully placed US$8.8bn worth of shares in a second placement to raise money to boost its capital. However, the Kremlin made a ham-fisted effort of the issue and was forced to turn to the oligarchs to bail out the bank, who reportedly bought US$4bn worth of the new shares.
The big event in 2007 was the IPO of VTB, which placed 22.5% of its stock to raise US$8bn in May. The IPO was a real success, raising almost double the initial expectation of US$4bn, and demand was so strong among Russian investors – especially retail investors – that 65% of the issue was sold in London and 35% on the Russian exchanges, against the 30% that was initially slated to be sold on the domestic exchange. The government said the long-term plan is to reduce the state's stake in the bank to 50% plus one share by 2010.
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