Page 44 - IFR Opportunities in Russian capital markets

CHAPTER02
ifrintelligence reports/Opportunities in: Russian Capital Markets
The two issues will suck US$12bn out of the market and make other issues more difficult. Gazprombank, the financial arm of the state-owned gas monopolist Gazprom, has already delayed its IPO until 2008. However, momentum for bank IPOs is building and should hit its stride sometime in 2008.
Table 2.8: Russian banks’ stock exchange performance, 2006 (US$m,%)
Share price MCap Free float Free float Estimated 30-day ADT performance, 2006 US$m % US$m foreign ownership US$m
Note: as of close on Dec 29, 2006
Source: Bloomberg, Troika Dialog estimates
Private equity investments
100-day ADT US$m
Sberbank 163.4
65,550 36 23,755 2,865 100 2,865 9,025 3 226 5,825 6 349 4,797 3 144 2,333 25 583 1,209 25 302
— — —
20-25 115.10 90.20 — 117.33 72.23 1 0.09 0.06 4 0.73 0.34 2 1.02 0.54
10-15 2.00 0.99 18 0.31 0.25 — — —
Sberbank pref
UralSib Bank
Bank of Moscow
Rosbank 13.6 Promstroibank 68.2 Vozrozhdenie Bank 87.0 RTS 70.7
163.4 99.4 154.6
Falling capital adequacy has led to a round of private equity deals in 2006, where private investors are able to buy 10–15% of a bank's equity. Given the ballistic rate of growth in the banking sector, few owners are willing to sell majority or even blocking stakes in their banks. But an increasing number are more than happy to sell smaller stakes in return for capital to continue their expansion.
One of the first funds set up to capitalise on this trend was Swedish fund managers East Capital, which established the closed-end East Capital Financial Explorer fund at the start of 2006. The fund has a life of seven years (with a possible three-year extension) and raised US$350m. By the start of 2007, East Capital had already distributed US$200m, buying stakes in banks across the CIS, but mostly in Russia.
"We set up the fund as there is a lack of opportunity to invest into the banking system as there are very few listed banks," says East Capital's CEO, Karine Hirn. "But most bank owners in Russia are not ready to sell yet. They can see that if they wait a few more years then they can get a much better deal. However, they need capital and they are interested in co-operating to get the most value out of their assets so they are willing to sell small stakes."
More recently, Renaissance Capital launched a similar fund at the start of 2007, and many of the leading funds investing in the region, such as Firebird Management LLC, were taking stakes in regional up-coming banks in the middle of 2006 and have seen their investment almost double in six months.
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