RIA Novosti
January 10, 2008
Bank IPOs: will the boom continue?
MOSCOW. (Anatoly Gorev for RIA Novosti) - Portfolio investors eyeing Russian banks will long remember the year 2007.
In February, Sberbank, the leader of Russia's financial market, floated an additional issue of shares, and in May VTB, the most mobile and market-oriented of Russia's state banks, carried out its own IPO. Many other banks announced they would follow suit and float their shares on the open market. But it is still not clear if their plans will be realized or remain on paper.
It may seem there are few reasons for doubt and even fewer for pessimistic forecasts. Sberbank and VTB have shown that demand for Russian shares remains high. A total of 124,000 private investors have bought VTB papers, investing a total of $8 billion in the bank.
This idyllic picture is slightly marred by the fact that VTB is now trading below its flotation price. But it would be wrong to conclude that its IPO has failed. The chickens should be counted after they hatch, and early public placement results are not in before the shares have traded for at least a year.
Analysts say: a public placement of shares is the best way of increasing the capitalization of a bank. Share control is not diluted, and the bank attracts not just one strategic investor, but many portfolio investors. Such minority shareholders are not in a position to re-define the bank's strategy or sway its policy. The result is that the bank can share its profits (which are considerable in Russia now) with new members, but is free to act as it sees fit.
However, it is doubtful if more bank IPOs will follow in quick succession in 2008 in Russia. The reason seems obvious: capital markets are looking downward, investors are facing a crisis of trust and their demand for assets in countries with developing markets, where Russia traditionally belongs, is declining.
But experts do not believe this is the only cause of a possible "cooling-off." The problem is that few banks can be absolutely sure of a warm reception. An initial public offering is by definition a matter for large financial units that are able to draw future investors, report high returns, and have a name.
Are there many such banks in Russia? Polls show that there are not: the top league includes only 50 highest-rated state banks and financial structures. If you factor out the subsidiaries of foreign financial and loan groups and banks that already have strategic investors, you will not have many candidates left: something like 20, according to analysts. And it is not a sure bet that all of them are dreaming of an IPO in 2008.
The most-tipped candidate for a third IPO in Russia is Gazprombank. Like Sberbank and VTB, it can hope for a warm acceptance from potential portfolio investors: it is a state-owned bank and therefore reportedly "unsinkable." It is also related to Gazprom, which can be an advantage in the present economic circumstances. Lastly, Gazprombank can attract customers because it is one of the leaders of Russian corporate banking.
In short, there are no grounds for believing that its IPO would fail. If anything, it would succeed, like those of Sberbank and VTB.
Nevertheless, Russia's third largest bank is in no rush to follow suit. Its management, however, does not rule out an IPO. True, it was first mooted before the end of 2007, while now we can at best see it only in 2008 and not in the first half of the year either.
Now how do matters stand with private banks? In the course of 2006 and especially 2007 many of them hinted they could try their luck on the open market. Among front-runners many named Rosbank, MDM-Bank, Alfa-Bank, Bank Zenit, NOMOS-Bank and AK Bars. But today the situation has changed.
Alfa-Bank's management said it is not interested in an IPO in the foreseeable future.
Oleg Vyugin, MDM-Bank chairman (reportedly invited to MDM to prepare it for the open market), said this in September: "For the moment neither the shareholders nor the management have any plans or an intention to float shares on the open market."
According to MDM-Bank CEO Michel Perhirin, his bank now has enough capital and would not need to attract more before 2009.
Others on the list are not yet ready, and some have even dropped away altogether. One sure non-candidate is Rosbank, which has acquired a strategic investor in 2007 - Societe Generale, the French financial group.
NOMOS-Bank, which got the Czech Republic's PPF Group as a portfolio investor in 2007, has no such plans either.
As for Bank Zenit and AK Bars, their intentions are neither clear nor certain.
Considering that it takes a company an average of six to nine months to prepare an IPO, it is safe to assume that the banks mentioned are unlikely to float their shares on the open market in the first half of 2008. Even the rest of the year is a big question mark.
Anatoly Gorev is a financial analyst.