Looking to raise more funds, banks are placing additional issues in Russia and abroad, much to the delight of investors.
In mid-May, Russia's largest commercial bank, VTB, will float its shares on global exchanges. The bank announced the price range for its initial public offering on April 25, and a week later the demand for its shares exceeded the supply by nearly four times.
Until recently, only a limited choice of investment tools was available to investors and unit investment funds working on the Russian stock market. Their portfolios mainly consisted of oil and gas equities. The Russian market badly needed securities that did not depend on energy prices, and shares in the banking sector could play that role.
Currently, however, state-controlled savings bank Sberbank accounts for 90% of the sector's capitalization. The shares of other lending organizations, such as Vozrozhdenie Bank, Rosbank and the Bank of Moscow, are only being traded on the exchange in minor amounts.
Sberbank has recently strengthened its position by floating an additional issue. It raised 230.2 billion rubles (about $8.8 billion at the current exchange rate) during its mid-March IPO, the second largest ever in Russia.
VTB's IPO will offer more tools to investors. The tentative price range of its flotation will be 11.3-13.9 kopecks ($0.0044-$0.0054) per ordinary share and $8.77-$10.79 per global depositary receipt (GDR), which represent 2,000 of the bank's ordinary shares.
The bank plans to float 1.73 trillion shares nominally priced at 0.01 rubles, or 22.5% of its authorized capital. About 70% will be placed on the London Stock Exchange, and the rest will be placed on the Russian exchanges, MICEX and RTS.
The bank expects to raise $6-$8 billion, which may increase its capitalization to $25-$37 billion.
Its bid book is open from April 9 until May 7 for individuals and until May 10 for portfolio investors. The shares will be floated on May 15-17.
According to preliminary estimates, the number of bids for VTB shares has exceeded the supply by nearly four times during the bank's roadshow, totaling more than $30 billion. Individuals were bidding on a par with portfolio investors.
As of early May, a week before the bid books were to be closed, about 60,000 individuals had filed bids worth about $500 million. The average bid amounted to $8,300, although individual bidders will be able to buy VTB shares only at the top price.
VTB expects private investors to buy 10%-12% of the shares floated in the IPO. After all, it was in order to attract them that the bank split its shares, reducing their nominal price from 1,000 rubles to 1 kopeck.
Experts predict that the flotation will increase the cost of the bank's shares dramatically, by 18%-40% by the end of the year. This makes sense, as the banking sector is now one of the most attractive investment tools in Russia, and VTB is a major player in it. It is the country's second largest bank after Sberbank in terms of equity (52.1 billion rubles, or $1.95 billion).
The government will remain VTB's largest shareholder after the IPO, holding on to 75% of its shares. VTB has the highest international rating among Russian banks.
However, there are negative factors that may hamper the growth of VTB's capitalization. The bank plans to control 10% of the Russian individual and corporate lending market by 2010, but until then it will continue to draw the bulk of its revenues from buying and selling assets. Dependence on individual deals is not the best engine of growth for a lending organization.
Experts are also divided over state support for the bank. Some say the state as a shareholder protects the bank from political risks. Others believe this entitles the government to force the bank to participate in low-profit social projects. The quality of governance at the bank does not look too good either.
One way or another, investors are showing considerable interest in the Russian banking sector, and lending organizations are using the situation to raise cheap money on the stock market.
After VTB's IPO, other Russian banks - Vozrozhdenie, Zenit, Nomos-Bank and Bank of Moscow - will also issue additional shares. In all, Russian banks plan to raise about $20 billion on the stock market in 2007, but the result will depend heavily on VTB's flotation.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
