Expert word

Emission Impossible

Do not expect any bank IPO boom now. Sberbank, VTB are exceptions. Not by rule. The banks that are called "national", "state" or whatever are special IPO cases. And statements by private banks about soon-to-be IPOs are no more than a PR move in an effort to attract strategic investors.

In 2005-2006 the euphoria about mass IPOs by Russian companies in different industries led to the talk about the IPO boom. Yes, the year of 2006 was a bumper one, and the trend continued in 2007. IPOs take place on home sites more often obviously due to efforts by the Federal Service for Financial Markets and in no smaller degree to a single effort by the LSE which has toughened the requirements for Russian emitters. The banking sector is also in good shape. All the segments are growing day by day with no crisis looming ahead. The amount of the bank assets is staggering as investors are ready to give three to four times the premium to the capital. Under the circumstances one is bound to think about massive public offerings.

That these hopes were unjustifiable, could already be seen following the September announcement of the Rosbank-Societe Generale Group deal. It should be reminded here that in June 2006 French SG bought 10 % of Rosbank’s shares for 317 million dollars, and several months later the Frenchmen bought an additional package of 10 % a minus 1 share. The group also received an option for the right to purchase Rosbank’s 30 % + 2 shares at a strike price of 1.7 billion dollars and for the realizations term until the end of 2008.

Rosbank, which had led the list of banks to hold an IPO, preferred to sell its share holding to the foreign investor privately. Rosbank’s decision was absolutely logical: a public offering would allow it to attract investments with a price-to-capital ratio of 4 times, whereas East European banks are sold at a ratio of 2.5 on average). Then came the realization that if strategic foreign investors are ready to enter the capital of the Russian banks at such a price, then one can surely forget all about bank IPOs for the next few years.

It's the economy, stupid! What is primary? Benefit results. So far this ratio is not in favor of IPOs. Sberbank and VTB are exceptions, and besides their special qualities are obvious and make them stand out sharply against the rest of the banks. One can count as many as 20 deals involving the purchase of large packages of bank shares by foreign strategic investors for the past two years 2 years only. This figure does not count in the purchases of small regional banks by domestic players.

Ironically, the announcements by many banks about their plans to hold an IPO are nothing but a move to avoid this IPO. It is just a little piece of daring PR and IR. A means instead of an end. By making such announcements bank shareholders send a signal to their potential strategic investors that they are in search of sources of financing and are prepared to reduce their stake in the equity structure; their banks meet the requirements for public companies, they are transparent and operate according to western corporate management standards and have dynamically developing business with growing capitalization. The medium is the massage.

Paradox? Not at all. Any market goes through natural stages of development. They can be passed either faster or more slowly. But to skip a stage means to distort the logic of development. The banking market is undergoing a stage of asset consolidation. From crony capitalism to civilized partnership. What matters now is not corporate structure of the property, meaning minoritarians, independent Boards of Directors, attraction of means from the pension savings fund, insurers and other institutionals, liquid free float, etc. What matters most of all now is to build up capital by selling the blocking and controlling share. Mergers are also an order of the day, the URSA bank case may be well be called the opening of the season. IPOs will have to wait.