Russia: Otkritie-Nomos merger fires controversy

By:
Dominic O’Neill
Published on:

PPF exits Nomos; VTB backs $1.5 billion buyout

Moscow’s financial community has been abuzz in recent weeks with news of Otkritie Financial Corporation’s proposed takeover of Nomos Bank. But the deal is not without its critics.

Nomos has been one of Russia’s most profitable and rapidly growing banks in recent years. It was held up as an illustration of how privately owned banks could compete with state-owned banks such as Sberbank and VTB.

With Otkritie, an investment bank and a much smaller institution than Nomos, announcing its intention to take over Russia’s eighth-biggest bank, the question now is whether the rise of Nomos was all an illusion.

Otkritie said in late August that it would seek to consolidate up to 100% of Nomos shares in the next two years, and had already reached agreements to that effect with the owners of 58.5% of the bank. Otkritie acquired a 19.9% stake in Nomos in early August, after Czech private equity group PPF swapped its stake for a 2.15% stake in potash miner Uralkali.

But Otkritie’s offer for the remaining 80.1%, worth around $1.8 billion, may have little appeal for portfolio investors who might have hoped to hang on to Nomos shares until they rose above $17.50, the price at Nomos’s listing in London and Moscow, less than two years ago.

"Investors in the IPO had a chance to exit at a profit," says Jean-Pascal Duvieusart, head of strategy at Nomos and a board member at PPF. The stock initially rose above $20. It dropped below its IPO price three months after the listing. That was because of global risk aversion after the eurozone crisis intensified, not Nomos’s performance, says Duvieusart.

By the end of 2012, Otkritie plans to buy out minority shareholders at no less than $14 per GDR. That is a third more than Nomos’s share price in late August, but still way below the IPO price.

Meanwhile, Otkritie’s statement on the deal said companies affiliated to Nomos’s 48.5% owner today, Alexander Nesis’s business group ICT, would hold a stake of up to 10% after the buyout. Alexander Mamut, a business partner of Nesis at precious metals firm Polymetal, would further hold up to 10% (Mamut bought 3.5% of Nomos from PPF in August).

Otkritie’s CEO, Vadim Belyaev, and management would hold up to 25% and stakes up 10% would also be held by Otkritie’s chairman, Boris Mints, who is also a shareholder, and by VTB, which now owns 19.9% of Otkritie. In addition, Otkritie plans to list the merged entity.

VTB is a likely source of the deal’s debt funding, which would probably be via a mezzanine structure, according to comments by Belyaev, reported in the local media. VTB’s CEO, Andrey Kostin, has confirmed to local media that his bank would back the deal. He said VTB would not provide more than 50%, although no one has denied VTB would be the main debt financier.

VTB takeover discounted

VTB’s press office denies that VTB plans to buy Otkritie (and by extension, Nomos). Others too cast doubt on the idea this is essentially VTB taking over Nomos indirectly, because it lacks the capital to do it directly after its acquisition of Bank of Moscow last year. One source close to the situation said the VTB takeover theory is just a rumour encouraged by Sberbank, VTB’s main rival.

A research note from Troika Dialog, now owned by Sberbank, said: "It is unclear whether [Otkritie] is acting as the principal in this transaction or merely represents some larger player, such as VTB. VTB’s involvement in financing this deal could in fact indirectly point to its potential interest in buying Nomos Bank."

But even if this is not a straight state takeover of a private, foreign-listed institution, says one banker, it might nevertheless be important that Otkritie has shareholders close to the government.

Otkritie’s Mints, for example, worked close to Anatoly Chubais in Boris Yeltsin’s government, and Chubais is a shareholder in Otkritie. Chubais remains a central figure in the state establishment (he is head of Rusnano, the state’s $10 billion technology investment fund).

Moreover, says the banker, even if VTB does not end up buying Otkritie, the deal at least shows how even nominally privately controlled banks now need a greater degree of affiliation to state banks, and by extension to state banks’ lower funding costs.