What investors want in Russia

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Tinkoff has sold a clever story of another kind of Russian bank.

The $1.09 billion IPO of Oleg Tinkov’s consumer finance bank last month encapsulated everything foreign equity investors wish for in Russia. The problem might be that most of those wishes are just that: wishes.

In Moscow this September, it was the privatization of diamond producer Alrosa that equity bankers were talking about first and foremost in discussing which firm could restart deal flow in the equity markets this autumn.

Three weeks later, Tinkoff Credit Systems had beaten Alrosa to the market. And it came with an eye-catching valuation, 4.5 times book value, when most Russian banks, including much more established firms, are trading below book.

This is the difference between a consumer finance bank founded in 2006 – not, you might think, the safest of stocks, especially given Russia’s slowing economy – and the IPO of one of the largest diamond producers in the world.

Still, Tinkoff has rarity value in being a privately owned financial services company in a country where most of the sizeable financial stocks are government-owned, with all the stigma that has attached to it in Russia.

State banks do not do much to fill international investors with enthusiasm for the future of Russian capitalism. Likewise, a government-owned commodity producer will hardly be unique in this country.

Tinkov is different in Russia (or anywhere) as he can fairly claim to be an entrepreneur who has used new technology and a growing consumer economy with imagination and flare to build a highly profitable company from scratch.

And he acts like it too: he seems to model himself on Richard Branson, the equally flamboyant British businessman behind a string of consumer-oriented companies and apparently a friend of Tinkov.

Tinkov and his bank understood that equity investors are like consumers. They are attracted to a youthful brand and a hopeful story; they like to think their concerns are being heard, even if they are about to be charged a whacking rate.

This is all too scarce in a country where the customer is rarely king, especially where the state is involved. When state firms come to the capital markets, for example, officials can be stiff and difficult to speak to, while riding roughshod over minority investors.

And they rarely move on price. It’s little surprise deals initially adjust downwards in the secondary market. The state often treats investors (like customers and voters) with contempt. The message seems to be: you have no power; we do.