A stubborn refusal to accept friendly advice and the ability to learn quickly from the error of their ways are just two of the many contradictory traits of the Russian people. Both have been much in evidence in recent months when it comes to the country’s approach to the capital markets. February’s rights issue for Russian banking market leader Sberbank graphically illustrated the mulish obstinacy of the Muscovite authorities in the face of fierce but well-intentioned market criticism, while May’s initial public offering for VTB, the country’s number two financial institution, provided proof positive that the administration in the Kremlin is more than capable of drawing the appropriate lessons from past mistakes and of adopting a market-savvy approach.
February’s transaction for Sberbank should have been a no-brainer – after all the bank controls 25% of one of the world’s fastest-growing and most lucrative banking markets. It proved to be just the opposite, though, with an ill-thought-out deal structure and a clueless marketing campaign. Labyrinthine documentation requirements were seemingly designed to put off rather than encourage buying by overseas accounts. And the refusal to countenance a share split meant that the new stock was priced at Rb89,000 ($3,444) – seven times the average monthly salary in Russia – so that only rich rather than ordinary domestic retail investors could afford it. That’s a risible state of affairs given that one in every two Russians entrusts their money to Sberbank. So while at $8.8 billion the Sberbank rights issue was big, it certainly wasn’t clever.
Last month’s IPO for VTB couldn’t have been more different. It was widely praised as a textbook example of how to create a win-win result for all parties concerned. The sight of retail investors queuing around the block to buy VTB shares, priced domestically at an eminently affordable price of 13 kopeks, had Russian bankers at the European Bank for Reconstruction and Development meeting in Kazan waxing lyrical about the establishment of a true equity culture among the Russian populace and the obvious benefits that this will have for the country’s capital markets. International buyers, meanwhile, could participate via the convenient route of global depositary receipts and did so in large numbers. The net result? Strong demand all round, which enabled VTB to raise $8.1 billion. That will help to accelerate its transformation from the former USSR’s foreign trade bank to a true universal financial institution in a booming Russian banking market and will make it a genuine challenger to monolithic Sberbank.
All of this raises the obvious question: how can the Russian government get things so wrong and then so right? But that of course is the nature of the riddle that is Russia and what makes it such a frustrating and yet so fascinating a place.
