It says a lot about Russia that a near $9 billion rights issue for one of its banks can somehow feel like an anti-climax. When the bank in question is Sberbank however, a $70 billion behemoth, which effectively controls around a quarter of the country’s banking assets, anything less than a record-breaking deal can seem like a disappointment. But such is the enigma that is Russia and such is the phenomenon that is Sberbank.
As such an offering, which from a Muscovite perspective at least, was widely seen as poorly handled, could yet prove to be one of the best performing issues of 2007. Although Sberbank shares have more than doubled in value over the last two years some believe there could be as much as a 40% upside from current valuations. If you’re left dazed and confused by the contradictions that abound in Russia, you’re certainly not alone.
With Sberbank paying Credit Suisse and JP Morgan just 0.1% — reputedly the lowest fee in European equity capital markets history — to arrange the offering it’s perhaps not surprising that the execution somehow felt cut-price.
After a poor marketing process, which has come under a scathing attack from local bankers, the new shares were sold for Rbl89,000 ($3,394) each, raising around $8.8 billion in total — way below the $12 billion some observers believe the bank could have raised if the offering had been better handled and at a discount rather than a premium to the outstanding share price. Not that the leads were exactly helped by the issuer, with senior Sberbank officials widely quoted in the Muscovite press as giving contradictory statements about the likely issue price.
Any ambitions that the sale would help promote a retail equity culture in Russia were undone by the slapdash nature of the supporting advertising campaign and the decision not to go for a share split. The shares cost the equivalent of seven times the average monthly salary, putting them way beyond the means of the Russian in the street who forms the bedrock of the bank’s customer base. Following the sale the Bank of Russia still holds over 55% of Sberbank and even some government officials are beginning to question whether that fact sits well with the central bank’s role as a financial regulator. Gennady Melikayan, the country’s chief banking supervisor, recently admitted to a Duma committee that he was one of roughly 1,500 central bank employees to hold stock in Sberbank. Given that Melikayan’s predecessor, Andrei Kozlov, was gunned down last year after attempting a clean-up of the Russian banking sector the auguries for a truly transparent financial services industry in Russia are not good.
