Emerging Europe: Sberbank offering lifts ECM hopes
State raises $5.2 billion; Clears way for Promsvyazbank, VTB
Russia’s biggest lender, Sberbank, sold $5.2 billion of stock in a secondary offering in Moscow and London in mid-September – its first international listing. The deal reduced the central bank’s stake in the bank to 51%.
Russia has been waiting for more than a year for an opportunity to sell its 7.6% of Sberbank stock. The state suffered delays at the hands of global market volatility and local parliamentary and legislative elections, as well as regulatory requirements for up-to-date financials in the listing documentation.
Nevertheless, this was the year’s second-largest equity offering outside Asia and the Americas, after UniCredit’s $10 billion rights issue. The offering was two times oversubscribed and shares traded up in the days following the issuance, despite pricing at R93 ($3) a share, a discount of only 2% to the share price at the previous day’s close.
Credit Suisse, Goldman Sachs, JPMorgan, Morgan Stanley and Sberbank-owned Troika Dialog acted as bookrunners. US and UK investors predominated, with less than 5% sold on the local exchange in Moscow.
|Anton Karamzin, Sberbank's chief financial officer|
In some ways the deal is a culmination of German Gref’s efforts to change Sberbank since arriving as chief executive in 2007. "This deal is a testament to over five years of effort by the management team to transform the bank into something that is more efficient, more modern and more recognized globally," says chief financial officer Anton Karamzin.
At 6%, Sberbank’s profit growth in the first eight months of 2012 was less impressive than the 70% jump in net profit achieved in 2011. The bank has been growing particularly rapidly in retail. It has made better use of its heritage as the Soviet Union’s savings bank and benefited from public-sector pay rises, although public spending is now slowing.
"We haven’t seen any early signals for rises in bad debt," says Karamzin. Despite slowing economic growth in Russia, the bank still expects return on equity to be above 20% in 2012, albeit down from 31% in 2011. It also expects net profit to rise in 2012.
Bankers say other Russian firms have been waiting for the Sberbank share sale before selling equity on the market themselves. "The fact this deal was done successfully bodes well for other Russian companies looking to access the capital markets," says Richard Cormack, head of new markets at Goldman Sachs’s equity capital markets division. "If demand had not been met, or if the price had fallen by, say, 10% during or after execution, it would have had negative implications in terms of the ability of Russian firms to get equity deals done in the market."
New deal flow
At the same time as Sberbank sold its stake, Russian steel maker Severstal launched a $450 million five-year convertible bond sale, Russian electronics retailer M.Video came to the market for a secondary equity offering, and Russian healthcare firm MD Medical announced a $150 million London IPO.
Most important, however, is the expected 10% sell-down of the government’s stake in VTB, Russia’s second-biggest bank, as well as the expected London IPO of Russian mobile operator Megafon. After the Sberbank offering, both VTB’s and Megafon’s deals were predicted to take place in the next three to nine months, depending on market conditions.
Megafon applied for permission to list in London via global depositary receipts earlier in September. The listing of the 20% stake in Megafon is expected to raise up to $4 billion.
Promsvyazbank also announced in late September that it was preparing a $500 million listing in London and Moscow. Commerzbank sold its 14.4% stake in Promsvyazbank this summer. Like other Russian banks, Promsvyazbank’s aspiration to raise equity in the public markets has been hampered by the delay of the Sberbank sale.
There is also much speculation as to whether the government’s sale of its stake in VTB might be accompanied by an offering of new equity to bolster VTB’s flagging capital ratios – VTB’s tier 1 ratio fell to 8.9% in the second quarter. VTB’s CFO, Herbert Moos, did not rule out that possibility earlier this year, although the necessary approvals to issue new capital might mean it happens in 2013.
With the Sberbank sale out of the way, there is hope too for other government sell-downs. Finance minister Anton Siluanov told Euromoney this summer that he hopes to raise up to $10 billion in privatization revenue in 2013. Tanker operator Sovcomflot and diamond firm Alrosa have both been mentioned as high on the privatization agenda.
"The Sberbank sale shows the readiness of the Russian state to move quickly, as well as its readiness to follow the privatization programme," says Karamzin.