Russia: VTB puts on a good show with $8 billion IPO

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By:
Guy Norton
Published on:

VTB, Russia’s second-largest bank, made a strong debut with its initial public offering in mid-May and helped to restore faith in the entire Russian IPO market in the process. In contrast to the ham-fisted domestic share offering by market leader Sberbank in February, VTB’s transaction, which involved Russian and London listings, was widely considered to have been much better marketed, with the result that both listings attracted widespread investor support.

Citi, Deutsche Bank and Goldman Sachs were joint global coordinators, with Russia’s Renaissance Capital joining them as joint bookrunners. VTB sold 1.513 trillion new shares at a final price of 13 kopeks for the Moscow listing and priced the global depositary receipts for its London quotation at $10.56. Both the local and international shares were priced near the top end of their indicative ranges. In total the 22.5% stake raised $8 billion and valued VTB at $35.5 billion, compared with the $89 billion market capitalization of Sberbank. But in stark contrast to the rights issue by Sberbank in February, which was effectively underwritten by the Bank of Russia and a number of Russian oligarchs, VTB attracted sizeable participation from ordinary Russians. VTB reported that it sold $1.6 billion to 131,000 retail investors, many of whom queued around the block at branches of VTB-24, the bank’s retail arm, to secure shares and whose orders were fully covered.

International investors, however, found their orders cut back, resulting in strong aftermarket trading in London as accounts sought to increase their exposure. In the first day’s trading the GDRs rose 6.27%, while the domestic stock was up 11% in initial trading. Commenting on the success of the transaction, VTB president Andrei Kostin says: "The strength of demand for our shares reflects investor appetite for high-quality exposure to the fast-growing Russian banking market that VTB offers." Banking analysts believe there is still substantial upside potential, with Alfa Bank’s Natalya Olova, forecasting a potential 40% upside to the stock, which was listed at a 2.2x 2007 forecast book value, versus a 3.3x average for the Russian banking sector.

VTB will use the IPO proceeds to expand both its VTB-24 unit and its investment banking operation. VTB is said to have considered buying either Renaissance Capital or Troika Dialog, the two leading independent Russian investment banks, but has now opted for organic growth rather than a bolt-on acquisition approach. In recent weeks it has made a number of new appointments at VTB Bank Europe (formerly Moscow Narodny Bank) in London, which will form the nexus of VTB’s investment banking operations. Senior vice-president Vasily Kirpichev has moved from Moscow to London to spearhead the effort, while Steve Thunem has been named head of the new global market group, which will handle capital raising activities out of London. He joins from ABN Amro, where he headed the Dutch bank’s Russian operations from 2001 to 2004, before performing a similar role in Canada. Thunem has hired former colleague George Niedringhaus as head of fixed income, trading and sales. Niedringhaus was formerly head of global emerging market syndicate at ABN in London. "We are delighted with these additions," says VTB Bank Europe chairman, Igor Souvorov. "Their combined experience in Russia, and work in emerging markets more broadly to date, will prove invaluable."