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The two faces of Russia’s capital markets

Russia is equally capable of fatally deterring and irresistibly attracting investors, as two recent big bank IPOs showed.

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.

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