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Investors Flock to Russia's $5 Billion Sberbank Stake Sale

Tuesday, 18 September 2012 04:30 PM

Russia's sale of a $5 billion stake in Sberbank drew strong demand from investors around the world, attracted by the lender's dominant position on the growing domestic market and potential to expand across emerging European economies.

The sale of a 7.6 percent stake in Europe's third biggest lender was priced at 93 roubles ($3.04) per share, the Russian central bank said late on Tuesday. That was in the middle of a range of 92-94 roubles per share investors had been guided to expect.

Final pricing capped a day in which Sberbank met investors in Moscow, London and New York to explain its strategy and answer questions.

In Clothworkers' Hall in the City of London financial district, money managers were briefed by Sberbank CEO German Gref, a fitness fanatic and close ally of President Vladimir Putin who has slimmed down the former Soviet state savings bank.

"It looks like a good deal," said one investor leaving the presentation. The investor, who declined to be named, noted Sberbank's focus on transparency and said he had just put in "a significant order" for the stock.


Russia's economy is expanding at a rate of around 4 percent, providing a healthy backdrop for Sberbank compared with most European lenders, although growth has been slowing as the eurozone debt crisis hits strategic exports of oil and gas.

Having delayed a sale due to volatile financial markets, Russia's central bank seized on a market rally prompted by stimulus measures in the United States and Europe to cut its 57.6 percent stake in Sberbank through a placement of shares in Moscow and global depositary shares (GDS) in London.

Risks remain for investors, however. Russia's market typically trades at a discount to emerging market peers due to concerns about corruption and red tape, and as the country's economic fortunes are closely correlated to the oil price.

In February, Putin - then prime minister - ordered Russia's No.2 bank, state-controlled VTB to compensate small investors who lost money on its flotation in 2007. The move had to be financed from VTB's coffers, hitting the interests of big investors.

Russia's central bank, representing the state, will keep majority control in Sberbank with a stake of 50 percent plus one share.

The pricing guidance indicates a discount of 4 percent to Sberbank's 97.05 rouble close on Friday, and values the 1.71 billion shares being sold at $5.14 billion. The discount is less than the 10 percent seen on the government's sale of a stake in VTB last year.

Large orders came in from the U.S. private equity and hedge fund investors, one source said. While below the government's original hopes for 100 roubles per share, the deal priced above the 91 roubles that Sberbank had set as the minimum bid.

Sberbank's shares closed down 0.9 percent at 94.75 roubles on Tuesday. The GDSs are expected to start trading in London as early as Wednesday.

"We are expecting a strong performance in the third quarter so now seems like a good time for the stake sale," said an investor leaving a Sberbank meeting at New York's Four Seasons hotel. The investor said that the presentation gave no new details and no surprises.

The long-awaited Sberbank offering has revived hopes for Russia's stalled privatisation programme. It will also clear a share 'overhang' and allow investors to focus on Sberbank's underlying value, Gref, a liberal economist and former economy minister, told Reuters on Monday.


Sberbank enjoys cheap and stable funding through its control of 46 percent of Russian household deposits and has the implicit backing of a sovereign with low debt and the world's fourth-largest gold and foreign currency reserves.

Its 19,000 branches give it unequalled coverage across Russia, the world's largest country by territory, yet the bank is still highly profitable, generating net interest margins of over 6 percent and a return on equity of 26 percent.

Sberbank has also snapped up cheap foreign banking assets, most recently buying Turkey's Denizbank for $3.6 billion, although it has said it is not pursuing any further takeovers abroad for now, after criticism from analysts that it was taking its eye off the ball in Russia.

"It attracts huge deposits compared with other banks in Russia and that is a big advantage in terms of margins," said Bruce Bower, a portfolio manager at Moscow-based fund manager Verno Capital who attended the presentation in Moscow.

"Sberbank has the best footprint and the presentations (today) confirmed that too," added Bower, whose fund is already a Sberbank shareholder and bid for stock.

Sberbank trades in line with emerging market peers in terms of its estimated price-to-book value, which for 2012 is 1.48 times, according to a research by VTB, while the median for emerging markets is 1.41.

It trades at a price-to-earnings ratio 6.8 times compared with an emerging market average of 10.3 times.

"We think the deal will become the hottest offering of the year and not just in the Russian space," wrote Milena Ivanova-Venturini, analyst at Renaissance Capital, in a research note.

© 2019 Thomson/Reuters. All rights reserved.

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Russia's sale of a $5 billion stake in Sberbank drew strong demand from investors around the world, attracted by the lender's dominant position on the growing domestic market and potential to expand across emerging European economies.
Tuesday, 18 September 2012 04:30 PM
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