VTB privatization pushed back to fall 2013

Russia is waiting for a group of investors that is ready to purchase shares of state-owned VTB wholesale. The bank could schedule a meeting in March to determine the form its privatization will take, but experts say many details are still being discussed and share placement will take place no earlier than fall 2013.

The privatization of VTB, a major Russian bank, will proceed only once a pool of buyers for the entire stake offered for sale has been formed.

“It must be around 100 billion rubles [$3.2 billion]. We don’t want a piecemeal deal,” Senior Deputy Prime Minister Igor Shuvalov said about the sale of VTB stake.

The additional share placement is now scheduled to take place by the fall of 2013, while earlier reports had said it was due this spring.

In addition, VTB has yet to announce the date for a Supervisory Council meeting that would decide on which form the privatization should take. The bank’s executives said earlier that the meeting might be called in March.

The bank’s management is reportedly in talks with prospective buyers. Unofficially, these include Qatar’s sovereign wealth fund, the China Investment Corporation and the Texas-based fund TPG.

“They are among the contenders, but there’s no clarity yet with regard to the deal structure, and even the size of the stake for sale is still being discussed. It’s [VTB President Andrei] Kostin who is negotiating with the funds, not us,” a federal government official told Vedomosti.

Potential investors are not confined to just these names, the government official and an investment banker added.

The bank’s shares have lost almost a third of their value since its last additional share placement two years ago.

“What Shuvalov said — that the government wanted to find investors for the entire stake before selling — didn’t cause a strong market response, since the size approximately equals the upper band of the range that had already been announced [$1-3 billion],” Olga Veselova, an analyst at Bank of America Merrill Lynch, said.

The form of the sale is only important in terms of a supply overhang (or lack thereof), underwriting complexity and a price discount. Veselova said what really matters, though, is that these shares will be newly issued.

A potential sale of $3-billion worth of VTB stock at a 20–25 percent discount would mean a P/BV of 0.85 — below the emerging markets’ average of 1.55. “It’s reasonable to assume that investors would expect equal terms of sale,” Veselova said, commenting on the funds’ desire for a discount.

“Shuvalov wants to be as confident as possible of the SPO’s success, while Kostin, when he talks about placing the shares in Moscow, most likely means potential negotiations with big local investors — pension funds and asset management companies,” said Dmitry Ivlyushin, head of investment at M2M Private Bank.

“It’s no coincidence that the exchange has included the bank’s shares in the top A1 quotation list,” he added. “However, I think the bank is talking to a wide range of potential buyers and the placement is still quite far off.”

First published in Russian in Vedomosti.ru.

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