Belarus nears its first ever international IPO

By bne IntelliNews December 18, 2013

Sergei Kuznetsov in Vilnius -

Belarus, unlike it its post-Soviet neighbours, has never had a single international IPO. But that could change soon as the government is preparing to give the go-ahead to selling shares in state-owned banking giant Belarusbank, bne can reveal, as well as probably in Belagroprombank and BELAZ, the state-owned producer of mining dump trucks,.

The Belarusian government has talked about listing the Belarusbank for years, but the momentum for actually organising the IPO for the cash-strapped republic seems to be gathering momentum.

Minister of Economy Nikolai Snopkov tells bne that the government is considering conducting Belarusbank's IPO in 2014, because the bank's state-directed lending obligations have been reduced since the state-owned Development Bank of Belarus was set up in 2011 under pressure from the International Monetary Fund (IMF) and the Russia-led EurAsEC, both of which have provided loan assistance to Belarus.

Snopkov's comments follow those of Gennady Gospodarik, Belarusbank's first deputy chief executive, who told the Russian business newswire Prime in November that all necessary paperwork for the IPO was finished: "If the government makes the decision, the IPO will be held," he said.

However, Gospodarik added that Belarusbank didn't intend to carry out the IPO in the next six months, due to poor market conditions. "We can get expensive resources, but we do not need them. The situation with our payment calendar and the budget is comfortable enough, so there is no need for us to borrow expensive resources," he said.

The Belarusian government doesn't have that luxury, and the impetus for the IPO is being driven by necessity. The government's budget situation is now far less comfortable than it was after it took the fifth tranche of a $3bn loan facility from the Russian-backed Eurasian Economic Community (EurAsEC) Anti-crisis Fund in April, and the country's current account turned sharply negative this year. The government is running out of money again as EurAsEC considers whether to pay out the final tranche of that loan by the end of the year, and it faces the prospect of yet another sharp devaluation of the Belarusian ruble in 2014.

These IPO plans are, therefore, part of a new push by the government to tap the value of the few successful and attractive assets and sectors it still controls. In October, the government approved a structural economic reform plan, part of which is to relaunch the long-mooted privatisation programme and prepare "major highly liquid" companies for IPO in 2014-2015. Snopkov tells bne that the state-controlled Belagroprombank, the second largest lender by assets, and BELAZ, the state-owned producer of mining dump trucks, have also completed the paperwork necessary to hold an IPO.

Analysts believe the structural economic reform plan was prepared in order to begin negotiations with the IMF over a new bailout support package, in case the EurAsEC fails to come up with more money. Belarus started talks over a fresh bailout package from the EurAsEC in August, but has yet to receive a reply in the affirmative. "The plan could also be used for negotiations on a new loan from the bailout fund of EurAsEC," Alexander Mukha, a Minsk-based independent financial analyst, tells bne.

Downgraded

While Belarusbank waits for the government's final decision on the timing, it appears that the lender has already decided to float in London and its top executives paid a visit to the London Stock Exchange (LSE) earlier this year for talks.

"The sides have reached an agreement to resume relations with the LSE. Back in 2007, Belarusbank gave a presentation there, and initiated preparations for an IPO... However, the global financial crisis of 2008-2010 and the local foreign currency crisis of 2011 delayed these projects. As a result of the negotiations, the sides expressed their readiness to resume the placement of Belarusbank securities," Belarusbank said in a statement at the time.

But listing the bank will not be simple. The main hurdle to the IPO is Belarusbank's credit rating, which was downgraded to junk, together with the country's sovereign rating, after a severe balance-of-payments crisis in 2011.

On December 4, Fitch affirmed the ratings of Belarusbank and four other lenders at 'B-', with stable outlooks. The move, the agency said in a statement, "reflects Fitch's base case expectation that Belarus will be able to avoid a full blown macroeconomic and banking crisis over the rating outlook horizon (12 to 18 months)... At the same time, downside risks for the banks' ratings remain significant, given structural weakness in the economy and pressures on external finances."

Daniel Krutzinna, a partner with Civitta consulting company, argues that now is not the best time to offer investors Belarusian securities. "First, the macroeconomic environment needs to be improved and structural reforms need to be introduced. In such an environment, valuations would look a lot more promising than today," he says.

Mukha says that the expected price/book and price/earnings ratios for Belarusian companies "make an international IPO impractical," meaning bringing in strategic foreign investors into Belarusian companies the better option. "In this case, there would be a possibility to increase export volumes due to the expansion and diversification of markets, attract direct foreign investment, get transfer of technology, introduce new management systems, etc.," Mukha says.

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