Merger of Russia's Nomos and Otkritie appears a step closer

By bne IntelliNews August 14, 2012

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Otkritie Financial Corporation has announced the details of a swap deal with Czech investment group PPF that sees it acquire a 19.9% stake in Russia's second-largest privately-owned bank Nomos. The news suggests the long-mooted merger between Otkritie and Nomos is ready to go forward - although Nomos says there is some way to go yet - while the market worries that corporate governance at the bank may have taken a big hit.

In a deal first revealed on August 8, Otkritie traded a 2.15% stake in Russian potash miner Uralkali for PPF's stake in Nomos, it explained on August 13. Otkritie says it swapped 63.3m Uralkali shares for 18.4m shares in Nomos, implying a 3.44:1 swap ratio, on June 18.

Based on the closing price of Uralkali on that day, the transaction value for PPF was $463.1m, a 14% premium to the closing price of $11.05 on August 13. The total transaction value for Otkrytie was RUB14.1bn ($440m), of which RUB12.8bn was the net stake value and RUB1.3bn the deal commission.

The Uralkali stock used in the deal was purchased from billionaire Alexander Nesis' ICT Group, which holds just under 50% of Nomos according to its website. Nesis is considered a leading figure in a loose oligarch grouping centred on St Petersburg, which in turn has connections to Suleiman Kerimov, who controls Uralkali.

PPF, controlled by the Czech Republic's richest man Petr Kellner, has also concentrated its investment in Russia in companies associated with the group. It claimed on August 8 that it was selling its 26.5% stake in Nomos - Alexander Mamut and Oleg Malis, both closely associated with the ICT grouping, reportedly bought the remainder of its stake, paying with 0.72% in Uralkali shares each - to raise capital for developing its other investments in Russia and Asia. That could mean that it will look to sell on the Uralkali stake.

The deal appears a step towards a Nomos-Otkrytie merger, which has been speculated upon over the past couple of months, especially given the close dealing within the group centered around Nesis and ICT. However, Nomos has been quick to dampen such talk. The bank "denies any imminent action, saying that no agreement on deal structure has been reached, and that acquisition of 44% of Bank of Khanty Mansiisk next month remains the priority," point out analysts at Uralsib.

Although the deal is not expected to endanger Nomos' robust fundamentals, analysts worry that the lack of clarity on the potential merger and its structure creates negative sentiment around the bank.

PPF's exit is also viewed as negative, as it removes the only blocking stake aside from that held by ICT, points out Jason Hurwitz at Alfa Bank. "We view the additional information as further negative news because of PPF's willingness to sell to a non-cash buyer. Also, ICT's involvement may suggest that it has obtained greater influence over the former PPF shares, possibly giving it an effective majority, given that it already had held a 48.5% stake."

Investors agreed with that sentiment, with Nomos stock shedding 6.4% in Moscow. Reaction in London was more muted, with the share price dropping 0.6%. Meanwhile, Uralkali's stock rose 0.9% and 1.6% respectively.

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