Russian Helicopters announced on April 12 that it intends to launch an IPO, making it the fourth Russian company set to list on the London Stock Exchange this month in deals estimated to be worth about $3bn. Most investor interest is centred on the IPO of Nomos Bank, which is looking to raise as much as $640m.
So far, indications are that investor interest in Nomos is strong, say analysts, not least because this will be Russia's first ever true IPO of a commercial bank. There are four publicly traded Russian banks: the two mega-chips of state-owned Sberbank and VTB Bank, which together make up almost three-quarters of the entire Russian banking sector, and then there are the two micro-chips of Bank Vozrozhdenie and Bank St Petersburg, neither or which formally IPO'd. While the daily trading volumes of both Sberbank and VTB run into the billions of dollars, the two small banks have a combined tradeable liquidity on the order of $300m and see daily turnover of about $100m, say traders.
Nomos' IPO, which the company plans to complete on April 18, will be a welcome addition, as the Russian banking industry remains one of the most attractive and dynamic of all the country's sectors, but investors have very limited access to it. "Lots of investors are looking at Nomos simply because it is in the right place at the right time - not because it is a strong story in its own right," says David Nangle, head of research at Renaissance Capital. "Adding Nomos creates a mid-cap banking stock with decent liquidity and plugs a hole in many dedicated Russian investors' portfolios."
Nomos has risen up the rankings fast in recent years. The bank was founded in St Petersburg in 1993 by billionaire Alexander Nesis, the owner of the IST group that controls Polimetal, one of Russia's biggest gold producers, and has assets in shipbuilding and railway engineering firms.
He is partnered with Petr Kellner, the Czech tycoon that controls PPF Group, which owns the Russian consumer credit powerhouse Home Credit & Finance Bank and has a 38% in Ingosstrakh insurance company, amongst other things. Altogether PPF owns just under half of Nomos, but will reduce its stake to Kellner's personally held 28.24% after his colleague, Slovakia-based Roman Korbachka and PPF partner, sells his 19% stake in the bank.
The IPO is causing a fair amount of excitement and the order book filled up quickly, according to bankers, despite a bad re-launch of Russia's share placements following a two-year hiatus; five companies attempted to sell shares in February, but all but two were withdrawn due to lack of demand. The two that got out of the gate were a secondary offering of 10% of VTB Bank and a $16m IPO by Papa John's Pizza chain on the Frankfurt bourse.
A successful float by Nomos would help revive Russia's IPO market and the float is being closely watched by investors. However, Nomos is feeling the realities of a post-crisis world and the price range of $32 to $37 per share (equivalent to $16 to $18.50 per Global Depositary Receipt traded in London) is modest compared with the prices that the owners could've demanded prior to the crisis. The indicated IPO price values the bank at $2.8bn or 1.7x book value, which is much more modest than the 3x book that banks were valued at prior to the crisis.
But even before the crisis struck, investors were becoming increasingly wary of expensive Russian IPOs, as almost all the shares that were floated up to 2008 had underperformed the index. "Investors are not totally convinced and so they have been blunt on the pricing," says one senior banker, who has been marketing the Nomos IPO. "Before the crisis, owners would take as much as they could and to be fair the investors were willing to pay. Now a company has to leave something on the table and investors demanding a healthy discount."
Nomos makes most of its money from corporate banking and is very profitable compared with its peers: Nomos had a 18-20% return on equity in 2010 against sector averages on the order of 3-5%. Most of this money is earned from its large exposure to Nesis' IST group, which worries analysts somewhat. However, it remains a common strategy; most of the leading commercial banks are allied to an industrial group that they use as a platform to build out a more diversified business.
And Nomos started its diversification in December, albeit somewhat belatedly with the acquisition of Khanty-Mansiysk Bank (KhMB), a major Siberian retail bank, that at a stoke made Nomos the second largest bank in Russia by assets. The takeover is at an early stage and it remains to be seen if the enlarged Nomos will be able to expand its newly acquired retail business at a time when the retail banking sector is getting so competitive that bigger and more established players like the UK's Barclays Bank have decided to exit.
However, Nomos' lack of a retail business proved a boon during the crisis, with the high quality of its assets (being a banker to a big goldmine in the middle of a crisis is about the best hedge a bank can find) meaning that only 2.4% of its total loans have gone bad, according to Uralsib, versus the 10.5% that Bank Vozrozhdenie was reporting in March. "Nomos is in a very good position compared to the rest of the sector," says Leonid Slipchenko, a bank analyst with Uralsib. "it suffered less than most of Russia's banks during the crisis and has extremely good asset quality and a strong business base. As the economy recovers, it is in a really strong position to outperform, which is attracting the attention of investors."
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