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Giant state bank VTB is set to restrict its recently announced buyback to retail investors, according to sources. This marks the move out as yet another populist measure designed to calm rising middle class protest. It will do little to impress foreign investors however, given that it locks them out and also illustrates once again that the Russian government is ready to directly intervene in corporate governance for political ends.

Bizarrely, details of the offer are due to be announced by Prime Minister Vladimir Putin - rather than the bank's management - today. According to Vedomosti, he will tell the market that the bank will accept shares to the value of RUB500,000 ($16,800) from each investor. That will lock out institutional investors.

However, the target of the buyback is the anger amongst ordinary Russian's, some of whom have seen their life's savings devastated by their purchase of VTB shares. The government rolled out a huge campaign to get Russians - who have little experience of investment - to buy into VTB's listing in 2007, labeling it the "People's IPO."

However, the share price plummeted after the sale and remains at around 50% of the issue price. Around 90% of VTB investors are individuals. The buyback is thought likely to go through at the issue price of RUB 0.136 per share. VTB CEO Andrei Kostin has estimated the buyback will cost the bank up to RUB18bn.

The offer will apply only to individuals, one unnamed Vedomosti source says, confirming market speculation. Another source says it is possible the offer will apply to institutional investors as well, but the RUB0.5m cap makes it irrelevant for them.

Mikhail Zadornov, CEO of retail banking arm VTB 24, confirmed on February 8 that the VTB share buyback would "definitely occur, and it will happen within a month", Interfax reported. Zadornov indicated that the offer would apply to investors who bought shares directly at the IPO.

However, there are also retail investors that bought more RUB0.5m of the shares, and have threatened to sue the bank for discriminatory behavior. Putin has told the bank to fund the buyback from its profit, saying there will be no state support.

"It seems quite strange to us that Prime Minister Putin will be announcing the buyback details and not VTB officials," write Aton brokerage analysts. "The very fact that the prime minister appears to have the decisive say on the issue also raises questions. We reiterate our view that the buyback story reflects badly on the bank's corporate governance standards and implies that some shareholders would benefit at the expense of others. We believe this makes it strongly negative for VTB."

"If Vedomosti's information, which at this stage is unconfirmed, proves correct, then we expect the announcement to be a moderate positive, as it would remove uncertainty and put a limit on the potential damage to VTB's capital, write Renaissance Capital analysts. "We estimate it at a 20-30-bp decline in Tier 1 [capital], based on estimates of the total buyback size."