What happened to the VTB IPO?

By bne IntelliNews December 7, 2006

Ben Aris in Berlin -

The most powerful bankers in Russia have been put into a ridiculous position, forced to dance a delicate waltz around the Kremlin fractions as they lobby to get their IPO and secondary share issue plans finalised.

At the centre of the dance is the Kremlin's list of "strategically important companies." If you are a state company on that list, like VTB, you can't be sold nor can you float your shares. President Vladimir Putin was supposed to remove VTB from the list two weeks ago, but it didn't happen. And he was supposed to remove VTB again this Wednesday and again nothing happened.

At the same time, the giant state savings bank Sberbank still needs to get the Kremlin to approve the details of its share issue.

"There is a deadlock in the Kremlin over the whole share sales question," says a senior Russian banker close to the talks, who didn't want to be named talking about the inner workings of Kremlin politics.

"The banks want to go ahead with the sales to investors, but the Ministry of Finance is blocking them as they disagree about the way it will be done."

VTB is planning to sell up to 20% of its stock on the London Stock Exchange (LSE) sometime after May and hopes to raise as much as $10bn. Sberbank, meanwhile, is planning a secondary issue of shares that will raise $6bn-8bn and will probably go first.

VTB chairman and CEO, Andrey Kostin, said two weeks ago he plans to coordinate the timing of his IPO with Sberbank's share issue and analysts worry that despite the clear appetite among international investors for the stocks of both banks, the market may struggle to absorb two massive issues in quick succession.

Apart from ballpark figures, few details have been released and this is where the problems lie.

Josef public

Sberbank will almost certainly offer some of its stock to Russian retail investors – a move pioneered by state-owned oil company Rosneft, which broke new ground in July when the Russian public was offered part of the company during its $10.4bn record IPO. Citizens snapped up over $800m worth of the company's stock.

One of the wrangling points is how much of Sberbank's stock to offer the general population. Everyone agrees that at least $1bn worth of shares should be offered to the public, but some believe the sum should be higher, pointing to the huge successes of Hungary's OTP Bank flotation in the early 1990s, which was placed entirely on local markets, and more recently Poland's PKO Bank Polski, which was also bought by locals.

Others in the Kremlin, however, don't think Russia's domestic market could absorb more than $2bn of shares and want to place the bulk of shares with international investors, says the banking source.

Kostin himself wants to place the entire VTB issue on the LSE, a view that's not going down well in some quarters, and he has been forced into making a series of embarrassing statements in recent weeks as speculation over the upcoming IPO builds.

The bottom line is that President Vladimir Putin has clearly committed the government to making both IPOs happen – and happen soon.

With significant political capital to back him up, Putin could make both issues happen. However, typically for the president, he is husbanding his resources and trying to strike a compromise between the warring fractions. And in Russia that takes time.

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