Russian Sovcombank posts $1bn profit for 2023, to buy HCB bank

By bne IntelliNews February 20, 2024

Russian Sovcombank announced posting a record-high net IFRS profit of RUB95bn ($1bn) for 2023, without disclosing more details.

To remind, in 2023 Sovcombank held an IPO that was not only the first IPO of a Russian bank under full blocking sanctions, but also the first banking IPO since 2015. As followed by bne IntelliNews, an IPO of the bank has been on the agenda since 2012, but has been constantly delayed by takeover deals, the 2014 Crimea annexation crisis and the 2020 pandemic.

Renaissance Capital commented on February 19 that Sovcombank's reported 2023 net profit is RUB4bn above the analysts’ expectations.

Taking into account the current dividend policy (payout ratio of 30% of net profit), the payout will amount to RUB1.1 per share, according to the company's comments.

“The pre-announced payout was below our and the market's expectations, despite higher earnings, due to the fact that the bank reduced its 4Q23 dividend payout by RUB5bn, although it was previously discussed that such an adjustment might not be made,” RenCap commented.

At the same time, Sovcombank announced its intention to acquire Home Credit Bank (HCB), which could be directly related to a more modest dividend payout.

In the first stage of the transaction, Sovcombank is expected to acquire 51% of HCB Bank through an issue of new shares equal to 5% of Sovcombank's capital (about RUB15bn, the number of shares may eventually increase by 1bn to about RUB21bn).

In the second stage, Sovcombank will acquire the remaining 49% of shares, which will be paid in cash in instalments in 2024-2025. At the end of 3Q23, HCF Bank had a capital of RUB61bn. According to Sovcombank's comments, the valuation of HCF Bank for the purposes of the transaction was 80% of the bank's capital excluding perpetual bonds ($200mn) and dividends for 2023 (not yet announced).

Renaissance Capital estimates the direct additional contribution from the acquisition of HCB to Sovcombank's 2024 earnings at RUB10bn. Given the size of HCF Bank's balance sheet, the deal could add 20-25% to Sovcombank's retail deposit and loan portfolio, the analysts argue.

RenCap sees the news as positive, mainly due to the market share increase and expansion of expertise in the POS lending segment.

Sovcombank is among the ten largest players in the country in terms of assets and capital. In 1H23 SovComBank made RUB52bn ($0.5bn) net profit under IFRS, with return on equity of 55%. Net interest income stood at RUB67bn and net commission income at RUB12bn. The bank’s assets grew by 9% year to date to RUB2.4 trillion, capital by 29% to RUB247bn.

The retail loan portfolio increased by 15% ytd to RUB674bn, the corporate loans by 7% to RUB850bn, retail deposits by 7% to RUB774bn, and corporate deposits by 12% to RUB1.1 trillion. The bank previously did not disclose 2022 results.

Only six Russian banks have held an IPO on Moscow Exchange in the past 20 years, out of which Russia’s two largest state-controlled banks, VTB and Sberbank, accounted for 88% of all funds raised in 2007. The most recent IPO was that of the Credit Bank of Moscow, which raised RUB13bn in 2015.

#HCF #Russia #banking #IPO #ECM #SovComBank #equity #IPO #M&A

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