Banking Spree in Russia – At Full Swing

THIS POST WAS ORIGINALLY PUBLISHED JULY 31, 2007

Banking Spree in Russia – At Full Swing

In my earlier post this month I mentioned that there is a definite indication of desire of foreign banks in M&A activity here in Russia. It seems that July is very active month in this. Today Vedomosti Daily published a commentary regarding acquisition of Russian and Ukrainian banks by foreign entities. This is based on the study of Dresdner Kleinwort showing that in the Ukraine foreign entities own about 47% of national assets, while in Russia this number is 10%. Here is a part of the table from the publication that represent the Russian side:

Russian Bank (Equity Per Cent)	Buyer	Transaction Value/ Valuation of the Bank	Capital Multiplier
Delta Credit (100%)	Societe Generale (OTC:SCGLY)	$105M/$105M	2.4
IMPEXBANK (100%)	Raifeissen Zentral Bank (WBAG:RIBH)	$563M/$563M	2.8
Investsberbank (96.4%)	OTP Bank (BDP:OTP)	$478M/$495M	3.8
Rosbank (50%+1)	Societe Generale (OTC:SCGLY)	$2,334M/$4,668M	3-4.3
Orgresbank (75%)	Nordea (STO:NDA)	$314M/418M	3.3
Promsvyazbank (15.3%)	Commerzbank (OTC:CRZBY)	$104M/$680M	n/a
Absolut Bank (95%)	KBC (EBR:KBC)	$1,035M/$1,089M	3.5-3.8
Average multiplier 3.5

Also some hot news of this week:

• The British direct investment fund Aurora Russia has completed the second stage of the purchase of a stake in Unistream Bank, a subsidiary of Uniastrum Bank that specializes in money transfers. During the first stage of the purchase in April 2007, Aurora Russia acquired a 17.7% stake in Unistream for $13.6 million, After receiving permission from the Central Bank of Russia to acquire more than 20% of the bank, the fund acquired another 8.3% interest in the bank for $6.3 million. Uniastrum Bank was Russia's 48th largest bank by assets at the end of the first quarter of 2007, according to the Interfax-100 ranking.
• Firebird investment fund acquired 10% of small Russian SOTSGORBANK through a Cyprus-based subsidiary. 10% were sold for about $10M. As of Q1 2007 SOTSGORBANK was placed as to its assets at No.167 in RosBuisnessConsulting rating of the banks. Firebird Investment already owns equity in Russian regional banks: 8.7% of Center-invest Bank, 10% of SDM-BANK and 10% of NBD-Bank.
• KBC Group (EBR:KBC) formally closed the transaction of acquisition of Absolut Bank at the end of last week with the finale stake of 95% (after buying 7.5% from IFC)
• IFC is buying additional equity issue ($ 184.99 M) of MDM Bank

RUSSIAN IPOs – Review of 16th Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED APRIL 21, 2007

RUSSIAN IPOs – Review of 16th Week of 2007

NASDAQ ENTERING RUSSIAN STOCK MARKET?There was further discussion this week about what is going on in our IPO market. I mentioned earlier that we here see a lot of suggestions from the foreign exchanges, and now we do have the choice! Discussion was started with another elaboration on mysterious new IXSP stock exchange. This time KOMMERSANT DAILY discussed possible acquisition of OMX by NASDAQ. Maybe newsmen have their own confidential sources, but all other news media reported that NASADQ is only one of possibilities that are evaluated by OMX management. Anyway KOMMERSANT’s headline “Nasdaq about to enter Russian market” sounds very intriguing, but I guess is a bit away from reality.

“Nasdaq, one of the world's largest stock exchanges, plans to buy Scandinavian stock exchange group OMX for 23 billion Swedish krona (about $3.3 billion). Late March, OMX announced it was establishing a new international bourse, International Exchange St. Petersburg, together with its St. Petersburg counterpart. If the deal goes through, IXSP will be set up with direct American participation, and Nasdaq will become the first major Western exchange to have a presence in Russia.”

Who knows, maybe this is true, but my discussions with some experts prove that no one believes in it. At the end of the week there were two simultaneous publications on different subjects. First, RBC DAILY printed a commentary by the Quote.ru “Russian companies are accustomed to LSE”, that says “LSE still remains the beloved floor for listings of Russian companies”. However, the author thinks that the recent FSA initiatives to review requirements for foreign listings may result in shift of preferences. Quoting unnamed experts Quote.ru states that the focus of attention for the Russian companies may shift to domestic MICEX and RTS, while there is some possibility that the U.S. markets also may become more accessible. Alfa Bank’s analytic also thinks that there is a possibility that Russian companies may prefer domestic exchanges to LSE. Well, everyone understands that this is something about theoretical deliberations and neither MICEX, nor RTS can be compared to LSE, however, we have seen that a lot of things do happen in Russia, the ones that were unthinkable earlier. Another publication “America calls investors for IPO” was in Friday’s KOMMERSANT DAILY . This basically discussed FRS announcement that there is a re-haul of the IPO listing rules going on. The paper points to the fact that the U.S. authorities may take advantage on tightening the rules in London and entice more issuers to the USA.

UNUSUAL TWIST IN RUSSIAN BANKINGRussian banking sector witnesses profound changes. Just a few days ago I wrote about the biggest transaction with ABSOLUT bank. Furthermore, rather unusual information comes from Africa. It is reported that Renaissance Capital is in the process of establishing a heavily-capitalized investment bank in Nairobi, Kenya. As the first step Renaissance has put in a bid to purchase Francis Thuo and Partners, the oldest stock broking firm in Kenya. More of this news is scheduled to be spilled out next Monday at a special press conference that Renaissance Capital has scheduled in London. IPO drive is overwhelming. During the last two months RTS announced that 9 banks were included in RTS Board list. These are basically smaller sized regional banks, but there are some bigger ones too. Interesting to note that in 2006 only one bank was included into RTS Board.

RUSSIAN BROKERAGE NEWSThe Russian stock market continues its striving forward. This week RBC published Q1-2007 rating of stock brokers. Although the general trading activity this quarter was low, but now there are seven companies that exceeded their turnover over $ 10 billion (last year there was only one). Just to have a feeling of the trading volumes, here is the list of Top 5 broker/dealers (Billion USD):
1. BrokerCreditService - 34,030.55
2. FINAM - 32,166.93
3. TROIKA DIALOG - 20,462.71
4. OTKRYTIJE - 18,208.73
5. ALOR INVEST - 15,490.63

AVIVA GOES TO RUSSIAAviva, the world’s fifth-largest insurer, starts its operations in Russia after 90 years of absence. The plans of the company are stunning – to hire 5,000 direct sales staff, to capture 10% of the market and become Top 5 insurer. Interesting to note that the company plans “to provide whatever capital was necessary to finance the growth program”. In its press-release the company states “to meet the considerable demand growth for employee benefits, including employer-administered voluntary pension plans in Russia, the company has established an "Aviva" Non-State Pension Fund.” This is a bit unusual move for the foreign insurer, but rather challenging. The plans for AVIVA to operate in Russia are really ambitious. We will watch their effort.

OTKRYTIJE NEW EFFORTMoscow-based OTKRYTIJE investment bank acquired 100% of ABC financial services firm following a deal for an undisclosed amount with Compagnie Financiere Tradition (CFT), one of the world’s three largest money brokers. ABC is a member of LSE and this acquisition is viewed as an attempt for the Moscow company to provide for its clients access to global market. As it turns out there are some other ways. Less expensive ways to do this – BrokerCreditService provides this access for the clients working directly from their terminals.

NEW MARKET INSTRUMENT UNVEILED
Very unusual things happen in the Russian market. This proves that the Russian mentality is much diversified when it comes to business. It was reported today that that Pharmacy Chain 36.6 had formed a Joint Venture with a number of players in the Russian financial market. The goal of JV is to buy medical assets (retail chains and medical services providers) in Russia. The financial group that is led by the Standard Bank contributed $ 85 million and the 36.6 Chain - 24.99% of the equity capital in its Veropharm subsidiary. Market experts consider this an extremely smart move. Pharmacy Chain 36.6 urgently needed about $ 205 million for its development and everyone though that Veropharm would be sold. By creation of JV the owners of the 36.6 Chain managed to attract new assets to their business paying nothing and at the same time managing these assets.

NEW "PEOPLE’S IPO"The Russian Public Opinion Foundation released Friday the results of poll it had conducted in 100 cities in Russia (about 1,500 people) regarding the VTB's “people’s IPO”. This is the third Russian company campaign that is labeled with such a tag. Here is a brief synopsis:
- 20% know about VTB; 41% - “heard something about it”; 37% - first time heard about the bank
- 11% have heard about IPO and 13% “have heard something about it”
- 8% think that this is a government-owned bank; 16% - it is private; 26% - a private bank with government participation
- 12% think that “it is feasible for them to get some VTB equity”
- 20% think that the VTB shareholders shall get some profit within 2-3 years (for SBERBANK the number was 22%); 13% think that the owners shall get losses(for SBERBANK 11%); 20% consider that the shareholders shall be even – no profits, no losses(21% for SBERBANK)
In general, as the results of the poll show the share of respondents that think that they would buy equity of some Russian company is:
- Now 39%
- Winter this year – 33%
- Summer of 2006 – 31%

New IPO candidates-Burovaya Kompania Evrasia (BKE, formerly known as Lukoil Burenie), oil and gas service company - London IPO for October-November 2007
-New entity two merged IT companies - IBS and Borlas - IPO in spring 2008
- Dixy food retail chain – IPO in May , raising $350-$450 million from a sale of existing and new shares.
-AFI Development, a company managing the Russian real estate assets of an Israel holding, Africa Israel Investments, - IPO - 19% of its shares on LSE in May
-RENOVA ’s ZOLOTO KAMCHATKI (Kamchatka’s Gold) – possible IPO in London
-GROSS PLANTS, alcohol producer – IPO in 2009
-RTM, developer company - IPO for first half of 2007 on RTS
-SUMMA TELECOM, a WiMAX telecom carrier – IPO within 2-3 years
-KUJBYSHEVAZOT, producer of nitrogen fertilizers – second half of 2007 in Russia

AND FINALLY: BILLBOARD COMES TO RUSSIA
Today I saw the first issue of Russian version of BILLBOARD magazine on the newsstand. WHOA! We are in the world’s civilization!

Russian Banking Tempest

THIS POST WAS ORIGINALLY PUBLISHED APRIL 19, 2007

Russian Banking Tempest

All news media and financing community are discussing today yesterday’s announcement of the biggest ever transaction in Russian banking history – acquisition of Moscow-based ABSOLUT bank by the Belgian KBC financial group. The group valued the bank at $ 925 million. It is the first time in Russian history that a bank has been sold for such a high price. (The transaction should be approved by the Russian antimonopoly service and is estimated to be closed sometime in the third quarter of this year). Actually, KBC will get 92.5% of bank’s equity, while they expect the remaining 7.5% to be bought from IFC very soon.

According to INTERFAX agency, as of April 1st 2007 ABSOLUT bank had assets of 1.8 billion Euros and owned capital of 200 million Euros – which places the bank in 25th position in overall Russian banks (more than 1,100,000) rating. Five individuals are shareholders of the bank.

This event shows the growth interest of world financial community to the Russian banking system. When we look back at historical data, we may find that in 2006 only :
-Austrian Raiffeisenbank acquired IMPEXBANK $ 550 million;
-Hungarian OTB Bank bought 96.4% of INVESTSBERBANK $ 477 million
-Deutsche Bank – 60% of UFG $450 million
-French Societe Generale – 10% of ROSBANK $ 317 million
-Nordea Bank Finland – 85.7% of ORGRES Bank for $313.7 million
-Morgan Stanley – 100% of the GORODSKOY IPOTECHNY BANK for $ 200 million
-German Commerzbank – 15.32% of PROMSVYAZBANK $ 95 million.

Thus Russian banking sector seems to be extremely popular. Now we see emerging trend for the banking IPOs. Just this week we learned about new plans(adding to earlier announcements about ZENIT, NOMOS and GAZPROMBANK):
- KIT FINANCE – mulls listing on MICEX this summer with possibility of LSE listing in 2008
- KHANTY-MANSIYSK BANK – may be the first regional Russian bank that will go public. This was announced during discussion of EBRR and IFC plans to acquire 25% plus two shares of the bank

Russian IPOs - Review of 13th Week 2007

  THIS POST WAS ORIGINALLY PUBLISHED MARCH 31, 2007

Russian IPOs - Review of 13th Week 2007

Academic PapersThis week we saw two interesting analytics papers which I strongly recommend to investigate. The first one is produced by Roland Nash, head of research, Renaissance Capital – “21st century perestroika - Russian investment boom” which clearly analyzes the issue. While the readers may turn their attention to the whole paper, I would like to pinpoint to two things. One of them is the definition of the role of media where I am working now – the financial sector:
"Russia is in the odd position of having both a large excess supply of capital and an equally large excess demand. …. the vortex created by large excess demand and large excess supply of the same resource in the same economy generates the incentive structure that encourages its own solution. … the situation is prevented from clearing by equally enormous logistical barriers. In the private sector, the logistical log-jam is the financial sector which is still incapable of intermediating between demand and supply effectively. In the public sector, it is Russia’s bureaucracy …. What is perhaps the most exciting trend in Russia today is that both of these barriers are being dismantled simultaneously.""Investment, both public and private, is set to boom as the financial sector and the state seek to intermediate the funds being generated by the natural resource sectors into the rest of the capital constrained economy."The other one is the A Future Role of Foreign Firms in Russia's Strategic Industries – Introduction where you may find interesting deliberations on the subject. This is good attempt to evaluate Russia’s key industries and to analyze the growing risks created by the expanding political economy in Russia for a foreign investor.

Russian Stock Market PictureAs the add-on to my recent post, the news spilled out from the IT and Communications Ministry that it still plans to set up a new stock exchange for IT companies. According to the plans the exchange will be similar to NASDAQ. This is sort of enigma – so far no one knows about the specifics and information about it is not disseminated. Although the need for such venture is eminent, once again – it is difficult to comprehend its integration to the current stock market picture. What adds spice to the news that it is expects that one of the first issuers will be the Russian investment fund of information and communication technologies with planned authorized capital of about $56 million.

Russian Developers Are Attractive
Morgan Stanley continues its drive for acquisitions od Russian developers. Its Special Situations Fund III acquired minority stake in RBI developer holding. According to experts this is the biggest deal of its kind in Russia – some estimate it is about $ 200 million. This is the third transaction for Morgan Stanley in this sector with 10% acquisition of RosEvroDevelopment and of minority shares of Moscow based RGI International. Morgan Stanley announced recently that it plans to increase direct investments in Russian companies with the focus on Russian developers. For this purpose the bank plans to attract about $ 1 billion to its fund. In another development it became known that Starr Investments Russia, controlled by Maurice "Hank" Greenberg, the former chief executive of American International Group Inc., will invest hundreds of millions of dollars in Russian real estate with the focus on prime office space, residential housing and hotels, initially in Moscow.

IFC in Russia
The International Finance Corporation (IFC) has agreed an investment proposal with Anglo-Russian mining group Aricom that is the part of Peter Hambro Mining IFC plans to buy $20 million of newly-issued ordinary shares in the company.

Plans to Boost Russian Beer MarketRussia, being the world's fifth largest beer market (China, USA, Germany and Brazil) is also one of the world's fastest growing. Another boost to it will be the aexpnsion of activities of SABMiller Plc that plans to invest $170 million to build its second brewery in Russia. The plan calls for construction by 2009 of a plant at the city of Ulyanovsk. Currently SABMiller is Russia's fifth largest brewer (6% of market share) and this is far off the leaders - Baltic Beverages Holding, InBev, Heineken NV and Efes.

Banking Sector IPOsWe witnessed several announcements this week about IPOs of Russian banks. Generally speaking, there are two reasons for IPOs in this sector: (i) strive to obtain a public company image –this is true for the big banks with the government stakes in them; (ii) acute need for cash or for strategic investors – these are for mid-cap banks. While VTB24 slightly shifted the dates for its IPO we learned about the following:
NOMOS Bank appointed Morgan Stanley and Deutsche Bank with planned IPO in 2007. This would signal a major breakthrough in the banking sector, as NOMOS is 100% privately owned.
Zenit Bank – some reports suggest that te bank plans IPO late 2007
VOZROZHDENYJE bank – IPO in May 2007

IPO Candidates
RESO GARANTYJA Insurance Company named the runners of its IPO – Deutsche UFG, Dresdner Bank and Morgan Stanley. Sometime in June it plans to list 20% of its equity and get $300 million
Magnitogorsk Iron & Steel Works (MMK) - LSE and Moscow, ABN Amro, Morgan Stanley and Renaissance Capital as lead managers.
Dixy Group food retailer - IPO of 23% of its equity domestically or LSE in April 2007.
EuroChem fertilizer producer possibility of IPO in 2007.
TECHNOSERV A/C IT system integrator announced their desire for IPO
Vester food retailer – plans for IPO in 2011
OST ALKO alcohol producer delayed its IPO till late 2008

Russian Banking Sector – New Challenges

THIS POST WAS ORIGINALLY PUBLISHED MARCH 06, 2007

Russian Banking Sector – New Challenges

Recently we learned about Grant Thornton’s 14th Annual Survey of Bank Executives. When reading the paper one cannot, but think about many similarities. We know that sooner or later the global tendencies in financial markets arrive to Russia. Although GT’s findings are about the USA, I guess that we will see this in Russia. Some interesting points:

- One in three bankers (34%) says Internet banks are competitors of concern, a significant increase from the 8% who cited them as a concern in 2003. Four in 10 (39%) bankers are concerned about competition from brokerage firms, and one quarter (25%) say competition from insurance companies worries them

- 70% believe that the entry of Wal-Mart into the financial services business will be a threat to their bank

Russian parallel. Last week report: Surgutneftegas, one of Russia's largest oil producers, will buy 6.5% of the St. Petersburg-based Bank Rossiya's charter capital.

- There is a renewed interest among private and mutual bankers in taking their banks public.

Russian parallel. We know of some Russian private equity funds that are seriously mulling IPO options for them

I think that one of the most prominent changes that we witness with the Russian banks is the upsurge of IPOs. Last week there were a number of press reports that now due to new IPOs possibilities the Russian banks are not THAT much interested in working with the deposits. Because of IPOs the banks are expanding their resources, while deposits are a small part of them. On the other hand the clients are not very happy with the low interest rates. The Russian Deposit Insurance Agency evaluates that in 2007 the deposit growth rate will be about 27% only (as compared with 42.6% in 2006). The Agency reports that the drastic changes were witnessed by Sberbank – the clients’ deposits were down by 0.8% in December with 1.3% in 2006 as the whole.

At the same time the trust funds are prospering, and the market is far from saturation. Though as compared with the world markets the Russian one is relatively modest, but the growth is immense. The last issue of KOMMERSANT DENGI magazine provides the following data:

- trust funds managed volume increased twofold in 2006, and for the last four years – almost four times

- about 10 companies are managing assets of $ 1 billion; over 50 – above $ 100 million; with the total of 200 operating in the market.

So, let us watch the further developments…