(Updates prices in 4th paragraph)
Oct. 17 (Bloomberg) -- OAO Promsvyazbank, Russia’s third- biggest non-state lender, will revive plans for an initial public offering once banking stocks recover as it seeks funds for expansion, President Artem Konstandian said.
“There are practically no alternatives to an IPO,” Konstandian said in an interview in London on Oct. 15. “Given the scale of our business, there is a need to increase the affordability of capital and create a currency for mergers and acquisitions.”
Promsvyazbank, based in Moscow, delayed a share sale last year, saying the potential pricing didn’t reflect the “fair value” of the bank, according to an October 2012 statement. Russian companies from Sibanthracite Plc to NTS Holding Plc have postponed IPO plans this year, citing lower investor demand and market volatility.
Shares of state-run OAO VTB Group, Russia’s second-biggest lender, tumbled 19 percent so far in 2013 in Moscow, while the stock of its bigger competitor OAO Sberbank advanced 11 percent. The lenders trade at multiples of 5 and 6 projected 12-month earnings, respectively, compared with an average of 9.2 for financial companies in the MSCI Emerging Markets Index, data compiled by Bloomberg show.
The levels at which “Sberbank, VTB are trading” means that an IPO isn’t compelling to pursue “in the nearest future,” Konstandian said. Promsvyazbank, which secured a $300 million syndicated loan this week, would reconsider an IPO to fund “opportunistic” acquisitions, he said, adding that no such deals would take place before a share offering.
TCS Group Holding Plc, the owner of Tinkoff Credit Systems Bank, plans to hold a $750 million IPO in London this month, set to become this year’s first Russian company to sell shares in the city.
Russian banks will face “challenging” conditions through 2014, as non-performing loans are set to rise while profitability falls, Moody’s Investors Service said in a report on Oct. 7. The country of more than 140 million people is struggling with the slowest economic growth since a 2009 recession, with the Economy Ministry forecasting expansion will slow to 1.8 percent this year from 3.4 percent in 2012. Achieving 3 percent growth in 2014 would be “fairly optimistic,” Finance Minister Anton Siluanov said this month.
Promsvyazbank is “growing amazingly well, but profit growth is being eaten up by reserves growth,” Konstandian said, referring to the provisions the lender is taking for bad loans. The loan-loss reserves amounted to 3.6 percent of gross loans in the first half, according to Moody’s estimates.
The bank’s NPL ratio of 3.3 percent at the end of June is unlikely to increase, Konstandian said. The bank’s return on equity was 14 percent in 2012, he said.
“I hope, against the backdrop of a worsened macroeconomic situation, to show results that aren’t worse than last year’s,” Konstandian said. “Unfortunately, I have to say this is an ambitious goal.”
--Editors: Daliah Merzaban, Marie-France Han