VTB: Another Multi-Billion Dollar Offering

The Russian retail banking sector is facing a wave of diversification, set to reduce the dependency of the country's depositholders on the virtual monopoly, Sberbank. In another multi-billion dollar IPO offering, $8.2 billion total, Vneshtorgbank (VTB) plans to raise money to finance very ambitious growth plans, becoming the first Russian bank to perform an IPO in London. The Financial Times reports:

The proceeds will help finance ambitious growth plans. Unlike Sberbank, government-owned VTB is still mainly a commercial bank but wants to expand its retail business, build commercial and retail operations in former Soviet countries and develop an investment banking capability.

Such plans by a UK or US bank would set alarm bells ringing. But VTB enjoys strong underlying growth in the still-undeveloped Russian banking market, coupled with the prospect of substantial market share gains. Sberbank has more than a 50 per cent share of retail deposits, compared with VTB’s 5 per cent, which leaves plenty of scope to bite into Sberbank’s business.

Up to 70% of the proceeds will be raised on the London Stock Exchange, which has become a cash generating heaven for Russian companies. The road show for institutional investors conducted by the leading investment banks as well as Russian Renaissance Capital have shown the insatiable appetite for Russian giants both in Russia and abroad. The IPO comes a few months after Sberbank's second offering which raised $8.8 billion. The Russian government will continue to hold 75% of the VTB stock, and many analysts predict VTB will become another Russian foreign policy tool in its integration into the European market. VTB holds a 5% stake (considerable for a retail bank) in EADS, the European maker of Airbus, and has been quietly pushing for a greater Russian participation in the Airbus development, parts of which are being produced in Russia.

The Russian banking sector is expected to see record growth in the years to come, with the number of deposits and investment accounts growing by several factors annually. The fact that over 50,000 private individual Russian investors signed up to participate in the offering highlights this trend. Similar growth in the credit system along with the expected integration into the WTO will only underscore the banking potential in Russia. Government participation in ownership of Russian businesses is the best guarantee of stability, so VTB will most likely be a great investment opportunity, unless its IPO is overpriced.