RZD, Alrosa Pay 100 Rubles for KIT

The country's state railways and diamond monopolies on Wednesday stepped in to jointly buy 90 percent of KIT Finance, three weeks after the investment bank defaulted on its debt obligations amid the country's stock market crash.

Russian Railways, or RZD, and Alrosa will each take a 45 percent stake in the bank, with 10 percent remaining in the hands of the bank's management, all three companies announced in a joint statement Wednesday.

The deal comes as an apparent shock to the market, after a statement from KIT Finance on Sept. 17 that Lider, the company managing Gazprom's pension fund, was in the "final stages of talks" to take over KIT Finance with support from Gazprombank and VTB.

No total value was put on the deal, but RZD vice president Fyodor Andreyev said in the statement that the deal "does not currently demand any substantial financial expenditure from [RZD]." Analysts estimated that KIT Finance's liabilities could be as much as 30 billion rubles.

A source at the bank said the stake was purchased for 100 rubles, or about $4, Interfax reported.

KIT Finance was only able to meet its obligations after Gazprombank extended it $880 million of credit support on Sept. 19.

In the statement, KIT Finance general director Alexander Vinokurov thanked Lider for having "helped the bank in discussions with investors."

"Gazprombank is our creditor," KIT Finance's press office said in a separate statement Wednesday.

The deal comes after RZD president Vladimir Yakunin last week announced that the railways monopoly may have to scale back its investment program by as much as 15 percent over the next few years because of the current financial crisis.

The KIT Finance sale represents the second major restructuring in the country's investment banking sector, after billionaire Mikhail Prokhorov agreed to buy half of Renaissance Capital for $500 million on Sept. 23.

Since then, Russian stock markets have continued to plummet despite a massive $190 billion state bailout package to boost liquidity in the banking sector. This has led to a chorus of voices claiming that a state-backed consolidation of the banking sector is around the corner.

Explaining the deal, which sees the new shareholders receive control over the KIT Finance group, including the KIT Finance Investment company, KIT Finance Insurance and a stake in a joint venture with international investment firm Fortis Investments, Vinokurov said that RZD and Alrosa are both longstanding clients of KIT Finance and "know the bank's business and managers very well."

"Thanks to this, the discussions that took place enabled us the form a consortium and agree to the conditions of the deal in a relatively short period," Vinokurov said.

All the deal's participants talked up the potential of the beleaguered bank.

"Now we are sure that KIT Finance's business can develop and bring in profit for the shareholders," said Igor Prokhorenko, general director of state-run diamond producer Alrosa.

But analysts said there were still serious questions hanging over the deal.

"There are questions about what kind of guarantees Alrosa and Russian Railways can provide and what they will do with the assets afterwards," said Anton Tadakh, a senior analyst at Troika Dialog.

While the market knows that KIT needs to be saved, no one knows the size of the bank's liabilities, Tadakh said.

Both Russian Railways and Alrosa have spare cash, and it looks like they were stepping up to the plate to help out the banking sector, while Gazprom could be finding it more difficult to take on extra financial obligations now, Tadakh said.

Maria Levina contributed to this report.