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. Last Updated: 07/27/2016

Sberbank Wants New, 10-Million Share Issue

Top savings bank Sberbank said Monday it is planning another share issue that would shrink minority investors' holdings in the company.

Last week the bank completed a controversial share issue that diluted minority stakes and prompted a law suit.

Sberbank issued a statement on its web site (www.sbrf.ru) saying the proposed issue of 10 million new shares would have a face value of 50 rubles ($1.71) each.

It said it plans to ask shareholders at its annual meeting June 27 to adopt amendments to its charter that will make it possible.

"I can't say more than what you can find on our official [Internet] home page," Dow Jones newswire quoted Sberbank spokesman Alexander Goluvanov as saying Monday.

The changes will give the Sberbank supervisory board the opportunity to increase the bank's charter by 150 percent at any time, thus diluting minority shares.

The new issue would raise the total number of outstanding shares to 29 million just a week after the bank completed an issue of about 5 million shares to selected investors, including the Central Bank.

The position of minority shareholders is made more complicated by the fact that Sberbank shareholders lack the preemptive right to purchase newly issued shares. They would like to have this right included in the charter, but doubt that the main shareholder — the Central Bank — will agree.

An entire section is devoted to amendments to the charter in the documents prepared for the annual general meeting of shareholders — which was first reported by Troika Dialog in a research note Friday.

Seventy-five percent of the votes of shareholders present at the meeting is required for the amendment to be passed.

"Sberbank is giving investors little but despair. … Although Sberbank is included in the Troika Dialog model portfolio, it will be sold next week. Under the threat of a 10-million share issue, the risks significantly exceed any possible gain," wrote Troika's James Fenkner.

On Monday, Troika downgraded Sberbank from "buy" to "sell."

Fenkner said that the management should have made a public announcement regarding the shares "rather than having three lines tucked away on page 39" of its AGM agenda.

Troika branded Sberbank as a highly speculative investment Monday, downgrading its recommendation to hold from speculative strong buy.

The decision to issue voting shares for 36 percent of the charter capital was adopted by the Sberbank supervisory board in December last year. On March 26, the Central Bank registered the issue prospectus. The placement went ahead on April 25 by open subscription at a cost of 1,000 rubles per share.

As a result of the issue, Sberbank's charter capital increased to 1 billion rubles ($30 million). The voting shares of its main shareholder, the Central Bank, rose from 57.7 percent to 63 percent, otherwise the shareholder composition did not change significantly.

Bill Browder, the head of Hermitage Capital Management, which sued Sberbank over the issue, plans to fight the new dilution. (MT, Vedomosti)