Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

French Seal DeltaCredit Deal

France's Societe Generale will pay around $100 million to buy DeltaCredit, the leader of Russia's fledgling home loans market, the seller said on Friday.

Societe Generale is paying about 2.5 times book value for outright control of DeltaCredit, said Patricia Cloherty, chairman and CEO of venture fund Delta Private Equity Partners.

"The price is in the range of $100 million, subject to adjustments and closing," Cloherty told a news conference, adding that she expected final regulatory approval in November.

Societe Generale's purchase adds to its Russian portfolio, which includes consumer credit house Rusfinance, car loans specialist Promek Bank and Banque Societe Generale Vostok.

"All that was missing was a product specializing in home lending," said Pierre Bourset, Societe Generale's commercial manager for international retail banking.

The World Bank's investment arm, the International Finance Corp., recently bought a $6 million stake in DeltaCredit.

"IFC entered and exited quickly, and turned a profit," said Delta Private Equity's managing director, Kirill Dmitriyev.

With a lending portfolio of around $200 million, DeltaCredit controls one-fifth of Russia's $1 billion home loans market, which is worth just 0.2 percent of gross domestic product.

The bank estimates the mortgage market will explode to $20 billion to $30 billion by 2010, now that legislation is in place and increasingly affluent Russians set their sights on buying their own homes.

"Our goal is to grow with the market," said Igor Kuzin, chairman of the board of DeltaCredit.

With the acquisition, DeltaCredit's credit ratings will improve, enabling it to raise funding on capital markets cheaper than that of its Russian-owned competitors. DeltaCredit is rated B by Standard & Poor's and Ba2 by Moody's.

DeltaCredit plans to issue around $100 million in mortgage-backed bonds in 2006, and will look at both international and Russian capital markets as potential funding sources, executives said.

The DeltaCredit sale comes almost a year after Delta Private Equity Partners sold consumer loans specialist Delta Bank to GE Consumer Finance, which paid $100 million and provided a $50 million credit line.

The GE unit wants to move into the mortgages sector, but Societe Generale has no plans to rebrand its latest acquisition to avoid confusion in the minds of potential customers.

"The DeltaCredit brand is very well-known and has a high reputation on the Russian market," said Boursot, adding it would be a "terrible mistake" to abandon it.

DeltaCredit was owned by two funds under Delta's management, the IFC and the General Electric pension fund, said Cloherty, adding that some of the owners would realize triple-digit annual percentage returns on their investment.

"DeltaCredit's leading position on the real-estate market will allow Societe Generale to strengthen its presence in Russia," Jean-Louis Mattei, head of international consumer banking, said in a statement.

Societe Generale, whose French consumer bank contributes about one-third of revenue, has expanded into countries including Russia and the Czech Republic, buying banks, credit-card and leasing businesses.

Earlier this month, the Paris-based bank reported an 18 percent rise in second-quarter net income to 957 million euros ($1.19 billion), helped by a 14 percent increase in consumer banking earnings. Earnings from consumer banking outside France grew 55 percent from year-earlier levels.

Before the 1917 Bolshevik Revolution, Societe Generale was Russia's leading private lender with more than 100 branches. Current chairman Daniel Bouton is a Russian speaker and has said he is keen on expanding there.

(Reuters, Bloomberg)