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. Last Updated: 07/27/2016

Minimum Price for Sberbank Issue Fixed

Russian supervisors have set the minimum price for a major share offering by Sberbank at a hefty discount, a senior source in the National Banking Council said, fueling interest in the record-breaking capital hike.

"The National Banking Council has fixed the minimum price at the level of 65,000 to 70,000 rubles [$2,450 to $2,640] per share," the source said Wednesday after the NBC reviewed the proposed share offering Tuesday evening.

Shares in the country's largest bank traded higher at a record 95,846 rubles after a 6 percent gain Tuesday. That implies a potential discount of up to 32 percent for investors who take part in the open subscription.

If the issue is fully taken up, Sberbank will raise at least 228 billion ($8.6 billion) in the largest Russian capital raising after oil firm Rosneft's $10.6 billion international flotation last year.

Analysts said the placement, expected in February, was likely to price closer to market levels thanks to keen investor interest and financial backing for the issue from the Central Bank.

The NBC, officials said, also gave the green light for the Central Bank -- which owns over 60 percent of Sberbank -- to act as a de facto underwriter of the offering by buying nearly 900,000 shares. Lead managers are Credit Suisse and J.P. Morgan.

"The Central Bank's decision to facilitate Sberbank's secondary placement offers timely assistance," commented Anton Tabakh, a banking analyst at UralSib brokerage.

Questions remain over whether Sberbank needs to sell the full 3.5 million shares to strengthen a balance sheet stretched by rapid asset growth.

Andrew Keeley, a banking analyst at Troika Dialog, raised his Sberbank target price to $4,378 and recommended that investors buy the stock. But he factored in an $8 billion capital hike from the sale of 2.5 million shares into his calculations.

Keeley forecast compound annual growth in assets of 31 percent and earnings per share growth of 22 percent from 2007 to 2010. He estimated Sberbank's 2007 price to book ratio at 3.2 and its price to earnings ratio at 19.1.

"After the new issue, Sberbank's valuations will look much more compelling," Keeley said in a note.

Not all market players were positive, though, with some analysts saying it might not be possible to mobilize institutional and retail investors for the deal, which is being sold in Russia but not on foreign markets.

And some investors said Sberbank was starting to look richly valued after its ruble shares rose 2 1/2 times in value last year. Without factoring in the capital hike, Sberbank trades at around 5 times forecast 2007 book value. That is double the price to book of U.S. banking giant Citigroup, said James Fenkner, at Moscow-based hedge fund Red Star Asset Management.

"When all the ducks are quacking, it's probably time to feed them – it's not a cheap bank," Fenkner said.