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. Last Updated: 07/27/2016

Societe Generale's Buy Of Rosbank Is at Risk

Societe Generale's purchase of control in Rosbank is at risk as state arms exporter Rosoboronexport wants to buy the stake and is seeking to reverse the deal, Vedomosti reported Friday.

French bank Societe Generale said, however, that there were no changes to its plans concerning Rosbank.

"The contractual agreements regarding Rosbank envisage the purchase of shares of the total business perimeter of the bank in case of exercise," SocGen said in a statement.

Societe Generale last year bought 20 percent minus one share in Rosbank, which belongs to metals billionaires Mikhail Prokhorov and Vladimir Potanin, with an option to buy 30 percent plus two shares for $1.7 billion before the end of 2008.

Vedomosti cited sources close to Prokhorov as saying the state arms exporter had filed a request with the Central Bank to see whether the deal could be reversed.

"The military has accounts in Rosbank, and they express concerns that [SocGen] can get access to state secrets," Vedomosti quoted one source as saying.

Prokhorov is in talks with Rosoboronexport head Sergei Chemezov about splitting Rosbank into a retail and a corporate lender. Rosoboronexport wants a stake in the corporate bank, leaving Societe General with control of the retail bank, Vedomosti said.

Rosbank and Rosoboronexport were not immediately available for comments.

The arms exporter might also be seeking to acquire the bank itself as it is struggling to service its accounts in the country's largest banks, Sberbank and VTB, after recent management reshuffles, sources told the newspaper.

Alfa Bank said in a note that it believed the news came on the back of a painful divorce process between Potanin and Prokhorov, who have been struggling to split their metals, mining and energy assets.

"As the sale of shares in Rosbank to Societe Generale has already been approved by Russian authorities, it is unlikely the deal can be blocked without seriously damaging the reputation of the Russian government," analysts Natalya Orlova and Olga Naidenova said in a note.

"Even if Rosbank's business is split into retail and corporate parts in order to satisfy Rosoboronexport and partially salvage the deal, this is unlikely to be accepted by SocGen," they said, adding that the news was bad for Rosbank's shares.

Reuters, Bloomberg