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. Last Updated: 07/27/2016

Buyers Edgy on Sberbank IPO

SberbankAn ad for the share issue reads: "Where to? To get Sberbank shares!"
A major rights issue by Sberbank looks set to be priced aggressively but the deal's awkward structure will make its success impossible to judge until the last minute, sources close to the offering said Tuesday.

In what could be the largest capital raising by a Russian company, state-controlled Sberbank is issuing up to 3.5 million shares, and wants investors to pay a market price to replenish its capital base.

If the country's top bank gets its way and sells all the shares, it could raise $12 billion, eclipsing last year's record $10.6 billion international float by state-controlled oil firm Rosneft.

But the vagaries of the rules governing share placements in Russia, with pricing to be set only after the Feb. 19 deadline for existing shareholders to sign up, mean the final outcome is anyone's guess.

"Sberbank has made a big effort to signal that investors are welcome," one source working on the offering said. "The process is cumbersome but it is progressing. We are seeing significant demand both from ordinary and high-end investors.

"The book looks healthy, but we clearly won't know until the last minute because people ... often come in the last two or three days," the source added.

An initial lack of clarity on pricing appears to have been resolved after Sberbank CEO Andrei Kazmin said Feb. 2 that it would be set close to market levels prevailing toward the end of the 20-day offer period.

"The guidance is very clear," the source said. "The price will be close to where the market is near the end of the process, taking into account normal market fluctuations."

One investment banker not working on the deal said red tape, including filing detailed documentation with the Central Bank, was deterring foreign clients keen to get exposure to Sberbank, which unlike Rosneft is not seeking a foreign listing.

"They have made it so complicated that nobody can be bothered," the banker said.

But wealthy Russian shareholders, who together own around 12 percent of Sberbank stock, are lining up to buy, Vedomosti quoted a senior Sberbank manager as saying.

"As of last week, we did not have formal orders from large private shareholders," Vedomosti quoted the manager as saying.

"But that doesn't worry us, because the most serious investors always place their orders at the very last minute."

The manager named billionaire investor Suleiman Kerimov, who owns a 6 percent stake of Sberbank, as one buyer. Others include cement tycoon Filaret Galchev and property developer Yelena Baturina.

The catch with rights issues in Russia is that they resemble an option, meaning investors can walk away if they consider the final price -- to be set by Sberbank's supervisory board -- to be too high. The shares to which they are entitled would then lapse.