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. Last Updated: 07/27/2016

VTB Boasts Its IPO Will Best Sberbank's

CEO Alexei Kostin touted VTB's upcoming share sale as a "people's IPO" at a news conference Tuesday, as the bank announced a net profit of $1.18 billion for 2006.

"The impetus for the IPO is Russia's booming banking sector, and we intend to capitalize on this by broadening our retail investment and expanding to overseas markets," he said.

Kostin said he expected up to 23 percent of VTB to be sold for at least 120 billion rubles ($4.6 billion).

Russians are actively applying to buy shares in the initial public offering, which started taking domestic orders Monday, Kostin said.

He contrasted the VTB offering with the recent Sberbank share sale, which he called a "local share emission." As the country's first genuine bank IPO, a few mistakes would probably be unavoidable, Kostin said.

Foreign investors will be able to bid when the bank lists on the London Stock Exchange in early May. VTB has hired Citigroup, Deutsche Bank and Goldman Sachs to manage the flotation.

VTB, which is currently 99.9 percent owned by the state, said Tuesday that its earnings to international accounting standards rose by 131 percent last year.

Some analysts expressed doubts about VTB's underlying profitability, however, with Alfa Bank saying in a note to investors Tuesday morning that the banks' expected return on equity was a mere 18 percent, compared with 34 percent for Sberbank. About 40 percent of VTB's 2006 net profit came from its sale of stakes in KaMAZ and International Moscow Bank, Alfa Bank said.

VTB officials said Tuesday that about 70 percent of the shares would be sold in London. By law, 30 percent of shares in Russian emissions should take place on domestic markets.

Kostin said applications for shares were being accepted at all of the bank's 520 offices nationwide until May 7, adding that Russian citizens and nonresidents alike were eligible to take part.

Lyudmila Chernova, an analyst with think tank IPO Congress, said that with its vast network of political and other connections, VTB had every chance to pull off a successful IPO.

"VTB is a major player, holding about 10 percent of the country's total bank sector assets and a strengthening presence in the CIS," Chernova said. "All this puts VTB in a strong position."

Anders Aslund, senior fellow at the Washington-based Peterson Institute for International Economics, said the share sale appeared to be aimed at generating a war chest to fund future acquisitions.

"VTB is just like Rosneft or Gazprom in that it is launching its IPO just to make more money to acquire other companies for the state," Aslund said.

"VTB will not focus on making profit for investors but will rather act as a state instrument for regulating the economy by reducing capital flight or building up the Russian stock market," he said.