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. Last Updated: 07/27/2016

VTB's $8.4Bln Float Viewed as Unlikely

State-owned VTB will try to raise up to $8.4 billion in an initial public offering in London next month, issuing some 1.7 trillion shares at a price that some market players view to be grossly inflated.

The bank said Wednesday that it had set the indicative price range for its IPO, the first by a Russian bank in London, at 11.3 to 13.9 kopeks per share, implying a market capitalization of $22.85 billion to $28.1 billion prior to the new share issue.

The bank plans to issue 1.73 trillion new shares, equal to 25 percent of its charter capital. The bank then plans to float 22.5 percent of its shares in Moscow and London.

The placement of 1.56 trillion new shares will raise $6.84 billion to $8.42 billion and dilute the government's share in VTB to 75 percent.

Based on 2007 earnings forecasts, this implies a price-earnings ratio of 27 at the upper price range, UBS analyst Bob Kommers said. Compared with Sberbank, whose stock price is 17 times its projected earnings for 2007, this is "very expensive," Kommers said.

Investitsia brokerage changed its plans to take part in the emission after hearing Wednesday of the "extremely inflated price," the company's general director Alexei Chalenko said in an e-mailed statement Wednesday.

"Between 5 and 6 kopeks [per share] would already be an overvaluation," Chalenko said. "After the emission, we will buy the stock when its price drops by at least 30 percent."

Other analysts struck a more confident note.

"I think the IPO will be priced closer to the upper end of the price range as investor demand is very high," Troika Dialog analyst Andrew Keeley said.

At the bottom end of the range, Kommers said, the valuation is "reasonable."

"VTB is by far the largest, most accessible and most liquid investment into the banking sector. Although the valuation range is somewhat challenging, I think the IPO will be successful," he added.

Fast-growing Russian banks are starting to tap the equity market to replenish their capital base, largely depleted after demand for loans grew fivefold since 2002.

State-controlled Sberbank last month completed an $8.95 billion rights issue. But that deal was placed only in Russia, while VTB hopes to sell up to 70 percent of its offering to international institutions.

"Debates on the price range continued until after midnight. The consultants proposed widening the price range to meet the traditional proportion of a difference of 20 percent between the lower and the upper price in the range," a source close to the placement said on Wednesday.

VTB, the former Soviet foreign trade bank, has said it wants to invest in expanding its retail operations and investment banking acquisitions.

Citigroup, Deutsche Bank and Goldman Sachs are joint global coordinators for the IPO, together with Renaissance Capital as joint bookrunners.

The final pricing of the deal is expected on May 11.

Reuters, MT