Sberbank’s SPO – a step in the right direction for Russia

Financial experts agree the success of Sberbank’s secondary public offering (SPO) on both the London and Moscow stock exchanges this week is an important step in Russia’s journey to privatisation of state owned assets and improving its attractiveness as an investment destination.

Despite worries that investors may not want additional exposure to Russia’s largest bank, the deal was a great success. Investors paid over $5bn for a 7.6% stake in the business, marking the largest transaction on the Russian market since before the 2008 financial crisis.

The deal was oversubscribed, with twice as much demand as supply. The interest came from investors across the globe. Ruben Vardanian, co-head of Sberbank’s corporate investment block, told Russia’s news channel RBK TV the investor base included both speculative investors, such as hedge funds, and more long-term oriented institutional investors.

This is a particular advantage, because it ensures longer-term financing for the bank and demonstrates a surge in appetite for Russian assets among the more conservative allocators.

There was further evidence of market confidence was in the fact that the order book was full within the first day of the SPO. “Investors were clearly waiting for the placement with anticipation,” Vardanian commented.

The success of the transaction is all the more surprising, considering that Sberbank’s shares are not particularly cheap compared to the market average. From the start of the year, the stock price gained 24% and stands at double that of both Russia’s RTS index and its European peers.

Michael Zavaraev, senior analyst at Russia’s investment manager Arbat Capital, believes one of the reasons for this is the bank’s high return on equity. Over the last year and a half, this indicator has exceeded 27%, while for many banks in the developed world “even 10% remains an unattainable dream”.

Additionally, the growth potential for the bank looks much better than that of its European peers. The bank’s holdings have gained 18.4% this year alone, while most European banks continue loosing assets.

Vardanian also points to the successful timing of the transaction. The positive news from Europe, the US and China created a favourable context for the SPO, he says. “The markets are very volatile at the moment, so we needed to find a moment when investors would stop worrying about the global picture and start making informed decision, and we were very successful,” he told RBK TV.

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