(Repeats inadvertently deleted items; corrects in fourth
paragraph to "former diplomat" from "former KGB agent")
* Norway, Qatar, Azeri funds take more than half offering
* Deal reflects Putin's state-capitalist agenda
* VTB to focus on organic growth after setbacks
* Offering seen as cheap for long-term investors
* Shares up 2.3 percent
By Katya Golubkova
MOSCOW, April 29 VTB attracted a new
class of sovereign investor into Russia with a $3.3 billion
share sale, whose proceeds the state-controlled bank pledged to
invest in expanding its share of the domestic market.
Russia's second-largest bank is offering stock at a third of
the price at which it floated six years ago, reflecting the
impact of the global crash, a troubled acquisition and a costly
push into investment banking.
The deal was covered before subscriptions were due to open,
VTB said on Monday, with backing from sovereign funds from the
energy-rich states of Norway, Qatar and Azerbaijan, described by
CEO Andrei Kostin as "committed, long-term investors".
Kostin had presided over an initial public share offering in
2007 and a subsequent stock offering in 2011, which helped send
VTB's share price lower, but after months of financial diplomacy
the urbane former diplomat has managed to reel in big-ticket
"From now on we are planning to feed only bulls, not bears,"
Kostin joked on a conference call with analysts. "Those bears
present at this conference, please find another victim."
The buyers, investing in Russia for the first time, follow
in the footsteps of Chinese sovereign fund CIC, which
bought VTB stock in 2011 and later acquired stakes in gold miner
Polyus and fertiliser firm Uralkali.
The latest deal reflects President Vladimir Putin's
preference for a state-driven capitalist model, based on
long-term strategic partnerships, after the 2008 crash caused
finance capital - and western banks - to leave the country.
VTB is selling 2.5 trillion shares on the Moscow stock
market at 4.1 kopecks apiece, a discount of 10 percent to last
Thursday's close. It will raise a total of 102.5 billion roubles
After taking into account the fact that the new shares are
not entitled to 2012 dividends, the discount narrows to 6.8
percent, the bank said.
For Kostin, the capital-raising marks a chance to turn the
page after the ill-fated takeover of Bank of Moscow in 2011,
which uncovered a balance sheet hole at the acquired bank and
triggered Russia's largest-ever bailout.
The share issue will bolster VTB's Tier 1 capital adequacy
ratio - a key measure of a bank's ability to absorb losses - to
11.9 percent from 10.3 percent as of Dec. 31, higher than
Russian market leader Sberbank.
Yet rather than just filling holes in its balance sheet, as
many western banks are being required to do to meet tougher
regulatory requirements, VTB said it wants to deploy the new
capital to win market share in Russia's retail lending sector.
The capital injection should see VTB through to 2016, while
retail lending would expand by 25 percent this year, outpacing
corporate lending growth of 15 percent.
With VTB shares priced at just 0.6 times estimated 2013 book
value, and five times forecast earnings, analysts at Bank of
America Merrill Lynch see potential for the stock to move
sustainably higher if the bank sticks to its stated strategy.
"VTB's willingness and ability to focus on the core
business, decrease earnings volatility and improve visibility
could be major long-term catalysts for the stock to re-rate,"
analysts Olga Veselova and Maciej Szczesny wrote in a note.
Norges Bank Investment Management, Qatar Holding and the
State Oil Fund of Azerbaijan signed up for more than half of the
offering, with the rest accounted for by Russian and foreign
institutions. The sovereign funds were unavailable for comment.
The Russian government was expected to waive its right to
subscribe to the offering, which would dilute its 75.5 percent
stake to 60.9 percent.
Minority shareholders will have from May 6 to May 17 to
exercise their subscription rights, but even if they decline,
the offering would still be fully covered by the cornerstone
investors, VTB Chief Financial Officer Herbert Moos said.
Investors are subject to a six-month lock-up, during which
they may not sell their shares, while the Russian government was
expected to refrain from selling down its stake for 12 months.
VTB shares rallied by 2.3 percent on the back of the news,
making them the strongest-performing blue chip stock on a mixed
"It's fair to say that this is the cheapest secondary
offering by a bank in recent Russian history," said Andrei
Klapko, a banking analyst at Gazprombank in Moscow. "I don't
think you will see banking assets cost any less than this."
Citigroup and VTB Capital are acting as global coordinators
and bookrunners, while Bank of America Merrill Lynch and J.P.
Morgan are acting as joint lead managers.
($1 = 31.2412 Russian roubles)
(Additional reporting by Megan Davies; Editing by Douglas
Busvine and David Holmes)