By Katya Golubkova
MOSCOW (Reuters) - VTB
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 KGB agent has managed to reel in big-ticket investors.
"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
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 ($3.3 billion).
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 December 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 Russian market.
"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.
(Additional reporting by Megan Davies; Editing by Douglas Busvine and David Holmes)