Bankers Estimate VTB Value as Up to $35Bln

Itar-TassAn advertisement saying VTB shares can be bought at VTB 24 branches.
Analysts have valued the country's No. 2 bank, state-run VTB, in a core range of $30 billion to $35 billion ahead of its international stock market float, a banking source close to the offering said Friday.

The valuations, from analysts at the banks organizing the first float by a Russian bank in London, are well above initial estimates of $20 billion to $25 billion that state-owned VTB would attain via the float.

VTB, the former-Soviet foreign trade bank, plans to float a stake of 22 percent to 23 percent. At the higher valuations VTB could raise $8 billion, which CEO Andrei Kostin wants to invest in expanding its retail operations and investment banking acquisitions.

"The consensus is $30 billion to $35 billion," the source said. "But the range is very wide -- from less than $30 billion to as much as $40 billion."

State-owned VTB formally announced its long-awaited float last week. A price range for the offering is due to be announced on April 25, with final pricing of the deal expected on May 11.

Citigroup, Deutsche Bank and Goldman Sachs are joint global coordinators for the IPO, together with Renaissance Capital as joint bookrunners. Its retail arm, VTB 24, and Renaissance Online are already taking orders from Russian private investors.

The positive buzz surrounding the initial public offering lifted shares in Russia's only other big bank, state-controlled market leader Sberbank, which rose 3 percent to a record high of 102,000 rubles ($3,944).

Sberbank last month completed an $8.8 billion rights issue, but the deal was placed only on the Russian market whereas VTB expects to sell up to 70 percent of the shares it is offering to international institutions.

UBS banking analyst Bob Kommers upgraded his price target for Sberbank to $5,250 from $4,400 and reiterated his 'buy 1' rating, saying completion of its rights issue and the VTB deal "provide near-term catalysts for a further re-rating."

Analysts said VTB's 2006 results this week, in which net profits rose by 131 percent to $1.18 billion while interest margins and return on equity improved, were supportive of a more demanding IPO valuation.

But they noted that VTB's profitability lagged behind Sberbank's and depended more on volatile income from its investment portfolio, which features a 5 percent stake in European aerospace company EADS.

"Because of its lower profitability, even in the very best case VTB could place shares at a price-to-book ratio of 2.4 times, compared to Sberbank's placement multiple of 3.1 times," Alfa-Bank's Natalya Orlova said in a note.

Plugging that ratio into the deal would give VTB a market capitalization of $45 billion, Orlova said, estimating that VTB could raise between $8 billion and $10 billion when it floats.

One investment banker not involved in the deal has expressed skepticism, however, saying he would have preferred to see VTB include its retail operations in the float.

"I don't trust banks that rely only on corporate business -- it should be one bank," the banker said, adding that the concentration of VTB's investment portfolio also posed a risk.