VTB, Russia's second-largest bank, raised $8 billion on Friday in the world's largest stock market float of 2007, and its shares rose by up to 11% in initial trading as investors piled into the stock.
State-controlled VTB priced its offering of 1.513 trillion new shares at 13.60 kopecks and its global depositary receipts at $10.56, near the top of an indicative range. Sources said the total IPO book was covered seven times.
The placement of the 22.5% stake values VTB at $35.5 billion. That compares to the $89 billion market capitalization of Russia's market leader, Sberbank, whose shares have rallied by 117% in the past 12 months.
"The strength of demand for our shares reflects investor appetite for the high quality exposure to the fast growing Russian banking market that VTB offers," VTB President Andrei Kostin said in a statement.
The VTB deal, Russia's second largest float, drew keen interest from the outset, unlike last year's $10.6 billion IPO by state-controlled oil firm Rosneft, where foreign oil majors and Russian 'oligarchs' stepped in to cover the book.
It also differed from a recent rights issue by Sberbank that raised more money than VTB on the domestic market but had to be underwritten by Russia's central bank to succeed.
VTB said it had allocated shares worth $1.6 billion to 131,000 Russian retail investors, who formed long queues at its branches to sign up, satisfying their bids in full.
"It was a model IPO, out of the text book," said Anton Tabakh, banking analyst at UralSib. "It was a great promotion. Every street dog knows about this bank now."
Prior to VTB, the biggest IPO in the world so far this year was China CITIC Bank, which raised $5.4 billion.
Share Trading
Sources said 30-40% of the initial public offering, went to domestic investors and the rest to international investors via a London listing.
VTB's GDRs rose as high as $11.76 in early conditional trading, as institutions whose orders were cut back sought to boost their exposure to Russia's booming banking sector. They later changed hands at $11.30, a gain of 7%.
"The IPO should result in VTB becoming the most liquid Russian bank tradable overseas, ensuring stable interest among foreign investors," said Rustam Botashev at Aton Capital.
Investors bought into VTB as a way of diversifying their portfolios out of Sberbank. Although Sberbank's return on equity of 30% last year was higher than VTB's 19.7%, VTB is cheaper by other benchmarks.
Natalya Orlova, banking analyst at Alfa-Bank, said VTB was worth 2.2 times its forecast 2007 book value, compared to a Russian banking sector average of 3.3, suggesting its shares had upward potential of as much as 40%.
VTB was founded as Russia's foreign trade bank in 1990, before the break-up of the Soviet Union, and has built up a large corporate banking operation.
It wants to invest the IPO proceeds in expanding its VTB-24 retail arm, which has 524 branches, bulk up the foreign operations it took over from Russia's central bank and make investment banking acquisitions.
The bank had $52 billion in assets at the end of 2006, up 43%, while its loan portfolio grew by 47% to $29.3 billion. That outpaced market growth in Russia, where borrowing is low in absolute terms but is growing at 40% a year.
Citigroup, Deutsche Bank and Goldman Sachs were joint global coordinators for the IPO, together with Renaissance Capital as joint bookrunners.