A Survivor of Russia's Bank Purge Is Eyeing an IPO in 2019

(Bloomberg) -- As a four-year purge of Russia’s rotten banks draws to a close, those still standing are starting to dream big. One is even targeting an initial public offering as early as next spring.

Sergey Khotimskiy, a co-founder and core shareholder of PJSC Sovcombank, says his bank wants to raise at least $300 million through what could be the first significant Russian bank IPO in more than five years. That could expand its equity by 20 percent or more.

A deal of that size could face big headwinds, as ever-broader U.S. sanctions hit the ruble and the economy -- pushing up inflation, damaging confidence and posing a threat to growth. But for Khotimskiy, the current difficulties are temporary and cyclical, rather than a permanent re-rating of Russian assets.

“There are waves of sentiment towards Russia and waves of sentiment to banks across the world,” he said. “Now both waves are bad, so we need to wait until investors’ mood changes.”

The 40 year-old said he’s seen such swings “many times before,” and said the bank can afford to wait for better market conditions, having no “acute need for capital.” The bank had looked at the idea already in 2016, but didn’t follow through.

The collapse and nationalization of a handful of big lenders last year has left Sovcombank as one of the top three privately-owned Russian banks by assets. This year, it has extended more mortgages than any other private lender. However, with total assets of only 889 billion rubles ($12.7 billion) as of June, it’s still dwarfed by state-owned giants such as PJSC Sberbank and VTB Group.

Pre-IPO Funding

The bank has already lined up some new investors: in August, it placed the equivalent of $145 million in new equity to investors including the Russian Direct Investment Fund. That pre-IPO fundraising, as the bank called it, also included the sovereign wealth funds of Saudi Arabia and Bahrain, as well as Japan’s SBI Holdings.

Sovcombank has grown its business in the past by exploiting the shifts in foreign attitudes towards Russia, buying the local finance operations of General Electric Co., India’s ICICI Bank and Turkey’s Garanti Bank AS when they all decided to cut their exposure. Khotimskiy now wants to be ready for the next upturn in sentiment, but sees April 2019 as the earliest possible IPO date.

Khotimskiy, who controls Sovcombank along with his brother Dmitry, indicated the bank is likely to list in Moscow. He argues that toy retailer PJSC Detsky Mir managed to attract international investors without listing abroad.

“Which exchange is not that important, because for 90 percent of investors it does not matter,” Khotimskiy said. “The Moscow stock exchange could quite possibly be a good place to float.”

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