Tinkov’s bank assessed at up to $3 billion
The bank Tinkoff Credit Systems (TCS-Bank) will hold an initial public offering of Global Depositary Receipts in London, with the seller being the parent company of the bank — the Cypriot TCS Group Holding PLC. The London Stock Exchange announced that they plan to raise $750 million. The bank will receive $150–200 million, and the rest will go to the shareholders.
The main owner, Oleg Tinkov, and the management of the bank have undertaken not to sell shares for one year after the IPO; other shareholders undertook not to sell for six months after the IPO. The organizers and bookrunners are Goldman Sachs, Morgan Stanley and Sberbank CIB; the bookrunners are JP Morgan and Renaissance Capital, and the agent is Pareto Securities AB.
One financier who saw the documents of the offering says the listing will be placed in late October. The start of the roadshow is scheduled for Oct. 14, the pricing is scheduled for Oct. 25, and the bank is assessed at $2.5–3 billion. An employee of one of the funds, having studied Tinkov’s proposal, noted the same numbers, adding that the P/E ratio (ratio of price to expected earnings for 2014) is 9.5–11.4.
Other Russian banks are trading at an average P/E of 4.3 for 2014, says the analyst of Gazprombank, Yuri Tulinov (see table). As a comparison, he adds that Internet companies also have high P/E ratios: Yandex has 25.6 and Mail.ru has 22.3.
Tulinov has estimated that the capital of the bank, at the end of 2014, will be $910–960 million, taking into consideration the size of the net profit for the first half of 2013: TCS Bank's forecasted profits for 2013 ($220 million) and the forecasted profits for 2014 (about $263 million).
Thus, he believes that the P/BV ratio (capitalization to equity) for the bank is between 2.75–3.3, including the attraction of capital of $150 million and 2.6–3.13 if attracting $200 million.
The bank, however, has been assessed at three times the capital. According to Tulinov, based on the assessment of the bank at $2.5–3 billion, the planned attraction into circulation of the bank’s shares could be around 25–30 percent.
Denis Poryvay, an analyst at Raiffeisenbank, considers the bank to be more like an online company than one that sells financial products. The evaluation at several times the equity, of course, does not reflect the risks that TCS has as a bank — especially considering the tighter regulations by the Central Bank and the deterioration of credit quality in general.
According Poryvay, a fair appraisal would be one times the equity, with the great majority of banks trading below one times the equity, while Sberbank is appraised above one times the equity (see table).
Mikhail Shlemov, senior analyst of UBS banks, says that Russian companies are now trading at cheap rates, and investors are starting to pay attention to them, while strong entrepreneurial stories are getting much more interest from investors.
Tinkov is placing a Cyprus company, but that is not surprising, says Shlemov: It is even more convenient, especially taking into account the fact that investors also entered into the company’s capital through a Cyprus company. He believes that, to hold an IPO in Russia, they would have to place Russian Depositary Receipts, and that would be more difficult.
Tinkov explains the upcoming IPO this summer as an important step for the shareholders to understand the market valuation of the company, and, today, there is no better way to achieve this than an IPO.
The London Stock Exchange quoted the words of Oliver Hughes, president of TCS-Bank, saying: "The IPO will help TCS-Bank strengthen its equity and help to actively develop its payments system and insurance business."
In the first half of the year, the credit portfolio of TCS-Bank reached $1.95 billion, and the bank has issued more than 3.5 million credit cards. Retail deposits in the bank are estimated at $997 million. The bank earned $79 million in net profit in six months.
The main issue for the investors is whether the bank can grow quickly in the current environment. This is the concern we hear expressed by investors, says Moody's analyst, Semyon Isakov (the agency that is rating TCS-Bank).
Tinkov, shareholders and organizers of the bank’s placement would not comment on this information — it is assumed that the best thing is to remain silent before an IPO.
First published in Russian in Vedomosti.