Daily analyst comments

Vedomosti reported quoting VTB Chairman Mikhail Zadornov as saying that the bank is preparing to implement a new merger scheme for VTB North West by assigning some assets to the parent company under a number of civil transactions. If this scheme is implemented, VTB’s creditors will be unable to present for redemption bonds whose yields climbed significantly as a result of destabilization on global debt markets and revaluation of risk premiums. Taking into account VTB’s majority stake, the minority shareholders of VTB North-West will be unable to block the transaction.

In our opinion, this development is clearly negative for VTB North West shareholders and moderately negative for VTB shareholders, although VTB’s official spokespersons announced that the merger scheme for VTB North West’s assets has yet to be determined and several schemes are considered at once, including the initial merger scheme. Stronger uncertainty about the scheme and timeframe of share swap for VTB stocks will significantly depress VTB North-West stock valuations. On the one hand, the risk is reduced for VTB shareholders of presenting bonds for redemption, while on the other hand, there is a slimmer possibility that the bank’s shares will be presented for the buyback at the IPO price, which is nearly 30% higher than the current market price.

In our opinion, the market price of VTB North-West shares is determined by fundamental factors and is entirely dependent on the future merger scheme. According to our estimates, the fair price of VTB is Rub 0.1063 ($0.0042) per share, which implies about 1% upside potential.