Research Notes

Since Sberbank still has to decide on a number of important parameters for its upcoming additional share issue, we revised our fair price estimates on Sberbank's stock based on various scenarios. Overall, we are upbeat about Sberbank's plans to increase charter capital as this move will help the bank to step up its lending services over the next few years.

The placement price range and the number of shares which will be floated are the key IPO parameters which are still to be announced by Sberbank's officials. In the event that the bank sells the maximum amount of additional shares authorized for flotation (3.5 mln) at current stock market prices, the additional share issue, worth some $12 bln, could go down in history as the largest ever by a Russian bank and placement of the entire amount in Russia could prove problematic. However, CBR's strong backing of the additional share issue initiative and its intention to buy up 25.5% of the total issue and expectations of rapid growth of the Russian banking sector and its leader, Sberbank, as well as a quite recent trend of diversifying investment portfolios and focus on the banking sector and retailers and the deregulation of portfolio investments made by non-residents in the Russian banking sector, at a time when crude prices are on the decline on the global commodities markets, all pave the way for a successful placement of Sberbank's additional share issue, especially if the bank offers its additional shares at a discount to the current stock market valuations.

We assign a Hold recommendation and raise our year-end 2007 fair price estimates for Sberbank's common shares to $3800.

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Olga Belenkaya

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