Research Notes

A campaign kicked off on April 9 to May 7 to accept orders from households looking to pick up VTB shares within its IPO. The bookbuilding range will be announced in late April (approximately, on April 26), while the placement price will be determined on May 11. VTB's IPO mechanism for private investors provides for only non-competitive orders (it is necessary to indicate in an order only the amount to be spent on the purchase of shares without the ability to limit the maximum sum to be invested), with shares to be paid prior to the announcement of the placement price. In our view, such procedure carries certain price risks for private investors, as a result of which we advise investors to wait until the placement range is made public and only after that to decide whether or not to pick up VTB shares in the offering. That said, most shares to be offered in the IPO will be acquired by institutional investors, which will be able to place competitive bids, forming a single placement price, which leads us to believe that it will be close to market expectations.

We recommend our clients to take part in VTB's IPO with the target price of Rub 0.09 ($0.0034) to Rub 0.14 ($0.0053) per share. This puts the bank's market cap at $18-28 bln before the IPO (P/BV-2006 = 2.6-4) and $24-37 bln shortly after it. In our view, the best price for the initial public offering is Rub 0.12 ($0.0046) per stock, since when shares are floated close to the upper end of the bookbuilding range there is less chance of sustainable growth in the stock in secondary trading.

Alongside this, we view investments in VTB shares as extremely attractive in the mid-term outlook. The spike in the bank's equity capital in the course of the IPO (according to our estimates, from $7 bln to $13-16 bn) will be accompanied by a contraction in the P/BV multiple, the key criterion for the bank's express valuation, to some 1.8-2.3, which is far below average market indicators. Thus, based on fundamentals, we believe VTB stocks are destined to move to the upside, at least to the level equal to a 3-fold increase in P/BV ($39-49 bln or Rub 0.14-0.18 ($0.0053-$0.0069) a share) and we expect this to pan out as early as year-end 2007.

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Olga Belenkaya

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