Research Notes

On April 19, 2007 Rosbank's additional share issue for 5.8% of the charter capital passed state registration. Under Russian legislation, the bank's current shareholders have the preemptive right to buy out stock in proportion to their holdings. According to the bank's data, 35,750,258 common shares (90.6% of the SPO) were purchased using the right of first refusal at the set price of $6.58, while the other 3,684,742 common shares (0.51% of the enlarged charter capital) were floated via open subscription.

At present, we have no official recommendation on Rosbank securities. However, taking into account a substantial discount of the placement price to the company's current stock valuations (over 10%), robust expansion of corporate business and strategic interest on the part of large international lending institution Societe Generale (BSGV), we advise investors to pick up Rosbank's SPO shares.

An extremely favorable environment in the sector and active development of the entire banking industry are pushing up cash flows of the sector's leading players. In January-June 2007 the banking industry posted stronger growth rates than a year ago. Official Q107 stats showed a positive trend in the banking sector. Aggregate banking assets have jumped 11% YTD (7% in January-June 2006), equity surged 19% (5%), credits granted to companies rose 8% (5%), private deposits jumped 5.7% (5.2%) and funds held on corporate accounts climbed 15.8% (7.9%). A minor reason for concern is a slowdown in consumer lending. Despite keen interest shown by all banks in this segment growth equaled 8.4% against 9.3% in the same period a year ago.

Amid a fast growing and evolving competitive environment the bank needs to lift its equity in a bid to retain its key market positions primarily in the consumer lending segment. The SPO will increase the bank's equity capital by $260 mln (up 23.5% YTD) which is of utmost importance in keeping pace with the dynamically expanding market.

Based on information which was released in early July, the Board of Directors at Societe Generale decided to exercise an option to acquire 30% of Rosbank shares. In the event that the French banking group obtains approval for this transaction from FAS and the Bank of Russia, control over the bank will be assigned from Interros to BSGV, which already owns a 20% interest in the bank. According to our estimates, the large international banking group's gaining control is a positive signal for minority shareholders. On the one hand, this will result in much better lending terms and the introduction of advanced banking technologies, while, on the other hand, BSGV's controlling interest is a guarantee that minority rights and interests are preserved.

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Vladimir Sergievskiy

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