TCS’s London IPO Ends 11-Month Drought with $1.09 Billion

Tinkoff Credit Systems sold shares in the first initial public offering by a Russian company in London since November, tapping into investor demand for non-state bank stocks.

Global depositary receipts of TCS, the third-largest provider of credit cards in Russia, are scheduled to start trading today after TCS Group Holding Plc, the owner of TCS, raised $1.09 billion. The IPO was priced at the top end of the range, $17.50, according to the company’s statement today.

TCS, which has issued more than 3.5 million credit cards in Russia since it was founded in 2007, seeks to benefit from the nation’s growing consumer loans. Bank lending to households rose 34 percent as of Aug. 1 from a year earlier, while unsecured loans surged 39 percent, central bank data shows. TCS’s target range for the GDRs valued the bank from $2.6 billion to $3.2 billion.

“TCS is a fast-growth stock with very high return on assets and because it’s independent and beyond government control, investors will pay a premium for that,” Julian Rimmer, a trader with CF Global Trading UK Ltd. in London, said by e-mail. “There are few viable investment vehicles in the financial sector so some diversification is welcome.”

The company sold 10 million new shares, raising $175 million, and 52 million existing shares, raising $912 million, according to the statement.

No Branches

Chairman Oleg Tinkov, who owns 61 percent of the bank, sold stock, along with Goldman Sachs Group Inc., Baring Vostok Capital Partners, Horizon Capital, Vostok Nafta and Altruco Trustees Ltd. Tinkov last year said London was the front-runner for an IPO because there wasn’t enough liquidity in Moscow and reporting rules were too stringent in the U.S.

Following the sale, Tinkov will hold 50.9 percent of the company, Altruco will retain 1.2 percent, while Goldman will hold 4.5 percent, according to the statement today. Baring Vostok, Vostok Nafta and Horizon Capital will hold 2.9 percent, 4.8 percent and 1.4 percent, respectively, the statement said.

The bank, which has no branches, is modeled on Capital One Financial Corp. (COF) in the U.S., a pioneer of card distribution by direct mail, which Tinkov said he learned about while living in San Francisco. TCS is a “mono-line retail bank” with 97 percent of its loan portfolio in credit cards, according to an UralSib Financial Corp. report Oct. 8.

TCS is “a pretty unique company within the financial industry,” Bruce Bower, a partner at Verno Capital in Moscow, which manages about $200 million in assets, said by e-mail yesterday. His firm planned to buy TCS’s shares. “It’s focused on areas that have been under-served by the major banks.”

‘Heightened Risks’

Russia’s consumer-finance banks face an increase in bad loans in the unsecured retail lending market, Moody’s Investors Service said on Sept. 12, noting TCS among those with “heightened risks.”

“While TCS looks capitalized currently, it will have to significantly increase loan provisions next year and could easily trade single digits,” Gregory Klumov, portfolio manager with SBD Global Fund in Cyprus said in e-mailed comments.

The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. dropped 0.1 percent, led by OAO Mechel. Oil producer OAO Surgutneftegas advanced to the highest level since Jan. 31, almost wiping out its discount to the Moscow-traded shares. RTS index futures added 0.1 percent to 151,090 in U.S hours.

The Bloomberg Russia-US gauge retreated to 104.76, after rallying to the highest level since Feb. 5. last week. The Market Vectors Russia ETF (RSX), the biggest U.S. exchange-traded fund that holds Russian shares, advanced less than 0.1 percent to $29.94 yesterday. The RTS Volatility Index, which measures expected swings in the index futures, increased 0.1 percent to 21.06 in U.S. hours.

Mechel, Rusal

American depositary receipts of Mechel, the nation’s biggest producer of coal for steelmakers, retreated 1.5 percent to $3.34. The shares narrowed their premium to the Moscow-listed stock to 1 percent. Surgutneftegas rallied 1.3 percent to $7.75 in New York.

United Co. Rusal (486), a Moscow-based aluminum producer, dropped 3.3 percent to HK$2.36 in Hong Kong trading as of 10:32 a.m. local time, heading for the biggest loss since Sept. 19. The MSCI Asia Pacific Index fell 0.2 percent.

To contact the reporters on this story: Maria Levitov in London at mlevitov@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net; Tal Barak Harif at tbarak@bloomberg.net

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