VTB Group and OAO Sberbank are diverging in the stock market by the most in 15 months on speculation the government will accept a lower price for shares in VTB to shore up the lender’s financial position.
VTB, Russia’s second-largest bank, added 0.6 percent in Moscow yesterday, while shares of Sberbank gained 1.5 percent. VTB is down 12 percent this year and its 60-day correlation coefficient with Sberbank, which has risen 10 percent, is 0.65, the least since August 2011, data compiled by Bloomberg show. Futures on Russia’s RTS Index increased 0.2 percent to 140,130 in New York, while the Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. climbed for a third day.
Russia’s two biggest banks will be fully privatized in five to 10 years, RIA Novosti cited First Deputy Prime Minister Igor Shuvalov as saying yesterday in comments confirmed by his office. The central bank raised 159.3 billion rubles ($5.1 billion), reducing its stake in Sberbank to 50 percent plus 1 voting share in September. VTB, which is 75.5 percent owned by the state, plans to raise as much as $3 billion selling new shares in the first half of 2013, Chairman Andrei Kostin said Nov. 14.
“VTB is capital constrained, so the government is likely to sell at any reasonable price and this creates downward pressure on the stock,” Bruce Bower, a partner at Verno Capital in Moscow, which manages about $200 million, said by e-mail yesterday. “The Sberbank placement showed that the government will go ahead with privatizations. The most likely scenario is a primary placement in the first half of 2013 to keep VTB’s capital ratios stable.”
American depositary receipts of Sberbank jumped 1.7 percent to $11.07 yesterday, after its shares in Moscow increased to 87.38 rubles, or $2.78. One ADR equals four shares. VTB isn’t traded in the U.S. Thirty-day volatility on VTB’s Moscow stock has climbed from an almost two-year low of 17.42, reached on Nov. 12, to 18.48 yesterday.
The correlation coefficient between the two lenders was as much as 0.88 in May. A reading of 1 implies two securities are trading in lockstep.
VTB’s net income in the second quarter dropped 63 percent to 10.1 billion rubles as bad-debt provisions climbed 24 percent to 11.9 billion rubles, the bank said in a statement on Sept. 20. The Moscow-based lender posted a 1.2 billion-ruble trading loss because of the “challenging market environment,” according the statement.
Sberbank, which is the distribution agent for Russia’s pensions, said Oct. 5 that net income in the first nine months of 2012 climbed 5.9 percent to 269 billion rubles. Non-performing loans remained little changed at 3 percent of the bank’s loan portfolio, according to the statement.
“Sberbank operations have done better, it has a stronger financial position and it doesn’t have an overhang anymore,” Ilya Kravets, who helps manage $100 million of assets at Daniloff Capital LLC, including Sberbank shares, said by phone in New York yesterday. “VTB still has some issues. There’s still an overhang of the government selling a significant portion of their holding.”
The government has “in principle” expressed support for VTB’s issuance of new shares before the sale of stock held by the state, Chairman Kostin said in an interview at Bloomberg’s headquarters in New York last week. The bank needs to raise funds to bring “more capital into the company, the capital that we need now for further development,” he said.
Russia will probably eventually reduce its stake in VTB to as low as 65 percent, Kostin said.
VTB trades for 6.5 times estimated earnings over the next 12 months, while Sberbank’s valuation is 5.5 times. The average valuation for companies on the Russia’s 30-stock Micex Index is at 5.3 times and compares with 5.7 for stocks in the Bloomberg Russia-US gauge.
The timing of the share issue would “be subject to market conditions,” Kostin said. VTB is the worst performer in the MSCI Russia/Financials Index this year.
The Bloomberg Russia-US equity gauge climbed 1.1 percent to 91.74 yesterday, led by OAO Mechel.
The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, advanced 1.6 percent to $27.40 for a third day of gains, the longest stretch in a month. The RTS Volatility Index, which measures expected swings in stock futures, slipped 2.8 percent to 24.96.
Mechel, Russia’s largest coal producer for steelmakers, rose 4.3 percent to $6.09, rebounding from a Sept. 5 low. The company’s Moscow shares increased 0.5 percent to 192.6 rubles, or the equivalent of $6.13.
The Moscow-based coal miner extended a 13 billion ruble credit line with VTB to mid-2013 from this year after agreeing to pay nearly twice the interest rate, Vedomosti newspaper said, citing a financial statement.
Russia’s Moscow Exchange is making its government bond market accessible through the Euroclear SA platform for settling trades at the end of this year. Equities won’t be Euroclearable until July 2014 because of concerns an increase in outside investors will impact liquidity, Oksana Derisheva, deputy director of the primary market at the exchange, said in an interview on Nov. 16 in Moscow.
“It seems Russia’s sell side is not internally fully ready to support efficiently the new changes taking place in Russia’s post-trade environment in stocks,” Luis Saenz, head of equity sales and trading at BCS Financial Group in London, said by e-mail yesterday. “A tiered approach is therefore prudent, first getting fixed income Euroclearable and then equities.”
Unrest Fuels Crude
Crude oil rose for a second day amid concern that unrest in the Middle East will disrupt supply and on confidence that a deal can be reached to avoid automatic U.S. spending cuts and tax increases. Crude for January delivery surged 2.7 percent to $89.28 a barrel on the New York Mercantile Exchange yesterday, the highest settlement price since Oct. 19.
Urals crude, Russia’s chief export blend, gained 2 percent to $110.44 while Brent crude climbed 2.5 percent to $111.70.
Futures contracts on the ruble rose 0.2 percent to 31.583 per dollar in New York, after Russia’s currency gained 0.7 percent to 31.49 versus the dollar in Moscow yesterday.
United Co. Rusal, the world’s largest aluminum producer, added 0.7 percent to HK$4.47 in Hong Kong trading as of 11:29 a.m., poised for the biggest one-day advance since Nov. 13. The MSCI Asia Pacific Index gained 0.4 percent today.