TCS Group Holding, the owner of Tinkoff Credit Systems, set the price range of its London initial public offering at $14 to $17.50 a global depositary receipt, valuing the lender from $2.6 billion to $3.2 billion.
TCS is poised to sell $175 million in new shares in the form of GDRs, according to an e-mailed statement from the Moscow-based consumer lender today. Chairman Oleg Tinkov, who owns 61 percent of the bank, will sell shares, along with Goldman Sachs Group Inc., Baring Vostok Capital Partners, Horizon Capital, Vostok Nafta and Altruco Trustees Ltd. The size of the IPO is expected to be $870 million, excluding an over-allotment option of as much as 15 percent.
“We valued the bank at $1.6 billion” after the IPO, Natalia Berezina, banking analyst at UralSib Financial Corp., wrote in an e-mailed report today. “We find the more conservative valuations justified, due to the deteriorating asset quality and the fact that credit-card growth will have to slow down as a result of individuals’ rising debt load and the central bank’s efforts to slow growth in the sector.”
Russia’s consumer-finance banks face an increase in bad loans in the unsecured retail lending market, Moody’s Investors Service Inc. said on Sept. 12, noting TCS is among those with “heightened risks.” Russian bank lending to households rose 34 percent as of Aug. 1 from a year earlier, while unsecured loans increased 39 percent, according to central bank data. That is higher than the regulator deems “comfortable.”
Since it was founded in 2007, Tinkoff has issued more than 3.5 million credit cards in Russia and ranks third in such lending, according to the company. The bank, which has no branches, is modeled on Capital One Financial Corp. in the U.S., a pioneer of card distribution via direct mail, which Tinkov said he learned about while living in San Francisco. Tinkov has created and sold several businesses, including a frozen-food producer, a retail electronics chain, a brewery and restaurants.
Tinkov’s offering comes after Russian coal miner Sibanthracite Plc and railroad-freight carrier NTS Holding Plc postponed London IPOs this year. OAO Alrosa, the world’s biggest diamond producer by output, plans to sell a 16 percent stake in Moscow. TCS is seeking to benefit from Russia’s growing consumer lending market, even as credit risk rises.
“We’re very much an online company that enables investors to tap into the Russian consumer,” Chief Executive Officer Oliver Hughes said in an Oct. 3 conference call. “We have a very deep reach into Russia’s regions. There’s enormous potential for growth.”
Hughes said 85 percent of TCS customers live outside Moscow and St. Petersburg, Russia’s two biggest cities. Proceeds from the IPO will be used to “enhance the capital position” of the bank, to expand its retail business and to develop insurance and “payment solutions,” according to the statement.
TCS Bank’s net income in the first half of the year rose to $79 million, compared with $52 million in the same period a year earlier, it said. Total assets equaled $2.42 billion as of June 30, with consumer deposits at $977 million and loans to customers at $1.95 billion, according to the statement.
The London stock market is the front-runner for an IPO because there isn’t enough liquidity in Moscow and reporting rules are too stringent in the U.S., Tinkov said in an interview last year.
Goldman Sachs, Morgan Stanley and Sberbank CIB will be managing the sale, while JPMorgan Chase & Co. and Renaissance Capital will also be joint bookrunners, according to the statement. Tinkov, his management and the other selling shareholders will provide a lock-up of 180 days after the sale, the company said.