=DJ FOCUS: Sberbank Tasked With Rosneft's "People's IPO"

(This item was originally published Wednesday.)

By Andrew Langley

Of DOW JONES NEWSWIRES

MOSCOW (Dow Jones)--The success of oil giant OAO Rosneft's (RNT.YY) initial public offering hinges, in part, on the sales skills of OAO Sberbank (SBER.RS), a state-owned bank with no experience in an IPO of this size.

The savings bank has been hired to peddle part of Rosneft's $10 billion IPO through its vast branch network, complementing institutional sales.

Sberbank's task won't be easy: The bank has little experience in selling shares and it faces a tight schedule. But success is vital to the restoration of Russian confidence in selloffs of state-owned enterprises.

"I'm not sure it's going to work, but my guess is that the intention is a good one," said Eric Kraus, who manages the Nikitsky Russia Fund, an equity fund.

Rosneft Chief Executive Sergei Bogdanchikov has said that $3 billion of the offering will be placed domestically, with the rest sold in London. Russian law requires domestic placement of at least 30% of the shares in an IPO. The offering, directed by Morgan Stanley (MS), is expected to take place by the end of July.

Sberbank's role in Russia's largest-ever IPO is key to the government's goal of broadening the country's capital market through big privatizations, in part targeted at retail investors.

In western European countries, individuals have typically signed up in droves for such deals - one of the largest of these was Electricite de France's (1024251.FR) IPO last year, when retail investors grabbed 60% of the EUR8 billion offering.

"If (Russian consumers) can actually get a stake of it into widespread popular hands, it will be a major step towards Russia becoming a more middle-class country where a large share of the population has some financial assets," Kraus said.

But Russia's initial forays into privatization haven't set glowing precedents. Sberbank's part in what has been dubbed the "people's IPO" comes 14 years after the notorious voucher privatizations under President Boris Yeltsin, and nearly 10 years after the even more scandalous loans-for-shares privatizations.

The latter saw most of Russia's natural-resource wealth sold for a fraction of its worth and gave a small number of entrepreneurs control of assets worth hundreds of billions of dollars.

A repeat of such problems appears impossible. President Vladimir Putin's tightly managed state is a world away from Yeltsin's anarchy, which was plundered by oligarchs and corrupt officials.

Russian consumers may have strong memories, however, and Oleg Vyugin, the head of the Federal Financial Markets Service, Russia's securities-market watchdog, has said Sberbank needs to put together powerful promotions to sell the IPO successfully.

That entails, among other things, arranging ads and brochures, training staff and introducing new information technology.

But visits to several branches in the run-up to Rosneft's announcement showed that it's easier for customers to buy or sell precious metals than to purchase equities.

"We don't sell shares," one cashier said.

Some branches feature promotional materials advertising the offering. But the bank is mum on its plans. Requests for further comment from Sberbank's deputy chairwoman, Bella Zlatkis - a former deputy finance minister who's heading up the deal at Sberbank - went unanswered.

Promotional leaflets outline the basics of Rosneft's business as well as describing how to buy and sell the shares.

The brochures say that investments in the company involve "a high degree of risk" and refer potential investors to a prospectus on Rosneft's corporate site for further details.

The document, however, has not and won't be placed on the site, according to a Rosneft spokesman.

Sberbank has more than 20,000 branches, giving it an unrivaled banking presence in Russia, though it isn't expected to sell Rosneft shares at all its branches.

Its 2005 net profit more than tripled to $2.29 billion, from $655 million, aided by its control of 62% of Russia's retail deposit market and 54% of consumer loans.

Sales of securities-based investment products make up a tiny part of Sberbank's overall business, however. The bank makes four times as much revenue on its lending business as on commissions, and much of its current commission income comes from the low-growth business of disbursing pensions and salaries.

The Rosneft IPO could lead to securities commissions becoming a more significant revenue stream, however.

"It helps Sberbank get experience in an area it's not been particularly involved in," said Chris Weafer, chief strategist at Alfa Bank.

The new market could reward the bank with more state business in the future, assuming that consumers have appetites for stocks an atmosphere of recent market turbulence across the world.

The Rosneft IPO is due to be followed by retail shares sales for OAO Vneshtorgbank (VTBANK.YY), the country's second-largest bank by assets. Its IPO is slated for this year or next.

"Depending on the extent of its participation, it's a tight schedule," said one Moscow banking analyst, who asked not to be named.

Sberbank is not alone, in selling Rosneft shares, however. As well as Morgan Stanley, JP Morgan Chase & Co., ABN Amro NV (ABN) and Allianz AG's (AZ) Dresdner Kleinwort Wasserstein, the Russian banks involved in the deal are Gazprombank, UralSib, Renaissance Capital, Troika Dialog, Aton and Deutsche UFG (DB).

Of these, UralSib and Gazprombank will be selling to Russians via their retail networks of 600 and 250 branches.

"That would be logical," said the analyst, who declined to be named. "They have big regional networks, investment banking businesses and are more geared towards that sort of thing (than Sberbank)."

Analysts say the deal will bring invaluable experience as well as a fresh start in consumer equity investing.

"It will be a great test of whether or not ordinary Russians are ready to put their money in equities again," said Jeffrey Woodruff, the director of the corporate department of Fitch Ratings in Moscow.

"It's a way to remedy the negative image of the 1990s...and could give some hope to the whole idea of taking ownership."

Company Web site: http://www.sberbank.ru

-By Andrew Langley, Dow Jones Newswires; +7 495 974 80 55; andrew.langley@dowjones.com

(Greg Walters and Geoffrey T. Smith in Moscow contributed to this article)

(END) Dow Jones Newswires

June 15, 2006 03:03 ET (07:03 GMT)

Copyright (c) 2006 Dow Jones & Company, Inc.