Russia’s Sberbank is a big step closer to ending an expensive, and ultimately unsuccessful, expansion overseas.
The sale of its 99.9% stake in Turkey’s Denizbank to Dubai-based Emirates NBD is the latest and largest of a series of retreats from foreign markets. Sberbank is also trying, with little success, to wind down or sell subsidiaries in Ukraine, where its close association with the Russian state has badly affected business.
Sberbank expanded aggressively at the start of the decade, looking to profit from the fact that it recovered from the 2008 financial crisis more quickly than many banks in eastern Europe. It bought Denizbank for $3.85bn in 2012 in its biggest ever acquisition, and tried to build a presence in central and eastern Europe with the purchase that year of Vienna-based Volksbanken International for €505mn ($597mn).
The Denizbank sale “shows that Sberbank has gotten over its empire-building phase and is maturing as a company,” said Mikhail Shlemov, an analyst at VTB Capital in Moscow. “The market wasn’t bullish about these acquisitions when they were announced,” and the Ukraine-related “sanctions certainly didn’t help.”
Sberbank soon found that operating mid-sized banks abroad wasn’t as profitable as its business in Russia, where it has 86mn clients and holds nearly half of all retail deposits.
The lender’s problems were quickly compounded by geopolitics, notably when the US and the European Union imposed sanctions in 2014 to restrict its funding on international markets. Those measures were punishment for Russia’s annexation of Crimea and the shooting down of a Malaysian airliner over Ukrainian territory held by Moscow-backed rebels.
Sanctions made it “a very difficult period of time for us,” Sberbank Chief Executive Officer Herman Gref told Bloomberg Television last year, when he laid out his plans to scale back in Europe.
Sberbank has been in talks to sell Sberbank Europe, as Volksbanken was renamed, at least twice in the past two years, according to people familiar with the matter. In both cases, the deals eventually didn’t come about, they said. Sberbank Europe spokeswoman Linda Michalech declined to comment on the situation.
Another failed investment in south-eastern Europe was Sberbank’s €1.1bn of loans to Croatia’s Agrokor, a retail and agriculture group that ran into trouble last year. Agrokor is now in a debt restructuring that’s set to leave Sberbank as its biggest shareholder.
The Russian lender also sold a Slovakian subsidiary to Penta, a local private-equity group, in 2015.
Things have turned particularly sour for Sberbank in Ukraine, where locals last year bricked up the entrances to some of its branches to protest against Russia’s support for breakaway eastern provinces. After several failed attempts to sell its Ukrainian unit, Sberbank had to boost its capital by more than $300mn. But an exit deal still eludes it. Sberbank’s operations in Turkey have also been overshadowed by the country’s stormy relationship with Russia. Turkey shot down a Russian warplane along the Syrian border in 2015, leading Russia to impose sanctions of its own on its Black Sea neighbour.
While presidents Vladimir Putin and Recep Tayyip Erdogan have since patched up relations, there’s speculation that politics may have contributed to Sberbank’s decision to sell up.
“Sberbank wants to get out while Russia-Turkish relations are supposed to be going through something of a renaissance,” said Timothy Ash, a strategist at BlueBay Asset Management in London. “With the sanctions backdrop, I guess that has driven the decision to pull back closer to home.”
Selling Denizbank will free up precious capital for the Russian giant, which aims to focus on more innovative investments at home. The deal could add more than a percentage point to the Russian bank’s capital ratios, Sberbank said yesterday. That could trigger a higher dividend payout, Alfa Bank analyst Evgeniy Kipnis said in a note to clients.
Under direction from the Russian government, Sberbank has said it will pay out 50% of its net income in dividends when its core tier-one capital ratio, a measure of financial strength, rises above 12.5%. The ratio was 11.4% as of end-2017. In April, Sberbank completed a deal for one of its most ambitious projects to date: a $500mn investment in an e- commerce marketplace joint venture with Yandex, a Russian Internet company best known for its search engine. The project aims to become a domestic competitor to Amazon.com
“Sberbank will now focus on the domestic market, where it has scale and pricing advantages that it never managed to replicate abroad,” VTB’s Shlemov said.
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