Kostin eyes IPO as key to growth

Andrey Kostin has moved aggressively to build government-owned Vneshtorgbank.

Andrey Kostin has moved aggressively to build government-owned Vneshtorgbank into a powerful rival to Sberbank, Russia’s dominant retail bank, with more than 60 percent of all deposits. Now he wants to compete on another front, by floating shares on the country’s stock exchange.

The 49-year-old chairman and CEO believes that an IPO -- rather than, say, a foreign partner -- is the best way to fuel his bank’s supercharged growth. Sberbank is the only major Russian bank with a stock exchange listing, Kostin noted in an interview with Institutional Investor last month in London, where he addressed the Russo-British Chamber of Commerce. “That’s why market reaction should be good,” he says.

Kostin, who met with President Vladimir Putin last month to brief him on the bank’s 2004 results and plans for growth, insists that a share offering has the backing of the government, which owns 99.9 percent of Vneshtorgbank. The banker hopes to float a minority stake of between 10 and 25 percent next year and has appointed Deutsche Bank as adviser. Vneshtorgbank had been considering selling a minority interest to the European Bank for Reconstruction and Development and others since 2002 but is increasingly looking like a strategic national asset -- and these days in Russia, that means foreign stakeholders aren’t welcome.

Last year Vneshtorgbank’s assets surged by more than 75 percent, to about $20 billion, fueled by the summer purchase of retail specialist Guta Bank, which next month will be rebranded as Vneshtorgbank 24. Mikhail Zadornov, a former Finance minister and political heavyweight, will head the subsidiary. Kostin aims to win at least 10 percent of the retail market within three to four years by investing in Internet banking, automated teller machines and call centers. “People will be in a position to do some basic operations after hours,” he says.

Kostin also is busy expanding the bank’s footprint to neighboring countries. Vneshtorgbank opened a Kiev branch in March and is looking to buy a Ukrainian bank later this year. “Our ambition is to create a bank that will cover all of the old Soviet area,” Kostin says.

And his ambitions extend even further west. Kostin has lined up a $1.5 billion capital injection from the government to enable Vneshtorgbank later this year to buy the Russian central bank’s overseas interests, including majority holdings in London-based Moscow Narodny Bank, BCEN-Eurobank in Paris and Ost-West Handelsbank in Frankfurt.

“That’s not very big by international standards, but it probably creates an opportunity for us to start an investment boutique focused on Russia,” Kostin says. “For any bank that wants to secure its position in the long term, it’s very important to become more international -- the sooner, the better.”