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Sovcombank targets growth over valuation in Russia's latest IPO

FILE PHOTO: Sovcombank's logo on a board at a forum in St Petersburg, Russia

By Elena Fabrichnaya and Alexander Marrow

MOSCOW (Reuters) -Sovcombank's planned market debut reflects a valuation of up to about $2.5 billion, it said on Friday, highlighting the currently limited scope of Russian public listings and the dominance of state-owned lenders in Russia's banking sector.

Sovcombank is one of Russia's 13 official "systemically important" credit institutions in a banking sector dominated by former Soviet savings behemoth, Sberbank. Three state-controlled lenders account for more than a 50% share of assets.

Sovcombank, which is under U.S., EU and UK sanctions over Russia's actions in Ukraine, has been waiting for the right moment to list for years and said it plans to raise 10 billion roubles ($111.93 million) in an initial public offering (IPO) on Moscow Exchange, with trading expected to start on Dec. 15.

The capital raise, in an offer consisting of solely additional shares for a free float of 4%, is a far cry from the billion-dollar listings Russia saw before launching the conflict in Ukraine in February 2022.

Alfa Bank analysts said a fair value for Sovcombank was around 319 billion to 407 billion roubles, with a low valuation in its IPO allowing it to retain flexibility, grow faster than competitors and generate a higher return on equity than other publicly-traded Russian banks.

"High dividend potential is also an important factor in the bank's investment attractiveness," Alfa Bank said. Sovcombank told Reuters last month that it could pay up to 50% of 2023 profit as dividends after listing.

Sovcombank's main task is to list successfully, so it has opted for valuation forecasts around 40-60% lower than most analysts calculated, co-owner Sergei Khotimsky told the RBC daily.

"It would probably be possible to raise a little more, but this is the depth the Russian market currently allows," Khotimsky said.

"There is no need to increase this amount even further given the current price parameters. We value our business considerably more dearly...We want free float to be tens of percent in five, seven, ten years."

Sovcombank, which said the listing should provide additional M&A opportunities, has already received offers for half of the expected available shares from a number of major Russian institutional investors.

Russian companies have raised around 29 billion roubles this year through IPOs, with listings characterised by small volumes and the presence of domestic retail investors.

Pawn broker Mosgorlombard also announced its intention to list on Friday, expecting a free float of 36% after an early-December debut.

($1 = 89.2025 roubles)

(Reporting by Elena Fabrichnaya in Moscow and Alexander Marrow in London; editing by Guy Faulconbridge, Susan Fenton, Kirsten Donovan)