NEW YORK, Oct. 21, 2013 (GLOBE NEWSWIRE) -- This year, Oleg Tinkoff, an eccentric Russian businessman often compared the British magnate Richard Branson, lost his cool and threatened to 'put in prison' a client for changing the form agreement with the bank to benefit himself. The same bank, Tinkoff – Credit Systems (TCS), is set to go public this week at high valuations, reports Russia! magazine.
"TCS is one of several Russian banks offering credit cards online – an aggressive way to expand the consumer lending business that appears to come with higher risks than most other types of loans. The streamlined approval of credit cards, however, seems to attract the worst possible kind of delinquent borrower. These borrowers buy a TV or another big-ticket item on an instalment plan, use it for a few months, and then, instead of paying off the loan, give up the item, and move on to another bank. The bank would certainly repossess the item, but the market in used electronics is rather slow at the moment, and used prices are nowhere nearly as high as new," writes Russia!.
"Up to 25 - 30% of these streamlined consumer loans are expected never to be paid back (compared to low-teen delinquency rates for all consumer loans and around 5% for all loans to Russian individuals), according to Avangard Bank, a relative newcomer, which has focused on streamlined credit card issuance to the exclusion of everything else. The bank's core shareholder Kirill Minovalov plans to exit this segment completely, focusing instead on credit card applications processed at the bank's offices where tougher screening standards are enforced.
And yet, this is one of the few remaining lucrative and growing niches in Russian banking, which may explain the high valuation of Tinkoff Credit Systems for the upcoming IPO. The indicative pricing range for a global depositary receipt (GDR) to be offered to the public on Tuesday is $14-17.5, which is 3.9x – 4.8x times the bank's equity at the moment. To put this valuation in perspective, the price-to-book multiple (essentially the same number) of Sberbank, Russia's largest and one of the strongest banks, is only 1.2x, and even then it is seen as "overpriced." Morgan Stanley, the joint book runner of the IPO, projects the bank's net earnings to reach US$ 173 mln in 2013, rising to US$ 256 mln in 2014, US$ 330mln in 2015, and reaching US$ 413 mln in 2016, which just may justify the high valuation.
There are other issues with TCS IPO that in the long term can affect the company's valuation and sustainability: the laws have changed in Russia recently and now they favour debtors rather than creditors; bad debts will become cheaper. Also, the TCS trademark does not belong to the company but rather to its founder, Oleg Tinkoff, who receives 2% royalty for allowing TCS to use the trademark. It's unusual and might cause additional problems in case of a feud between Mr. Tinkoff and the bank."
RUSSIA!, an independent English-language print and online magazine, is devoted to the most original coverage of people, trends, ideas and events taking place in or around Russia.