VTB Could Issue Shares for Bailout

VTB, Russia's second-largest bank, may issue preference shares later this year as part of a 200 billion ruble ($5.9 billion) state recapitalization, VTB chief executive Andrei Kostin said Thursday. Russia is discussing ways to recapitalize major banks, which have been badly hit by an economic crisis that has hammered the country's stock, bond and currency markets. "There is no final decision yet on the size of the capitalization. We think that 200 billion rubles would be the right decision," Kostin said at the World Economic Forum in Davos. "The capitalization is linked to an additional share issue, which takes about half a year in Russia, so we think the decision should be taken now," he said. "There are different options including the issue of preference shares." Kostin said he hoped that VTB could break even for 2008 under international accounting but that it was too early to forecast 2009 results. He said nonperforming loans totaled about 3.8 percent but that VTB was using forecasts for bad loans for 10 percent for planning purposes. "The worst scenario is up to 10 percent," he said. "The reason for the crisis in the Russian banking sector is quite different to in the West. In Russia, a major problem is the inability of companies to return debts." VTB has to pay about $7 billion in foreign debt this year and will seek to refinance some of it, he said. "We will negotiate for refinancing, but we think we will have enough liquidity for this year," Kostin said. "Frankly speaking, this year it will be very difficult for Russian companies to find funding abroad, with the exception of major companies who have a state guarantee or some of the oil companies," he said. The majority of the ruble's devaluation is now done, but it is unlikely to strengthen again for at least a year, he said, adding that he expected further capital flight from Russia this year but that things would improve in 2010. The gradual devaluation of the ruble would help the economy in the meantime, he said. "The majority of the devaluation has been done, and it will help a lot the Russian economy, particularly exporters," Kostin said. "There is no evidence why the ruble should be stronger over the next 12 months or even 24 months, but over the long term there is a chance it will come back to previous levels." Mechel, Magnitogorsk Iron & Steel and other Russian metals companies have borrowed about $10 billion from VTB, Kostin said. "The state, as I know, is interested in consolidation because even from the point of view of assistance from the state, it is easier to give help to a few large holdings than separate companies," Kostin said. Kostin declined to discuss different ideas being discussed by Russian officials about building one of the world's biggest metals companies on the base of RusAl, Norilsk and other miners.