How can the deal on the withdrawal of Fridman and Aven from Alfa-Bank go?
RBC figured out how the sale of shares of Mikhail Fridman and Petr Aven in Alfa Bank could be organized,whether the deal will help lift sanctions from them and whether businessmen will be able to receive payment for their packagesPetr Aven and Mikhail FridmanPetr Aven and Mikhail FridmanPetr Aven and Mikhail FridmanPetr Aven and Mikhail FridmanPetr Aven and Mikhail FridmanPetr Aven and Mikhail FridmanPetr Aven and Mikhail Fridman
Billionaires Mikhail Fridman and Pyotr Aven — No. 6 and 29 on the Russian FORBES list in 2022, respectively (with a fortune of $11.8 billion and $4.3 billion) — may soon get rid of their main Russian asset completely. Their stakes in Alfa-Bank, the country's largest private bank, could be sold to Andrey Kosogov, also a co-founder and a long-term minority shareholder of Alfa, who began to consolidate the bank in his own hands shortly after the start of Russia's military operation in Ukraine and the imposition of sanctions against Fridman, Aven and others. one co-founder of Alfa Group Herman Khan. On Friday, March 10, a representative of Alfa-Bank confirmed to RBC that such a deal was being worked out, The Financial Times reported the day before.
"It's too early to talk about its completion - the parties need to go through a number of corporate and legal procedures," Alfa-Bank noted, adding that the transaction "will be carried out in full compliance with all applicable laws." How the sale can go under the conditions of sanctions and whether it will help to remove them - in the material of RBC.
How is Alpha's business now?
Now Fridman and Aven own 32.9 and 12.4% of the shares, respectively, in the Luxembourg ABH Holdings SA, which controls Alfa-Bank through two more structures - the Cypriot ABH Financial Limited and the Russian AB Holding, follows from the previously published list of beneficiaries of the credit institution on the website of the Central Bank, which is now removed (owners of banks now have the right not to disclose the owners due to sanctions).
Kosogov, who previously held 3.7% of ABH, sharply increased his stake in the company in March 2022 - then he became the owner of 41% of the shares, buying paper from other minority shareholders of the bank, Herman Khan (previously owned 20.97% of voting shares) and Alexei Kuzmichev (16.32%). As a result of the rotation of shareholders, the share of Alfa-Bank, controlled by persons sanctioned by that time, became less than 50%. At that time, this made it possible to withdraw the bank from sanctions against shareholders, but later it was included in the Western sanctions lists separately.
As of March 1, 2022, Alfa-Bank's assets exceeded 6 trillion rubles, and its capital - 718 billion rubles, Expert RA reported. After the crisis began, the bank did not disclose regular reporting, and its top managers did not give any comments on the financial performance of the organization. Analysts of rating agencies, who retained access to the bank's statements, pointed not only to its strong market positions, but also to "high dependence of the financial result on volatile components in the form of currency revaluation." As of March 1, about 30% of Alfa-Bank's assets were in foreign currency. According to Expert RA, at the beginning of the crisis, Alfa-Bank's capital adequacy ratios allowed it to withstand the potential impairment of about 9.5% of assets exposed to credit and market risk. This assessment was given in April last year,
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ACRA reported in October 2022 that, according to the results of stress testing, the bank's ability to absorb losses through capital decreased against the backdrop of the crisis, but remains "relatively high." Analysts also drew attention to the risks associated with the placement of funds in non-resident banks and the bank's investments in securities of foreign issuers, but did not disclose the volume of such assets on the balance sheet.
Even if there were no significant defaults in the lending segments, the slowdown in lending growth and the instability of the resource base should have had a strong impact on the return on equity and assets of Alfa-Bank, according to independent analyst Andrei Barkhota. And the relatively high share of foreign exchange holdings in the 2022 fluctuations likely caused an additional decline in profits, he adds.
Over the past year, Alfa-Bank, like other large Russian credit institutions, has come under virtually all possible sanctions - first under the blocking restrictions of the UK and the usa , and in February under the sanctions of the European Union, where its parent structure is located. Aven and Friedman are under UK and EU sanctions.
According to the FT, even before the introduction of restrictions against Alfa-Bank, the Cypriot ABH Financial Limited issued a statement on the need to urgently "get rid of this controversial asset in order to avoid further regulatory, political and reputational consequences." She noted that owning it was "toxic" to its beneficiaries.
How can a deal go
The main outcome of the transaction, if it goes through, will be that “the main owner of the bank will be a Russian citizen and one of the founders of Alfa Group,” Alfa emphasizes (talking about Kosogov). A year ago, when he bought up the assets of Khan and Kuzmichev, the deal went through the shares of the Luxembourg ABH. This time, according to the FT, the deal may require the approval of regulators - the Bank of Russia and, possibly, the US and EU authorities responsible for the sanctions policy.
What is known about the possible key owner of Alfa-Bank
Andrey Kosogov ranks 76th in the Forbes rating of Russian billionaires with a fortune of $1.2 billion. purchase of vouchers, transactions with controlled assets and investments. Kosogov was the general DIRECTOR of Alfa Capital from 1992 to 1998, then the company became part of the Alfa-Bank group, and the top manager received a stake in it. In 1998-2005, he served as the first deputy chairman of the board of Alfa-Bank and led the investment unit, and then moved away from operational management. Kosogov also served on the board of directors of a credit institution, the boards of directors of the AlfaStrakhovanie group and ABH Holdings SA (there is currently no current information on the companies' websites).
A representative of Alfa-Bank notes that neither Andrei Kosogov nor the seller of the asset "are under sanctions, so it is likely that the approval of the transaction by foreign regulators will not be required." Although Friedman and Aven have been under sanctions for a long time, the Luxembourg ABH, although it was mentioned by the European Union in February as a structure associated with Alfa Bank, is not under sanctions. The sale of the shares of Fridman and Aven will help "the bank's speedy transition to the zone of Russian jurisdiction," a source close to the deal told RBC.
“Probably, the deal will bypass the level of ABH Holdings SA and will consist in the acquisition by Kosogov from ABH Financial Limited (Cyprus) of a controlling stake in the Russian AB Holding. As a result, Kosogov will become the main owner of the company that directly owns Alfa-Bank JSC, and will also remain the owner of at least 40.96% of the next level shareholder, ”Anton Imennov, senior partner at Pen&Paper, describes a possible scheme. In his opinion, it is realistic to carry out such a deal in the Russian perimeter, in the foreign one "it will be possible only on the condition that the sanctioned sellers of shares do not benefit from the sale."
According to Dmitry Kletochkin, a partner at Rustam Kurmaev & Partners, the partners “may well redistribute their shares in the Russian legal entity,” and then “no sanctions will interfere, foreign regulators are not needed,” but the consent of the Central Bank will be required, since it is planned to increase the bank’s stake in one person. The permission of the government commission will also be needed, since formally a foreign person is selling his share of participation, the lawyer adds. Kletochkin believes that it will still be about the redistribution of shares in the Luxembourg company, since only in this case "can the issues related to the lifting of sanctions against Fridman and Aven be resolved." The fact that Fridman and Aven are trying to get rid of Western sanctions by selling shares was written by the FT in an article about the planned deal.
What could be the price of an asset - and will billionaires be able to get money
According to the FT, the cost of about 45% of Alfa-Bank shares owned by Fridman and Aven could be 178 billion rubles. ($2.3 billion). Before the special operation, the book value of the credit institution reached $10.6 billion, the publication pointed out. Such an estimate suggests that since the beginning of the crisis, the packages of businessmen could have fallen in price by more than half.
“Until 2022, the normalized average return on equity of Alfa-Bank aspired to 20%, while the ratio of operating expenses and income was unstable, but in most cases did not exceed 40%. Thus, the bank's multiplier could be close to the relevant indicators of Sberbank and, taking into account the premium for control, could be in the range of 0.75–0.95x of capital,” Barkhota notes. In 2022, the multipliers decreased by two or three times, “which just translates into an estimate of 0.3–0.5 of capital,” he estimates.
Given the current restrictions, sellers can only receive real money in Russia, Kletochkin recalls: “Firstly, transactions related to the sale of shares in Russian companies by foreign investors are now limited; secondly, in Europe, this money is of no use, the beneficiaries are under sanctions, and these funds will simply be blocked. As far as I understand, it is not known whether the sanctions will be lifted after the completion of the deal, there can be no guarantees here by default.”
If the sellers need hard cash, then the best option is to conduct a deal in Russia and in rubles with shares in the Luxembourg ABH Holdings SA, although this may be prohibited by the charter of the structure, says Sergei Glandin, partner at the NSP law firm. In the western perimeter, Fridman and Aven, who are under sanctions, can receive cash only to meet the minimum needs, reminds Imennov.
Will it help lift the sanctions?
Friedman and Aven "want to do everything they can to get rid of their Russian assets and get the sanctions lifted," one of the sources told the FT. Both billionaires remained in the UK, unlike, for example, Khan, who, according to BLOOMBERG, returned to Moscow.
“For Fridman and Aven, such a deal is minus one reason for the imposed sanctions and plus one proof of distancing from the sanctioned Russian person. But no more. They were sanctioned on February 28, 2022, that is, much earlier than the bank, and they have their own reasons for being included in the list,” says Glandin. In his opinion, this will not help to remove sanctions from the bank, since it fell under sanctions as a legal entity that seriously fills the Russian budget and is important for the national financial system.
“Such changes will not affect the sanctions status of Alfa-Bank in any way, just as, most likely, they will not alleviate the sanctions status of Aven and Fridman,” Imennov is pessimistic.
“It is important that, formally, Fridman and Aven sell their stakes to a non-state investor,” Barkhota notes, adding that a direct sale of an asset to an organization with state participation would further reduce the likelihood of exit from the sanctions.
“Hypothetically, within three to five years, the bank's shareholding can be consolidated from one of the largest non-financial corporations in Russia,” suggests Barkhota. It is not excluded, in his opinion, and a merger with one of the largest banks in Russia. But the main obstacle to such a possible development of events is that the cost of the transaction, despite the discounts, is quite high, and with the integration, Alfa-Bank may lose its positioning identity, as well as a significant part of the client base, the expert concludes.