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Russian entrepreneur launches $750 mln credit card IPO‑Reuters

(Reuters) – Russian entrepreneur Oleg Tinkov has launched a London stock market listing for his credit card business TCS to raise up to $750 million, seeking to convince investors that households will continue to pile on debt despite an economic slowdown.

Unsecured lending to Russian households grew by as much as 50 percent last year as the country’s emerging middle class demands more consumer goods and banks rush into a profitable market to offset weakening demand for credit from companies.

“The economy has slowed a little but there is still very strong consumer demand,” said TCS CEO Oliver Hughes. “Retail is strong. This is just the right time to do an IPO – we have a solid track record behind us. We have massive growth to come.”

Household indebtedness in Russia, at 12 percent of gross domestic product, is much lower than in most developed economies, with countries such as Britain seeing a percentage as high as 100 percent.

Small entrants like TCS Holding Group, owner of Tinkoff Credit Systems which was founded by the blonde-haired and charismatic Tinkov, have challenged state-controlled lenders and grabbed market share in the high-margin business.

“TCS has a history of growth,” said Uralsib analyst Natalia Berezina. “It is slightly different to those already on the market – universal banks which have a large share of corporate business, and, of course, with a lower rate of growth.”

But she said that was a double-edged sword, as it meant TCS could be more exposed to a potential slowdown in consumer lending.
Worried that the boom may end badly, the central bank has instructed banks to increase provisioning against retail lending – especially the high-interest point-of-sale loans many Russians take out to pay for discretionary items.

However, Hughes said moves by regulators to raise the barriers to entry would help specialist lenders such as Tinkoff.

TCS says its market share of credit card loans is 7.7 percent, while it has a net loan portfolio of nearly $2 billion and more than 3.5 million credit cards issued. Net profit for the six months to the end of June grew to $79 million from $52 million the same year a year earlier, it added.

The firm credits its growth to a branchless model where it delivers credit cards by courier to far-flung regions such as Kamchatka, Sakhalin island, the North Caucasus and Siberia.

The initial public offering (IPO) would allow it to grow its core retail lending while developing other business lines such as payments and insurance, it said. The company will raise about $150 million to $200 million from the sale of new shares in the form of global depositary receipts (GDRs).

The offering will also allow Tinkov, who has a 61 percent stake, to sell down some of his shares, although he will remain majority shareholder.
It will give the company’s private equity backers – Vostok Nafta, Goldman Sachs, Baring Vostok and Ukraine’s Horizon Capital – a partial exit as well.

Goldman Sachs’ private equity unit bought a 15 percent stake for $20 million in 2007 when the group was battling the financial crisis. Tinkov sold another 15 percent stake in 2008 to private equity fund Vostok Nafta, for $30 million.

TCS did not say how many shares it would sell in total, or provide details on its potential valuation.

The listing will come alongside other offerings by Russian companies. The government is to sell a stake in diamond miner Alrosa on Moscow’s bourse, while hypermarket chain Lenta, part-owned by U.S. private equity firm TPG, is expected to go public next year.

The roadshow for the TCS offering will start on Oct. 14 with pricing on Oct. 25, two market sources said. Hughes said TCS was anticipating a wide investor base including technology-focused funds, financial technology funds as well as emerging market focused investors.

Prior to supplying credit cards, Tinkov built up and sold businesses including a brewing chain and a frozen foods business. He sold Darya, a frozen foods business named after his daughter, to Russian oligarch Roman Abramovich in 2001, and sold his brewer Tinkoff to InBev in 2005 for 167 million euros.