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Bank of Cyprus announced the successfully completed acquisition of an 80% interest in Uniastrum Bank in Russia for a total consideration of US$576 mln (€447mln).
The acquisition represents the largest investment into the Russian banking sector by a financial institution operating in either Greece or Cyprus. The transaction was completed following the receipt of approvals from the Cypriot and Russian Central Banks as well as the Russian Federal Antimonopoly Service.
The purchase consideration is financed from Bank of Cyprus’ existing capital and liquidity resources. Following the acquisition, the capital adequacy ratio of the Group is expected to be 11%. The transaction is expected to be earnings accretive from the first full year of investment (2009) and achieve a return on investment in excess of 10% within two years (2010).
The two founding shareholders – George Piskov and Gagik Zakarian remain in their capacities as Chairman and President of Uniastrum Bank respectively, and will each retain a 10% interest in Uniastrum Bank, whereas the new board of directors is controlled by Bank of Cyprus. This residual shareholding is subject to a put/call arrangement over a three-year period, payable in cash, depending on the financial performance of Uniastrum Bank during the three-year period.
Russia, with its underpenetrated banking sector and relatively strong economic growth, offers significant potential for development of banking services, especially in retail banking. The average real GDP growth of Russia for the period 2004-2007 was 7,3%. The real GDP growth rate for Russia is estimated at 7,0% for 2008 and 5,5% for 2009, which despite demonstrating a certain level of slowdown is still in excess of the growth rates estimated for the Eurozone (1,3% for 2008 and 0,2% for 2009). Banking penetration in Russia is still at its infancy, with the loans to GDP ratio at end-2007 at only 36,3% compared to 113,9% in the Eurozone, with the spreads between loans and deposits significantly higher than those prevailing in the Eurozone.
Uniastrum Bank is well positioned to capture this Russian retail banking potential. Founded in 1994 and headquartered in Moscow, Uniastrum Bank has one of the largest distribution networks in Russia, consisting of over 220 outlets. The network is located in the most economically active regions in Russia, which account for approximately 85% of the country’s GDP and the Bank operates in every city with an official population of over 600,000 people. Uniastrum Bank has a retail focused portfolio offering an extensive range of products and enjoys high brand recognition in the regions in which it is active. As of June 2008, Uniastrum was ranked 36th by retail loans. The Bank has an excellent deposit gathering capability and is ranked 15th by retail deposits. As of September 30, 2008 , Uniastrum’s total assets stood at €1,4bn, net customer loans at €1,1bn and customer deposits at €1,1bn. The closing of the transaction is coupled with a $50mn (€38mn) capital increase, which will further strengthen the capital adequacy of Uniastrum Bank, which as of 30 September 2008 stood at 12,5%. The capital injection will support the future envisaged growth of the Βank. In addition to its attractive fundamentals, Uniastrum Bank has a highly experienced management team with demonstrated capability to manage a rapidly growing organization.
Uniastrum Bank will continue to focus on the lucrative retail and SME sectors, and will complement Bank of Cyprus’ existing organic operations in Russia, which focus on the corporate sector. It is expected that Uniastrum Bank’s retail focus and extensive distribution network in Moscow and throughout Russia coupled with Bank of Cyprus’ product developement capabilities, procurement support and funding synergies will add significant value to the shareholders of Bank of Cyprus.
