RUXX Initiates Coverage of Tinkoff - Credit Systems Prior to IPO

NEW YORK, Oct. 22, 2013 /PRNewswire/ -- RUXX, an index that tracks Russian companies traded on international exchanges, announced that it initiated coverage of Russian online bank Tinkoff – Credit Systems (TCS) that is set to go public in London today. The indicative pricing range for a global depositary receipt (GDR) to be offered to the public is $14-17.5, which is 3.9x – 4.8x times the bank's equity at the moment.

The Board of RUXX will make a decision of inclusion of TCS into the index next week. The high valuation might point to a financial bubble in the Russian banking sector, according to the research note published by RUXX: "The price-to-book multiple of TCS is substantially higher than that of the major Russian blue chips. Demand for financial stocks is clearly high among investors, despite obvious risks, such as rise of bad debts, changing regulations, growing competition among banks, and more. We expect tectonic shifts within the sector," says Michael Thompson, director of research for RUXX.

"Tinkoff – Credit Systems has more chances to become a victim of the banking crisis in Russia as it's in the small and micro loans business – majority of its loans is $1000 or less. These borrowers are more likely to default on their loans. According to the research, up to 30% of these streamlined consumer loans are expected never to be paid back," the research note says.

"Press updates, relating to the IPO proceedings, suggest that so far investors show significant interest in the offering, not overly concerning about loan quality issue. Obviously, we see that the bank experiences some loan quality problems ..." Marina Karapetyan, analyst for Alfa-Bank, said in an email to RUXX.

Overall, more than 50% of analysts polled by RUXX index, believe that the company is being offered at very high valuations: "Given the already reach valuations for the bank, we do not see any significant upside to the stock in the near term," said Karapetyan.

Another issue that could put pressure on profitability of the bank is increased competition. TCS and its competitors impose high effective interest rates – which can be as high as 40% including commissions and fees, rising to 70% if a customer misses one or more monthly payments. Once Russian state-owned banks with their unlimited resources and access to the whole county will enter the small loans market, TCS profitability is likely to decrease.

RUXX Index
John Foley
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SOURCE RUXX Index