FOCUS: Market uncertainty over Yandex restructuring rises as VTB pulls out

By Yekaterina Yezhova

MOSCOW, Jun 26 (PRIME) -- VTB Bank’s refusal to bid for the Russian assets of Yandex N.V. has left the market in the dark over the future of restructuring of the Internet giant’s parent firm, analysts said as it is unclear who will replace the lender.

“Most likely, the market was taken aback by VTB head’s statements as Yandex’s stock have been decreasing for three trading days in a row compared to closing on June 15,” Freedom Finance Global leading analyst Natalya Milchakova told PRIME.

VTB CEO Andrei Kostin told reporters on June 16 on the sidelines of the St. Petersburg International Economic Forum that his bank will not participate in the acquisition of a stake in the Russian assets of Amsterdam-based Yandex N.V.

The news pulled the company’s quotes down by 2.27% the same day on the Moscow Exchange and the shares plunged 4.1% over a week closing at 2,444.80 rubles on June 23.

At the end of May, Kostin said that the bank was interested in acquiring a stake in Yandex as part of a consortium of investors. Deputy Chairman Dmitry Pyanov added later that the negotiations were at a very early stage and the acquisition would be financed with the bank’s own funds.

“VTB’s decision can be hardly called expected since no information from the parties about difficulties in the talks had been reported. Probably, other interested investors will take VTB’s place, but it is still unknown who exactly. Uncertainty regarding the participants has risen with the refusal of the bank,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

“It is known that VTB intended to take part in the deal as part of a consortium of investors, which means it hardly hoped to take a large stake. Andrei Kostin said that VTB had discussed first the acquisition of a 15% stake of the company and later cut possible interest to 10%. We see no impact on reorganization so far. Perhaps, VTB’s withdrawal would push other investors to discuss better terms.”

Yandex N.V. in November 2022 said that its board of directors “has commenced a strategic process to review options to restructure the group’s ownership and governance in light of the current geopolitical environment.”

In late May, Yandex N.V. said it was progressing on the restructuring plans to divest from the Russian business and had received proposals from a number of potential investors, among which media named billionaires Vladimir Potanin and Vagit Alekperov. Meanwhile, the Dutch company said that control over the assets will remain in the hands of the management.

Kostin reiterated that under the president’s decree Western companies must grant Russian buyers a discount of at least 50% of the price of the asset, while the deal with Yandex was a market one. The banker suggested following suit of Finland’s energy company Fortum and taking the asset in receivership until the sanctions end.

“The idea of receivership also elevates the total level of uncertainty and can depress the investors. He probably meant external management of the stakes that are not in the hands of Russians. It would probably disturb the company’s restructuring plans and would narrow the range of available options for the investors,” Mikhailin said.

Milchakova at Freedom Finance Global said that Kostin’s receivership proposal is viable at least in theory. “Kostin’s logic is clear, why private investors should bother when such deals are carried out mainly in the interests of the government. Let the government tackle these matters through administrative matters, the Russian law does not ban it,” she told PRIME.

“On the other hand, despite Yandex’s registration in an unfriendly jurisdiction, the Netherlands, in fact, it’s a Russian business. Thus, the idea of receivership over the assets of de facto a Russian firm looks doubtful, and there is no reason to do it unless the firm is a bankrupt, which is not Yandex’s case.

“The imposition of receivership would be a negative signal for the stock market, for Russian investors, and, possibly, for investors from Russia-friendly states, because the investors would be worried that if the assets are controlled by the government, the high-tech firm may become less efficient or its business is in a worse condition than its statement shows.”

Milchakova added that Yandex N.V.’s capitalization has been fluctuating around U.S. $6.8 billion over recent days. “The Russian assets generate 97 to 98% of its annual revenue, this is why almost the whole firm will be on sale,” she said, adding that 49% of the shares may be valued at $3.4 billion.

“Finally, the sale price may stipulate discounts, for example, a discount for the lack of control over the company.”

Andrei Kochetkov, a leading analyst for global research at Otkritie Investment, doubts receivership would be good for the Internet company. “Yandex’s business comprises sophisticated IT systems, whose effectiveness depends on specialists, this is not a steadily operating equipment that requires no specific skills,” he said in a note.

Milchakova said that Yandex N.V.’s Russian assets would be probably spun off and sold, but it is still unclear whether the deal takes place, when it may happen or who may buy the assets. “It seems the market is puzzled over the deal’s future after Kostin’s remarks,” she told PRIME.

(84.0793 rubles – U.S. $1)

End