RBI asking price for Polish unit too high, analysts say

Raiffeisen Bank International AG will struggle to achieve the price it wants as it looks to list a stake of Polish subsidiary Raiffeisen Bank Polska SA on the Warsaw Stock Exchange, according to equity analysts.

The Austrian group was reportedly asking for up to 950 million Polish zlotys, or up to 1x book value, for the 15% stake in its Polish arm in a failed initial public offering attempt earlier in July.

RBI suspended the IPO at the end of the subscription period, on July 6, due to low investor interest. It received subscriptions for an amount equivalent to just 0.6x the book value of the Polish unit, according to Reuters. "People familiar with the situation" told the newswire before the IPO was suspended that, although RBI might be willing to sell at 0.9x to book value, investor interest was still likely to be low because of the Swiss franc-denominated mortgages held by Raiffeisen Bank Polska.

"It seems there is a big gap between what passive investors are willing to pay and what valuation RBI aims at," Kamil Stolarski, an equities analyst at a Warsaw-based branch of Haitong Bank, told S&P Global Market Intelligence.

The asking price of 1x book value is very challenging, and Polish investors are pointing to more like 0.5x levels, which is not attractive to RBI, Mateusz Krupa, an equity analyst at Erste Securities Polska, a unit of Austria's bank Erste Group, said in an emailed comment.

At the 1x valuation, Raiffeisen Bank Polska's IPO would be the second-largest listing on the Warsaw Stock Exchange this year, following supermarket chain Dino Polska's debut of 1.65 billion zlotys, and considerably larger than any of the listings in 2016. The largest IPO of last year was Celon Pharma's debut that raised 244.95 million zlotys, according to data from the Warsaw Stock Exchange.

ROE does not justify price

RBI is in talks with Polish financial regulator KNF about further proceedings, with no timetable set for when it can resume the offering. The regulator is insisting that a minority stake be listed as soon as possible — the partial IPO was a condition set by KNF to approve the acquisition of the Polish bank by RBI in 2012. It was already postponed by a year while RBI attempted to sell the unit to Alior Bank SA, but talks broke down at the end of 2016.

RBI CFO Martin Grüll said July 13 the group remains committed to the plan to list 15% of the Polish subsidiary in Warsaw, according to Reuters, which cited comments given by the CFO to in-house newspaper Raiffeisenzeitung.

Selling below book value would lead to a large loss and hit RBI's capital base. But a 1x valuation looks "unrealistic" considering Raiffeisen Bank Polska's return on equity, Berenberg equity analyst Eoin Mullany said in a July 13 research note.

RBI reported an after-tax ROE of 0.4% for its Polish business at Dec. 31, 2016, compared to 1.7% at 2015-end.

Adjusted for one-offs, Raiffeisen Bank Polska showed only some 4% of annualized quarterly ROE, which is not supportive for demand, according to Krupa.

IPO still the more likely option

Given RBI's aim to limit the hit to its capital base, a minority stake listing in Warsaw remains a more likely option than a trade sale, according to Berenberg.

A July 5 Polish media report suggested Bank Pekao SA was interested in the RBI unit. PZU and Polish development fund PFR recently acquired a 32.8% stake in Pekao, and the bank is now headed by Michal Krupinski, who was management board chairman at PZU at the time of RBI's negotiations with Alior Bank.

The valuation multiples in an M&A deal would differ significantly from an IPO pricing, as RBI would not be selling Swiss franc-denominated mortgages, as required by regulators, Stolarski said.

As of July 13, US$1 was equivalent to 3.70 Polish zlotys.