VTB to convert preferred shares into ordinary shares in May using 2025 average market price for calculation, state will own 74.45%
MOSCOW. Feb 20 (Interfax) - VTB will use the weighted average share price for 2025 of 82.67 rubles when converting its preferred shares into ordinary shares; the state's stake in the bank's capital, currently 50.1% of ordinary shares and 80.6% of the charter capital considering both types of preferred shares, will be 74.45% but the minority shareholders' share of the dividend stream will not change, VTB First Deputy Management Board Chairman Dmitry Pyanov told journalists.
A significant portion of VTB's capital exists in the form of two types of preferred shares with a total par value of 521 billion rubles, which belong to the state. Last year, VTB announced its intention to simplify its capital structure and remove the preferred shares, which minority shareholders might perceive as a threat of violating the principle of equality in dividend distribution.
"After lengthy consultations, we decided to proceed with legislative changes. The changes make both types of our preferred shares convertible into ordinary shares. Currently, they are non-convertible. Second, we are fixing the conversion ratio in these changes - this is probably the most intriguing part of our communication," Pyanov said.
VTB will convert the preferred shares at a ratio of the par value of one preferred share of each type to the weighted average price of one ordinary share, based on organized exchange trading for 2025. The par value of preferred shares of the first type is 0.01 rubles, and the par value of the second type is 0.1 rubles.
"Naturally, we calculated what the weighted average price would be, according to a certificate from the exchange - it is 82.67 rubles per ordinary share. This is proof of previously made communications that within the framework of the preferred share conversion design, we will do this in the interests of minority shareholders, taking their interests into account," Pyanov said, calling the final configuration a "great compromise."
He said there had been quite a debate about valuing preferred shares for conversion, as they are not listed on the market. "Current Russian legislation proclaims the basic principle of par-for-par conversion. We had to customize the ratio algorithm because par-for-par conversion would definitely not go down well with the market," Pyanov said.
New-look capital and dividends
Amendments allowing the conversion of preferred shares are being introduced for the second reading of the bill that expands the scope of the Federal Law on the Procedure for Foreign Investments in Russian Strategic Enterprises (No. 1082676-8), passed at first reading in January. VTB expects that deputies will pass the law in its second and third readings as early as February, and that the document will be adopted by the Federation Council and be signed by the president in early March. Simultaneously, VTB will hold a supervisory board meeting in March to schedule an extraordinary shareholders meeting to vote on the conversion. The EGM is expected to take place in April, and the bank will register amendments to the charter in early May.
"So, as a result of the conversion, VTB will have only ordinary shares by early May. And, importantly, when dividends are paid in 2026 for 2025, all shareholders, both the state and minority shareholders, will be holders of ordinary shares only as of the dividend record date," Pyanov said.
VTB also considered a "transactional" conversion - repurchasing preferred shares for its balance sheet and issuing new ordinary shares. This option did not require new legislation but the bank decided against it.
"Ours is a retail market [where the stock market is dominated by private individuals]. Any discussion of additional shares is psychologically bad. So from the point of view of such a subjective mechanism, I think the option we have now through legislative changes and direct conversion also frees the market from the possibility that VTB is planning another additional share issue, which might be dilutive or something else. Conversion is definitely not dilutive - it turns one form of capital into another, namely ordinary shares. So we expect it to go down well," he said.
Pyanov said conversion would be neutral for VTB's capital and capital adequacy ratios. "This is about changing capital represented by preferred shares into capital represented by ordinary shares. That is, in terms of capital adequacy and the amount of capital it is a change in form, but not a change in the total amount," he said.
He also said the conversion would not affect the allocation of dividends for 2025, but would simplify the calculation of payouts shareholders.
"As a result of the conversion, minority stakes in ordinary shares will decrease, but their share of the dividend stream will remain unchanged: just as it used to be distributed among ordinary shares plus preferred shares, so it will now be distributed among ordinary shares, which will contain a portion of ordinary shares converted from preferred shares," Pyanov said.
Following the conversion, the state's stake in ordinary shares will increase from 50.1% to 74.45%.
Pyanov said VTB was not planning a new share issue after the state stake, currently at the threshold for formal control, increases and the cap on its potential dilution is lifted. "We'll now focus on converting the preferred shares by May. The purpose of this conversion is not to make room for new share issues but to simplify the capital structure and eliminate the class of preferred shares that some minority shareholders saw as a means of bypassing them and redistributing dividends in favor of the state. In other words, we are, primarily, conquering this fear," he said.
VTB will have 12,927,766,400 issued ordinary shares following the conversion. The Finance Ministry and Federal Property Agency will hold 9,624,391,170 of these shares on the state's behalf.
Management promised to announce plans for dividends for 2025 in February 2026 when presenting its annual reporting, which will be published on February 25. VTB chief Andrei Kostin has said the bank was ready to allocate between 25% and 50% of its net profit for 2025 for dividend payments, depending on capital needs. VTB's management is interested in maintaining the dividend yield on the bank's shares at a level at least not lower than the deposit rate, but the issue of payments is a subject of dialogue with the Central Bank of Russia, which monitors the capital level, and the decision remains with the shareholder, Kostin has said.
