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Tinkoff Pummeled as Card Business Model at Risk: Russia Credit

November 18, 2013

Tinkoff Credit Systems

The logo of the Tinkoff Credit Systems online bank, operated by TCS Group Holding Plc, sits on an Apple Inc. iPad tablet in this arranged photograph in Moscow. Photographer: Andrey Rudakov/Bloomberg

Investors punished Tinkoff Credit Systems, driving borrowing costs to a four-month high, as Russian lawmakers’ plans to restrict charge cards fueled concern the lender’s business model is at risk.

The yield on Tinkoff’s 2018 dollar debt jumped 135 basis points to 11.89 percent on Nov. 15, the highest since June. The rate on a JPMorgan Chase & Co. index of emerging-market financial industry debt stood at 5.68 percent. TCS Group Holding Plc (TCS), which owns Tinkoff and sold shares in an initial public offering in London last month, sank as much as 47 percent.

The bonds and shares of the branchless lender collapsed after Kommersant newspaper reported lawmakers sought to end distribution of credit cards by mail and courier. An author of the planned legislation said it contained a “technical error” and the deliveries could continue. The bill is part of a drive to further curb the pace of unsecured consumer lending, which slowed from 60 percent last year to 36 percent as of Oct. 1.

“If amendments are passed in the proposed version, this could destroy Tinkoff’s business,” Yulia Bushueva, who helps manage about $500 million in assets at Arbat Investment Services Ltd. in Moscow, said by e-mail on Nov. 15. “Investors were aware of the fact that the sector’s regulation is tightening, but didn’t expect such a development.”

Amending Legislation

State Duma Deputy Anatoly Aksakov, who helped write the bill, said there was an error in the draft and that the bill only applies to the unsolicited distribution of cards. The committee will review the draft this week, he said by phone.

The clause requiring customers pick up cards at fixed locations will probably “be amended,” Tinkoff, Russia’s third-biggest credit card lender, said in a statement Nov. 15.

While analysts at VTB Capital said they expect the bill to be tweaked before its second reading, in a “worst-case” scenario, Tinkoff may need to resort to distribution through agent banks for a fee, according to an e-mailed note Nov. 15.

The bank is modeled on Capital One Financial Corp. (COF:US), a U.S. pioneer of card distribution by direct mail, which the Russian lender’s founder Oleg Tinkov said he learned about while living in San Francisco. UralSib Financial Corp. called TCS a “monoline retail bank,” with 97 percent of its loan portfolio in credit cards, according to a report Oct. 8.

‘Bold Bid’

The government is making a “bold bid” to control lending growth, Ian McCall, who helps manage $107 million in emerging-market assets at Quesnell Capital SA in Geneva, said in an e-mailed comment on Nov. 15. McCall said he’s using the selloff of Tinkoff’s debt as an opportunity to buy. “I don’t think they want to kill the business off. Just reign it in.”

The IPO raised $1.1 billion with the stock priced at $17.50, the top of the range, according to a statement on Oct. 22. The shares closed 26 percent lower on Nov. 15 at $11.50.

Banks including Goldman Sachs Group Inc. (GS:US), Morgan Stanley and Sberbank CIB managed the IPO, according to its prospectus. Goldman raised $226 million in the sale, cutting its stake in TCS from 12 percent to 4.5 percent. Spokesmen for the three organizers declined to comment when reached by phone on Nov 15.

The yield on Tinkoff’s peer ZAO Russian Standard Bank’s January 2024 dollar bond rose two basis points, or 0.02 percentage point, to 11.87 percent on Nov. 15. Russian Standard is rated B2 at Moody’s Investors Service at B2, the same as TCS and five levels below investment grade.

Bubble ‘Fear’

Tinkoff’s 2018 bond yield was little changed at 11.88 percent by 3:18 p.m. in Moscow. The stock jumped 12 percent to $12.90 in London.

The yield on Russia’s dollar bonds due March 2030 fell three basis points to 3.94 percent. The extra yield investors demand to hold Russia’s debt rather than U.S. Treasuries dropped two basis points to 216, compared with 245 for Brazil, according to JPMorgan indexes.

Russia’s consumer-finance banks face an increase in bad loans in the unsecured retail-lending market, Moody’s said in September, citing Tinkoff among those with “heightened risks.” Bank lending to households rose 31 percent as of Oct. 1 from a year earlier, central bank data show.

“General sentiment toward risks in retail lending in Russia is worsening heavily,” Sergey Dergachev, who helps oversee about $9 billion as a money manager at Union Investment Privatfonds GmbH in Frankfurt, said by e-mail on Nov. 15. “There’s some fear of something like a retail credit bubble.”

To contact the reporters on this story: Ksenia Galouchko in New York at; Ruth David in Mumbai at

To contact the editors responsible for this story: Wojciech Moskwa at; Daniel Tilles at

The Aging of Abercrombie & Fitch

Companies Mentioned

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    (Capital One Financial Corp)
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    • -1.42
    • -1.85%
  • GS
    (Goldman Sachs Group Inc/The)
    • $176.49 USD
    • -3.93
    • -2.23%
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