Bank involves Estonian capital, with ease

Photo: Peeter Langovits/ Postimees

Only private persons and own enterprises participate in LHV non-public offering.

Today, LHV group council is supposed to confirm results of recent private placement – which was quite a success, according to the bank. LHV group CEO Erkki Raasuke refutes the claim that capital is hard to involve in Estonia. And he agrees not to the notion of capital markets stuck in doldrums.

«I’ve felt no limits to involving capital from local market,» Mr Raasuke told Postimees as the placement was coming to a close. «While, in the corner of mine eye, I detect these other stories not that positive, I never understand why so,» he added.

According to Mr Raasuke, the option to involve capital does exist on the Estonian market. He admits, though, that the capital in question isn’t too vast. «Involving up to €25m even among the non-institutional investors is absolutely possible,» underlined the man. «I see no problem why the capital market here couldn’t be more active.»

Specialists think LHV has no problems involving investors mostly for letting it be known, early on, that it intends to list the shares in a couple of years.

«I think that, when it comes to the LHV placement, the capital market does indeed function i.e. LHV Bank has no problems involving additional equity capital; the more so that in a couple of years an IPO is expected, which will offer the investors an exit option – a profitable one, as assumed,» said Alar Voitka, partner at financial consultancy Nordic CF Advisory.

During these past few years, there are other such cases of success as well. For instance, EfTEN Real Estate Fund last year involved €28.3m. The fund has also managed to involve local pensions money, having LHV and Danske Bank pension funds as its investors. Both own EfTEN shares.

According to Mr Voitka, a «peculiarity» of the Estonian market is that, contrasting with larger markets, it is not dominated by institutional investors such as pensions funds, hedge funds and other like funds; rather, it’s the wealthy people and their unofficial investment groupings. «Meanwhile, the limited numbers of market players and the weak aftermarket do have an impact even here – a company may indeed involve the extra capital, but the investment will not be liquid, being greatly dependent on shareholders’ contract,» said Mr Voitka. And that will be reflected in the company’s pre-money valuation.

As also confirmed by Mr Raasuke: LHV investors are local entrepreneurs, former entrepreneurs, and investors. «We have no institutional investors at all,» said Mr Raasuke. «We have no funds, we have no money managers etc,» he added. The one perhaps closest to being an institutional investor is LHV Group's third biggest investor ASI (Ambient Sound Investments), which in reality is capital placement by four one-time Skype creators.

According to Finance Estonia chairman Aare Tammemäe, involving capital is no problem for companies which are in a good shape, are geared towards growth, and have a good narrative, as these are also able to involve capital from the outside.

«When it comes to the typical small or medium enterprise with about 50 of staff, for them it might be problematic,» said Mr Tammemäe. «For them, banks are basically the only faucet for financing, and this isn’t good for the system as a whole. There ought to be something in addition to the banks, and the banks would probably actually like it – to have more alternatives on the market.»

The deadline for subscribing LHV shares and bonds was Monday; even so, active sales of the securities was already on before the general meeting where the decision was taken to expand share capital. According to Mr Raasuke, there were two placements, actually.

Namely, LHV group had €18.6m of subordinated debt, the use of which was complicated due to new EU regulation. These bonds were recalled and new bonds were issued instead, ones conformable to the new rules.

About a week before the subscription date fell, two thirds of the volume had already been subscribed; according to Mr Raasuke, already then they deemed the offering a success. The offering being non-public, minimal subscription volume was 10,000 shares, minimal investment thus a bit over €40,000.