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Sept. 5, 2007, 12:01 a.m. EDT

VTB of Russia Postpones Meeting on Bank Merger

By Harry Wilson

A 13% slump in the share price of OAO Bank VTB, the Russian firm that in May completed the largest flotation so far this year world-wide, has forced it to postpone the full integration of one of its group of lenders.

The bank's board canceled an extraordinary general meeting set for Sept. 27 to discuss the completion of the integration of VTB North-West, formerly known as Promstroibank, over fears investors in VTB's equity and debt, both of which are trading below their issue price of $10.56, could use the opportunity to sell their holdings back to the bank at their full value. Under Russian law, VTB is required to make an offer to buy back its debt from creditors unhappy with the takeover, which would give investors a chance to sell their bonds at the issue price, according to David Nangle , an analyst at Moscow investment bank Renaissance Capital.

In a report published by Renaissance Capital, analysts said they expected "many" holders of VTB debt would be tempted to use the opportunity to get their money back.

According to Renaissance, VTB would also be obliged to buy back equity from investors equal to as much as 10% of the $8.2 billion of share capital held by them at the May initial public offering price.

VTB shares were trading at $9.17 yesterday, or 13% below the offer price, and analysts at Russian investment bank Alfa Bank said the merger postponement could worsen the terms of share buybacks for smaller stakeholders. They wrote: "The news is clearly negative for minority shareholders as it adds further uncertainty to the procedure for the swap."

VTB shares first traded below their issue price in July, putting pressure on bank Chairman Andrei Kostin , who said in May that the shares wouldn't fall below the offer price.

More than 130,000 retail investors bought into VTB's London and Moscow flotation, which was led by Citibank, Deutsche Bank, Goldman Sachs and Renaissance Capital.

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