February 12, 2020 / 1:06 PM / 16 days ago

Sberbank deal to finance fruits of Putin's 'January Revolution'

* Finmin to buy cbank’s stake in Sberbank

* Finmin to use national wealth fund for the $39 bln deal

* Sale to help fund Putin’s fresh social pledges

* Sale a ‘happy medium’ amid row over how to spur growth - sources

* Will boost rouble, allow for more key rate cuts - analyst

By Katya Golubkova, Tatiana Voronova and Darya Korsunskaya

MOSCOW, Feb 12 (Reuters) - The Russian central bank’s deal to sell Sberbank to the finance ministry represents a happy medium for seller and buyer, while the overall winner may be Vladimir Putin.

The proceeds will help the central bank recoup some losses from 2017 bail-outs, while the remainder will be channelled back to state coffers, arriving just in time to finance a raft of new measures announced by the Russian President to boost growth.

The finance ministry announced on Tuesday it will fund its purchase of the country’s largest lender with surplus funds from Russia’s National Wealth Fund (NWF), which is maintained at around 7% of GDP.

The use of NWF money is governed by strict rules, but buying the central bank’s 50%-plus-one-share stake in Sberbank for a “market price”, as the finance ministry has described it, passes muster. It will see the central bank, as a state organ, ultimately return part of the proceeds to the budget, where they can be spent more freely.

Putin needs the money.

In a so-called ‘January Revolution’ last month, Putin within a few hours ordered new social spending to recharge the economy and proposed rewriting the constitution - empowering parliament and weakening the role of president. He also appointed a new prime minister.

Putin’s proposals, which he suggested should be put to a referendum, could give him scope to extend his grip on power after leaving the presidency in 2024. Although he made no comment on this, analysts suggested he could become prime minister or take a role within the empowered parliament. Before that, he has asked his new government to boost economic growth.

How to secure growth was at the heart of heated debates last year. The finance and economy ministries and industrial heavy-weights attacked the central bank for its policies and most vociferously for not cutting its key rate aggressively enough.

As the new government has promised to boost growth - now at a feeble 1% - a ‘happy medium’ was found with Sberbank’s sale, two high-ranked sources familiar with the talks said.

“Everyone has been at war,” the first source, a high-ranked banker, told Reuters. “The government does not know how to kick-start growth and the central bank, with its slow rate cutting, is only adding to that anger.”

“Sberbank’s sale is a result of that conflict.”

The deal will start in April and be finished by mid-2021. It will see 2.45 trillion roubles ($39 billion) channelled from the NWF to the central bank, which will keep 700 billion roubles and transfer 1.25 trillion back to the budget.

The finance ministry will use 900 billion roubles in 2021-2023 to finance a quarter of Putin’s January pledges aimed at boosting the birthrate, key for the country’s prosperity and security, sources have said.

Sofya Donets, an economist with Renaissance Capital, said in a note that proceeds from the deal are “more than enough to finance additional social stimulus for 4-5 years,” resulting in higher economic growth.

The rouble is also expected to benefit, as the central bank plans sales of foreign currency within 3-7 years, as it will be paid for Sberbank, at least in part, in dollars from the forex-denominated NWF.

Last week, the central bank cut its key rate to 6% in a sixth successive easing, but some market players say the cuts should be more aggressive as inflation is well below the central bank’s 4% target.

The finance ministry and the central bank did not reply to requests for comments. ($1 = 63.0060 roubles) (Reporting by Tatiana Voronova and Darya Korsunskaya Additional reporting by Gabrielle Tétrault-Farber, Elena Fabrichnaya and Alexander Marrow Writing by Katya Golubkova Editing by Alexandra Hudson)

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