Blackstone’s $1.2bn Luminor takeover leaves IPO plan intact

Plans to take the Baltic bank public "may be less urgent" after the deal, chief executive says

New York City-based Blackstone wants to buy a controlling stake in Latvian bank Luminor.  Getty Images

Blackstone Group’s purchase of a controlling stake in Luminor won’t alter plans to prepare the Baltic bank for an initial public offering, according to its chairman, Nils Melngailis.

The need to go public “might be less urgent,” after the deal, he said in an interview in Riga, Latvia.

“Blackstone is in no rush to do it, so I think our timetable might extend, but it depends,” he said. In October, Melngailis said an IPO could take place in 3-5 years depending on market conditions, which he says is still the main scenario.

Blackstone has agreed to pay Nordea Bank AB and DNB ASA 1 billion euros ($1.2bn) to buy 60 per cent of the third-largest lender in the Baltic region, the banks said on Thursday. The investment comes amid a string of money laundering scandals, which have added to misgivings about a region that has been characterised by a lack of liquidity and geopolitical tensions due to its proximity to Russia.

Melngailis said that concerns about money laundering, most recently at the Estonian branch of Danske Bank A/S, are “clearly on the top of everyone’s minds, including our own.” But he also says Luminor has taken extra steps to ensure it’s protected from such forms of financial crime, including cutting the kind of non-resident business that has tended to be associated with laundering.

“We’ve been very diligent ever since we established Luminor,” he said. “We’ve come in with a new management team, we’ve quite actively been reducing our non-resident business.”

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Luminor said last month it has imposed tougher requirements for business involving non-resident clients and Baltic and Nordic customers now make up more than 99 percent of its customer base. In the second quarter, the bank’s Estonian unit implemented a “low-risk policy” for private banking customers that resulted in a 2 per cent decrease in deposits.

The Luminor deal isn’t the first time Melngailis has collaborated with Blackstone. He led a failed bid backed by the private equity firm for a management buyout of Latvian telecommunications company Lattelecom a decade ago. He then briefly acted as an adviser for Blackstone before becoming chief executive of Parex Banka, which the Latvian government had taken over after a run on the lender’s deposits. Melngailis used Blackstone to help negotiate with Parex’s syndicated lenders.

Luminor will be “in a better position” to issue bonds to replace its parent funding after receiving a Baa1 deposit rating from Moody’s Investors Service earlier on Thursday, Melngailis said. The lender expects to be able to sell covered bonds next year, chief executive Erkki Raasuke said in a separate interview.

Raasuke, who served as Swedbank AB’s chief financial officer in 2009-2011, will also work with his former boss, Michael Wolf, who is now a senior adviser to Blackstone.

“I don’t think we’ll be strategically expanding our balance sheet unless there are some unforeseen circumstances, if there is a portfolio that we see is attractive,” Melngailis said. “I think we can get our plans in place more quickly then we otherwise would have done.”