Russia's number two bank VTB announced Monday a stock offering of $3.3 billion that will see the state's share in the company reduced to 60.9 from 75.5 percent amid an effort by the Kremlin to boost Moscow's stature as a financial centre.
The placement will allow sovereign wealth funds Qatar Holding, Norway's Norges Bank Investment Management and Azerbaijan's State Oil Fund to take on minority stakes.
The move is aimed at boosting the bank's capital so it can meet the more stringent Basel III rules that were accepted by global lenders to ensure better resistance to financial shocks.
But the May 6 flotation of 2.5 trillion shares at the asking price of 0.041 rubles each comes at a sensitive time.
VTB said it will place the shares on the Moscow Exchange as part of the Kremlin's efforts to turn the Russian capital into a global financial hub linking London to Hong Kong.
But in a sign of muted investor interest, the secondary issue will be made at a nine percent discount to the stock's Friday closing price.
"The intention to place the whole amount on the Moscow Exchange (instead of the dual track with a London Stock Exchange placement) is likely to limit investor demand and complicate the transaction," London's Barclays bank said in a research note.
But "we view the placement as necessary for VTB to improve its capital capital position and resume growth," Barclays added.
Russia for the past year has remained one of the poorest economic performers in the emerging world because of stalling world oil prices and inaction in the fight against corruption and graft.
A note by Gazprombank said that Sberbank late last year placed its shares in Moscow and London at just a five-percent discount.
"But you can hardly call (VTB's) discount illogical considering the extremely weak makeup of the Russian market."
VTB said the government will hold its shares for at least 12 months after the offering.
But it added that the state would also forego taking on any additional shares, leaving them to current stakeholders and core investors.
Moscow news reports said the three sovereign wealth funds will buy out more than 50 percent of the stock on offer.
VTB last year posted a record fourth quarter profit of nearly $1 billion but saw its subsidiary in Cyprus suffer from the eurozone crisis.
The bank's shares opened the day down four percent on the news before clawing back some of those losses in afternoon trading.