Russian IPOs - Review of 13th Week 2007

  THIS POST WAS ORIGINALLY PUBLISHED MARCH 31, 2007

Russian IPOs - Review of 13th Week 2007

Academic PapersThis week we saw two interesting analytics papers which I strongly recommend to investigate. The first one is produced by Roland Nash, head of research, Renaissance Capital – “21st century perestroika - Russian investment boom” which clearly analyzes the issue. While the readers may turn their attention to the whole paper, I would like to pinpoint to two things. One of them is the definition of the role of media where I am working now – the financial sector:
"Russia is in the odd position of having both a large excess supply of capital and an equally large excess demand. …. the vortex created by large excess demand and large excess supply of the same resource in the same economy generates the incentive structure that encourages its own solution. … the situation is prevented from clearing by equally enormous logistical barriers. In the private sector, the logistical log-jam is the financial sector which is still incapable of intermediating between demand and supply effectively. In the public sector, it is Russia’s bureaucracy …. What is perhaps the most exciting trend in Russia today is that both of these barriers are being dismantled simultaneously.""Investment, both public and private, is set to boom as the financial sector and the state seek to intermediate the funds being generated by the natural resource sectors into the rest of the capital constrained economy."The other one is the A Future Role of Foreign Firms in Russia's Strategic Industries – Introduction where you may find interesting deliberations on the subject. This is good attempt to evaluate Russia’s key industries and to analyze the growing risks created by the expanding political economy in Russia for a foreign investor.

Russian Stock Market PictureAs the add-on to my recent post, the news spilled out from the IT and Communications Ministry that it still plans to set up a new stock exchange for IT companies. According to the plans the exchange will be similar to NASDAQ. This is sort of enigma – so far no one knows about the specifics and information about it is not disseminated. Although the need for such venture is eminent, once again – it is difficult to comprehend its integration to the current stock market picture. What adds spice to the news that it is expects that one of the first issuers will be the Russian investment fund of information and communication technologies with planned authorized capital of about $56 million.

Russian Developers Are Attractive
Morgan Stanley continues its drive for acquisitions od Russian developers. Its Special Situations Fund III acquired minority stake in RBI developer holding. According to experts this is the biggest deal of its kind in Russia – some estimate it is about $ 200 million. This is the third transaction for Morgan Stanley in this sector with 10% acquisition of RosEvroDevelopment and of minority shares of Moscow based RGI International. Morgan Stanley announced recently that it plans to increase direct investments in Russian companies with the focus on Russian developers. For this purpose the bank plans to attract about $ 1 billion to its fund. In another development it became known that Starr Investments Russia, controlled by Maurice "Hank" Greenberg, the former chief executive of American International Group Inc., will invest hundreds of millions of dollars in Russian real estate with the focus on prime office space, residential housing and hotels, initially in Moscow.

IFC in Russia
The International Finance Corporation (IFC) has agreed an investment proposal with Anglo-Russian mining group Aricom that is the part of Peter Hambro Mining IFC plans to buy $20 million of newly-issued ordinary shares in the company.

Plans to Boost Russian Beer MarketRussia, being the world's fifth largest beer market (China, USA, Germany and Brazil) is also one of the world's fastest growing. Another boost to it will be the aexpnsion of activities of SABMiller Plc that plans to invest $170 million to build its second brewery in Russia. The plan calls for construction by 2009 of a plant at the city of Ulyanovsk. Currently SABMiller is Russia's fifth largest brewer (6% of market share) and this is far off the leaders - Baltic Beverages Holding, InBev, Heineken NV and Efes.

Banking Sector IPOsWe witnessed several announcements this week about IPOs of Russian banks. Generally speaking, there are two reasons for IPOs in this sector: (i) strive to obtain a public company image –this is true for the big banks with the government stakes in them; (ii) acute need for cash or for strategic investors – these are for mid-cap banks. While VTB24 slightly shifted the dates for its IPO we learned about the following:
NOMOS Bank appointed Morgan Stanley and Deutsche Bank with planned IPO in 2007. This would signal a major breakthrough in the banking sector, as NOMOS is 100% privately owned.
Zenit Bank – some reports suggest that te bank plans IPO late 2007
VOZROZHDENYJE bank – IPO in May 2007

IPO Candidates
RESO GARANTYJA Insurance Company named the runners of its IPO – Deutsche UFG, Dresdner Bank and Morgan Stanley. Sometime in June it plans to list 20% of its equity and get $300 million
Magnitogorsk Iron & Steel Works (MMK) - LSE and Moscow, ABN Amro, Morgan Stanley and Renaissance Capital as lead managers.
Dixy Group food retailer - IPO of 23% of its equity domestically or LSE in April 2007.
EuroChem fertilizer producer possibility of IPO in 2007.
TECHNOSERV A/C IT system integrator announced their desire for IPO
Vester food retailer – plans for IPO in 2011
OST ALKO alcohol producer delayed its IPO till late 2008