RUSSIAN IPOs – Review of the 15th Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED APRIL 14, 2007

RUSSIAN IPOs – Review of the 15th Week of 2007

IPO WATCH EUROPE
PricewaterhouseCoopers LLP. released this past week its next report ‘IPO Watch Europe: review of the year 2006’. The major results of the analysis are as follows:
- The European markets raised more money than the US for the second year running and remained ahead of the Greater China capital markets.
- London dominates the European IPO with 45% share in terms of both offering value and number
- Europe is a popular destination for international IPOs. 25% of all new money was raised from international companies
- Global Depository Receipts are highly popular method for raising funds from institutional investors. Top five international IPOs were all GDRs
- There is a slight shift from smaller company IPOs to those of larger, more established businesses.
- 2006 was the first year when the number of international IPOs in London and in Germany declined (5% as compared to 2005).
- LSE’s AIM is losing its positions to new alternative markets – EuroMTF, Alternext and EntryStandart.

IPO Pioneers-2The PBN Company released its IPO Pioneers-2 report. The report in general describes IPOs in 2006 - the Russian companies raised over $17 billion, and other CIS companies raised over $4 billion, by listing their shares in Moscow, London, New York, Frankfurt, Almaty and Warsaw. The report provides key data and analysis on 18 Russian and on 11 additional CIS IPOs from Kazakhstan, Ukraine and Georgia. "If 2005 was the 'Year of the Russian IPO', then 2006 should be named 'Year of the CIS IPO'," stated PBN's Chairman & CEO Peter Necarsulmer. Whereas 2005 was characterized by an influx of consumer goods companies coming to market, by the end of 2006 it was all about diversification - with IPOs ranging from telecoms and media (2), food and agriculture (4), metals and mining (7), property and development (3), pharmaceuticals (1), energy (7), retail (1) and financial services (4). Current forecasts for 2007 are even more bullish than they were for 2006. "There is no evidence to support the previously held view that the IPO market will taper off in the run up to Parliamentary and Presidential elections in Russia," Necarsulmer continued. A recent Renaissance Capital report predicted 43 IPOs by Russian companies, raising a combined $31.24 billion. It also includes three more Russian banks in 2008: MDM-Bank - $500 million, Alfa-Bank - $500 million, and URALSIB Financial Group - $300 million.

This previous news item was unexpectedly commented by the Deputy Chairman of the Bank of Russia Konstantin Korischenko at the 3rd IPO Congress. He pointed out that recent IPOs had shown that there was foreign investor interest in Russian companies, specifically in the banking sphere. Korischenko added that IPOs of Russian companies result in an upsurge in demand for rubles and higher capital inflow. However, he said that this created additional problems for Russia and a situation of uncertainty, as the Russian market was closely following developments on the global markets. Meanwhile, those markets were unstable due to economic and political problems in the US and Europe.

Russian M&A
M&A activity in Russia grew by 41% last year compared with 2005 to hit an all time high of $71 billion according to a report from Ernst & Young. Acquisitions of Russian companies came close to totaling $60 billion, while Russian companies (Rusal, Evraz, NLMK, and Norilsk Nickel) spent over $11 billion buying foreign companies. Although the total number of deals involving Russian companies dropped by 10% over the last 12 months, the volume of the average deal was larger, coming in at $163 million - an 86% increase. And for the first time, oil and gas did not lead in value terms, being overtaken in 2006 by metals and mining. Financial services, media and retail were other sectors that saw a strong showing, the report continues. The trend for Russian mobile operators to expand their networks to cover other CIS countries through acquisitions is also noted. Speaking about the banking sector the number of transactions increased from 78 to 99 with the volume of $ 4,8 billion – this was reported by mergers.ru. The biggest one was acquisition of Rosbank’s 20% by French Societe Generale (at $ 634 million). In another interesting announcement - Russia's leading investment bank Renaissance Capital has bought a bank in Africa and hopes to be the first Russian bank to break out of its traditional stamping ground of the former Soviet Union by conquering these new emerging markets.

Russian Railways – Juicy Investment Piece?Russian Railways plans to attract $2 to $4 billion through its subsidiaries. This week President Putin discussed railroad development with top Russian Cabinet ministers. The plan is devised that initially calls to establish a single subsidiary company and attract from $2 to $4 billion. After valuation of the success of the first company, another one could be established. President announced that it would be necessary to establish Russian Railways subsidiaries, which could enter the stock market later on to increase the parent company's capitalization. "Private capital should be attracted (to the railway industry) and public-private partnership projects should be stepped up. Russian Railways President Vladimir Yakunin mentioned that a cargo transportation subsidiary is expected to raise at least U.S. $2 billion in an initial public offering.

MICEX Success Story
In the first three months of 2007, the total volume of exchange-based trading in all of the MICEX Group’s market amounted to 16.45 trillion rubles (626.2 billion US dollars), 1.8 times more than in the first quarter of 2006. The exchange-based corporate securities market demonstrated the largest volume of trading and the highest rate of growth. Its share in the total exchange-based turnover of the MICEX Group grew to 47.5% over 33.6% in 2006. At present, the MICEX Stock Exchange organizes trading in 989 securities of 620 issuers; while 237 securities of 144 issuers are listed. Since the beginning of 2007, the number of securities traded on the MICEX SE has grown by 2.3%, while the number of issuers whose securities are admitted to trading has grown by 5.6%. The Exchange has established its own alternative investment market - the Sector for Innovation and Growth Companies (the IGC Sector). Its accredited listing agents help new issuers to enter the exchange-based market. Today, 595 entities participate in trading on the MICEX SE. Of them, 484 are admitted to trading, including 284 credit and 198 non-credit organizations. They serve 315,000, including 280,000 and 9,000 institutional investors.

Russian Pre-IPO Fund?PIOGlobal Asset Management is mulling establishing a pre-IPO Fund that would invest in SMEs share that are readying for IPOs. One of the options is to domicile the Fund in Russia and legally to from it in the closed mutual fund scheme. However according to the Russian legislation it is not allowed to form the Fund’s portfolio exclusively with the low liquidity shares. Thus one of the solutions would be to include some blue chips in it.


NEW IPO CANDIDATESKrasnoyarsk Nonferrous Metals Plant (Krastsvetmet), Russia's most important precious metals refinery – possibility of future IPO
Pharmstandard, the country's largest drug maker – up to 40% stake float in London and Moscow
Nutrinvestholding, baby foods group - to raise $150 million to $200 million during its IPO in the nearest months
X5 Retail Group – is considering SPO
Volga Gas, gas exploration and production company – plans to list on AIM and hopes to raise $ 100 million
INTER RAO UES, the company that imports/exports electricity – IPO in 2009
KD AVIA, air carrier – IPO at the end of 2008
PAVA agricultural company – SPO in LONDON
MIEL Real Estate, real estate management company – plans to issue Eurobonds soon

Also this week the 3rd IPO Congress took place in Moscow - that will be discussed in my follow-up posts.