RUSSIAN IPOs – Review of 16th Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED APRIL 21, 2007

RUSSIAN IPOs – Review of 16th Week of 2007

NASDAQ ENTERING RUSSIAN STOCK MARKET?There was further discussion this week about what is going on in our IPO market. I mentioned earlier that we here see a lot of suggestions from the foreign exchanges, and now we do have the choice! Discussion was started with another elaboration on mysterious new IXSP stock exchange. This time KOMMERSANT DAILY discussed possible acquisition of OMX by NASDAQ. Maybe newsmen have their own confidential sources, but all other news media reported that NASADQ is only one of possibilities that are evaluated by OMX management. Anyway KOMMERSANT’s headline “Nasdaq about to enter Russian market” sounds very intriguing, but I guess is a bit away from reality.

“Nasdaq, one of the world's largest stock exchanges, plans to buy Scandinavian stock exchange group OMX for 23 billion Swedish krona (about $3.3 billion). Late March, OMX announced it was establishing a new international bourse, International Exchange St. Petersburg, together with its St. Petersburg counterpart. If the deal goes through, IXSP will be set up with direct American participation, and Nasdaq will become the first major Western exchange to have a presence in Russia.”

Who knows, maybe this is true, but my discussions with some experts prove that no one believes in it. At the end of the week there were two simultaneous publications on different subjects. First, RBC DAILY printed a commentary by the Quote.ru “Russian companies are accustomed to LSE”, that says “LSE still remains the beloved floor for listings of Russian companies”. However, the author thinks that the recent FSA initiatives to review requirements for foreign listings may result in shift of preferences. Quoting unnamed experts Quote.ru states that the focus of attention for the Russian companies may shift to domestic MICEX and RTS, while there is some possibility that the U.S. markets also may become more accessible. Alfa Bank’s analytic also thinks that there is a possibility that Russian companies may prefer domestic exchanges to LSE. Well, everyone understands that this is something about theoretical deliberations and neither MICEX, nor RTS can be compared to LSE, however, we have seen that a lot of things do happen in Russia, the ones that were unthinkable earlier. Another publication “America calls investors for IPO” was in Friday’s KOMMERSANT DAILY . This basically discussed FRS announcement that there is a re-haul of the IPO listing rules going on. The paper points to the fact that the U.S. authorities may take advantage on tightening the rules in London and entice more issuers to the USA.

UNUSUAL TWIST IN RUSSIAN BANKINGRussian banking sector witnesses profound changes. Just a few days ago I wrote about the biggest transaction with ABSOLUT bank. Furthermore, rather unusual information comes from Africa. It is reported that Renaissance Capital is in the process of establishing a heavily-capitalized investment bank in Nairobi, Kenya. As the first step Renaissance has put in a bid to purchase Francis Thuo and Partners, the oldest stock broking firm in Kenya. More of this news is scheduled to be spilled out next Monday at a special press conference that Renaissance Capital has scheduled in London. IPO drive is overwhelming. During the last two months RTS announced that 9 banks were included in RTS Board list. These are basically smaller sized regional banks, but there are some bigger ones too. Interesting to note that in 2006 only one bank was included into RTS Board.

RUSSIAN BROKERAGE NEWSThe Russian stock market continues its striving forward. This week RBC published Q1-2007 rating of stock brokers. Although the general trading activity this quarter was low, but now there are seven companies that exceeded their turnover over $ 10 billion (last year there was only one). Just to have a feeling of the trading volumes, here is the list of Top 5 broker/dealers (Billion USD):
1. BrokerCreditService - 34,030.55
2. FINAM - 32,166.93
3. TROIKA DIALOG - 20,462.71
4. OTKRYTIJE - 18,208.73
5. ALOR INVEST - 15,490.63

AVIVA GOES TO RUSSIAAviva, the world’s fifth-largest insurer, starts its operations in Russia after 90 years of absence. The plans of the company are stunning – to hire 5,000 direct sales staff, to capture 10% of the market and become Top 5 insurer. Interesting to note that the company plans “to provide whatever capital was necessary to finance the growth program”. In its press-release the company states “to meet the considerable demand growth for employee benefits, including employer-administered voluntary pension plans in Russia, the company has established an "Aviva" Non-State Pension Fund.” This is a bit unusual move for the foreign insurer, but rather challenging. The plans for AVIVA to operate in Russia are really ambitious. We will watch their effort.

OTKRYTIJE NEW EFFORTMoscow-based OTKRYTIJE investment bank acquired 100% of ABC financial services firm following a deal for an undisclosed amount with Compagnie Financiere Tradition (CFT), one of the world’s three largest money brokers. ABC is a member of LSE and this acquisition is viewed as an attempt for the Moscow company to provide for its clients access to global market. As it turns out there are some other ways. Less expensive ways to do this – BrokerCreditService provides this access for the clients working directly from their terminals.

NEW MARKET INSTRUMENT UNVEILED
Very unusual things happen in the Russian market. This proves that the Russian mentality is much diversified when it comes to business. It was reported today that that Pharmacy Chain 36.6 had formed a Joint Venture with a number of players in the Russian financial market. The goal of JV is to buy medical assets (retail chains and medical services providers) in Russia. The financial group that is led by the Standard Bank contributed $ 85 million and the 36.6 Chain - 24.99% of the equity capital in its Veropharm subsidiary. Market experts consider this an extremely smart move. Pharmacy Chain 36.6 urgently needed about $ 205 million for its development and everyone though that Veropharm would be sold. By creation of JV the owners of the 36.6 Chain managed to attract new assets to their business paying nothing and at the same time managing these assets.

NEW "PEOPLE’S IPO"The Russian Public Opinion Foundation released Friday the results of poll it had conducted in 100 cities in Russia (about 1,500 people) regarding the VTB's “people’s IPO”. This is the third Russian company campaign that is labeled with such a tag. Here is a brief synopsis:
- 20% know about VTB; 41% - “heard something about it”; 37% - first time heard about the bank
- 11% have heard about IPO and 13% “have heard something about it”
- 8% think that this is a government-owned bank; 16% - it is private; 26% - a private bank with government participation
- 12% think that “it is feasible for them to get some VTB equity”
- 20% think that the VTB shareholders shall get some profit within 2-3 years (for SBERBANK the number was 22%); 13% think that the owners shall get losses(for SBERBANK 11%); 20% consider that the shareholders shall be even – no profits, no losses(21% for SBERBANK)
In general, as the results of the poll show the share of respondents that think that they would buy equity of some Russian company is:
- Now 39%
- Winter this year – 33%
- Summer of 2006 – 31%

New IPO candidates-Burovaya Kompania Evrasia (BKE, formerly known as Lukoil Burenie), oil and gas service company - London IPO for October-November 2007
-New entity two merged IT companies - IBS and Borlas - IPO in spring 2008
- Dixy food retail chain – IPO in May , raising $350-$450 million from a sale of existing and new shares.
-AFI Development, a company managing the Russian real estate assets of an Israel holding, Africa Israel Investments, - IPO - 19% of its shares on LSE in May
-RENOVA ’s ZOLOTO KAMCHATKI (Kamchatka’s Gold) – possible IPO in London
-GROSS PLANTS, alcohol producer – IPO in 2009
-RTM, developer company - IPO for first half of 2007 on RTS
-SUMMA TELECOM, a WiMAX telecom carrier – IPO within 2-3 years
-KUJBYSHEVAZOT, producer of nitrogen fertilizers – second half of 2007 in Russia

AND FINALLY: BILLBOARD COMES TO RUSSIA
Today I saw the first issue of Russian version of BILLBOARD magazine on the newsstand. WHOA! We are in the world’s civilization!