Russian IPOs – Review of 19th Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED MAY 13, 2007

Russian IPOs – Review of 19th Week of 2007

Russia's Perspectives by Morgan Stanley
Dow Jones this week published a news item (Emerging-markets Fund Managers See Rebound For Russia, China ) about report by Morgan Stanley Capital International on emerging markets. While noticing that China and Russia have delivered lackluster stock market returns this year, the report states that:

- Russia faces political risk and depends heavily on oil and gas prices, but it's generally considered the cheapest of the BRIC markets. Russia has better long-term growth prospects than most other emerging markets and should outperform in the next 12 months.

- The country is using oil and gas profits to put money into improving infrastructure and financial systems

Record Trading Volumes on MICEXRussian stock market continues to gain its momentum. Just recently the trading volume on the MICEX stepped over the psychological barrier of $ 10 billion and it going on further and further. Last week (May 4th) there was a new breaking record of trading - $ 14.506 billion. Experts note that this was due to investors’ activities prior to the VTB IPO. Turns out that technically the stock exchange was not expecting such overload and over the last month there were 4 hardware and software glitches that resulted in suspension of trading. Some market players estimate that by the end of the year we may see 40% increase of MICEX trading and another psychological barrier of $ 20 billion.

Investment Perspectives - Another HorizonsA few weeks ago I wrote about new wave of privatization and its affect on investment business. This week we learned that the government included into privatization lists another set of assets that may cater for investors’ appetite. These are: KamAZ, SG-Trans, MiG Aircraft Construction Corp. The latter envisions initial turning it into a joint stock company. Then, together with Sukhoi Co., MiG will merge into United Aircraft Construction Corporation. The additional privatization program also sets forth ten aircraft repair plants.Different aspect is associated with the construction boom. Moscow City government has approved the general plan for hotels construction in the city. As many as 353 hotels capable of hosting 118,000 will emerge in Russia’s capital in four years. And probably by the end of 2010 Moscow will have 556 hotels instead of the current 203. In view of announced figures, Moscow will have a new hotel each fortnight. This I guess will be a definite reason for more IPOs and private placements in construction and developers’ sector.

And Another News from Air Carrier SectorAs I wrote earlier, the Russian State capitalism has an interesting new form that combines government and private ownership. This week there is another example in this field: five Russian Federation-based airlines which currently co-operate under an alliance known as AiRUnion are set to have common ownership as a joint stock company also named AiRUnion. On 2 May 2007, President Putin, signed a decree on the establishment of the company. The ownership structure will see the Russian Federation owning 45% of the holding company and private investors the remaining 55%. Initially the AiRUnion alliance was created in late 2004 by KrasAir and includes Domodedovo Airlines, KrasAir, Omskavia, Samara Airlines and Sibaviatrans. The combined new holding will have a fleet of more than 70 aircraft. AirUnion is supposed to assist in development of Hungarian airline Malev, itself recently privatized and sold to AirBridge Zrt a Hungarian company backed by KrasAir.

OMX is in the News Again…
OMX goes on with their aggressive expansion. This week they added new dimension to it with the press release about new 2007 initiative – expansion of First North to Baltic region. First North is an alternative market created by OMX, and has already been launched in Denmark (2005), Sweden (2006), Iceland (2007) and Finland (2007). Claiming that First North is one of the fastest growing alternative markets in Europe, the press release states that First North will be launched during 2007 in the Baltic countries. The stock exchanges of Tallinn, Riga and Vilnius are currently adjusting their listing rules and are establishing their Certified Advisers (analogues to NOMADs). Well, this is another suggestion in the growing number of junior markets. Statistics show that Q1 2007 (7 IPOs with € 15 million raised – that places it #4 among European peers) was relatively modest for First North and World Federation’s of Stock Exchanges (WFE) data does not list Tallinn, Riga and Vilnius stocks exchanges as the prominent ones, but we had seen some IPOs there too.

RAO UES IPO Plans – Chubais
Institutional Investor magazine published an interview with Anatoly Chubais who is in charge of Unified Energy System of Russia. I guess it is worth reading, and here are just two points from it:
- “Whatever new political cycle comes in 2007­-2008, and whoever becomes president, the country will still need light and heat. The new leader would have to be a complete lunatic to wreck this process of investment. Besides, I don't anticipate any big political disturbances connected with the coming presidential elections. “- “In the fall we conducted the IPO of generating company OGK-5, and that demonstrated the practicality of our logic. The IPO was oversubscribed ten times, and the company's capitalization has risen 40 percent since then. For the next stage we are looking at about 17 IPOs, raising closer to $15 billion than $10 billion. If market demand begins to fall off, naturally we will delay to some extent. Some of the IPOs will end with investors owning more than 50 percent; some will require a capital increase later. “

European Venture CapitalAs continuation of my previous post on investments in venture capital, just a few points from the quarterly European Venture Capital Report released by Dow Jones VentureOne and Ernst & Young. The IT sector had the most significant upturn of any industry in the first quarter. A total of €550.2m was invested in 133 technology deals. The software and information services segments showed the most activity for the sector. Software deals increased by 20 per cent over the same period a year ago to 73, and investment increased 11 per cent to €222.5m. Deal flow in the information services segment increased 131 per cent to 30 deals, and capital increased more than two-fold to €114.7m. The emerging interest in Web 2.0 technology seems to be fueling this growth in European technology investments.