Russian IPOs – review of 22nd Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED JUNE 03, 2007

Russian IPOs – review of 22nd Week of 2007

Russian Stock Market Booms

Alexy Kudrin, Russian Finance Minister, speaking at the Duma hearings noted that the Russian stock market is rapidly moving ahead. Capitalization of Russian companies is over $ 1 trillion; and Russia is No.13 in the world as to market capitalization. About 70 companies are planning IPOs this year. This week was historic for RTS. For the first time there was transaction of its equity on RTS. Although it was the only one – 100 shares at the price of $300 each – it showed the company’s market cap – about $ 480 million.

Deutsche Boerse Enters the Race

The first representation office for the foreign stock exchange was opened this week in Moscow. Deutsche Boerse set up services of events in Moscow to commemorate this opening with a big crowd of Germans that included the Mayor of Frankfurt, top managers of Deutsche Boerse Group and some big German banks. One of the goals is expansion of service for a growing number of local customers and to maintain contact with Russian authorities and capital market institutions. The German financial institutions are very visible in Russia (as I mentioned in my last post) and Deutsche Boerse did sign MOU with MICEX last year. Russian press noted that by enhancing its presence in Moscow Deutsche Boerse is expected to provide competition to Russian stock market, and LSE. There are currently 56 Russian companies listed at the exchange, and one of the officials told the press that Deutsche Boerse is now in discussions on IPOs with some companies from oil and gas, pharmacy, energy, innovation technology and biotechnology sectors. Arrival of Deutsche Boerse is at interesting time here. We are all closely watching the story of NASDAQ/OMX and their entrance to Russia through IXSP. Another issue is the tightening to LSE’s listing rules. So, while these things are developing, Deutsche Boerse is already in Moscow. One of the notable facts that the KOMMERSANT DAILY published a big review “IPO Breakthrough // Western Traders Begin Jockeying for Russian Issuers” that, I guess, is worth reading. However, this analysis fails to include some other players that are active here too: Euronext, Hong Kong Exchanges, Singapore.

ROSTELECOM – NYSE Delisting

One of the most discussed issues this week was the intention of ROSTELECOM to delist its ADRs from NYSE. This is the second Russian company (the first was TATNEFT) to delist and according to the company’s spokesman, the decision is to be made this month. There are several reasons to this decision, but the analysts point to two major ones:

After liberalization of the Russian Telecommunications Market ROSTELECOM is faced with the necessity of thorough audit of its all structure up to the end-user companies. This is the result of Sarbanes-Oxley Act (SOA) and sure enough brings a good deal of added costs. (One of the KOMMERSAND DAILY’s newsmen wrote this week that during the Russian Corporate Governmamnce Conference in the USA last May Paul Sarbanes was very cheerful and happy waiving with the copy of SOA pages – Russian companies are not happy at all).

The other reason is that there are virtually no ROSTELECOM’s ADRs trading on NYSE. According to the company’s press service there are about 5.2% of company’s equity trading. In the recent year investment funds bought about 35% of the company’s stock; major trading transactions are on MICEX.

However, other Russian telecoms that are present at NYSE have no intentions to delist.

Investing in Russian IT Sector

In the past months we do feel that there is an increasing sentiment towards Russian venture financing. Der Spiegel printed a report “Tech Startups Come of Age”, another announcement was that the Luxembourgian venture fund Mangrove Capital Partners and the Russian ABRT are announcing a joint investment program in Russian IT startup companies. And this week I had an extensive discussion with the Chief of Business Week Moscow Bureau about financing in Russian venture companies. As I mentioned earlier FINAM INVESTMENT COMPANY is offering some Russian IT assets on MICEX. We are talking about selling equity stakes of Finam-IT mutual fund. In fact we are not so much looking for the money, rather to test waters with investment community. As Demosthenes, the famous Greek statesman said: “Small opportunities are often the beginning of great enterprises.”

One interesting observation about investors’ attitude. We are now in a very active stage of our road-show (in very close collaboration with MICEX – we are the first issuer to be listed in its Innovative and Growth Sector). There is a strong differentiation among the investor community. Investors that are present in Russia are really enthusiastic and we have a good response. However, here is very limited interest from groups in London, and sometimes I got rather rude replies when I introduced myself as a Russian. Next week we are in London, and we will try to talk to some people in person and see any interest. I discussed this with a top manager of Renaissance Capital and he told me that these people are really unaware of what is going on in Russia right now and they do miss opportunity. When they will realize it – it is gone.

Russian Fuel & Energy Commodity Exchange

It is expected that at the XI Saint Petersburg International Economic Forum an MOU with NYMEX shall be signed to establish a Russian Fuel & Energy Commodity Exchange. This shall ne a non-commercial partnership that will be involved in trading of the Russian oil. It is expected that by the end of the year the first REBCO oil trading will take place. The Exchange is being created under the auspices of Minister of Economic Development and Trade of the Russian Federation and Central Bank of Russia.

NISSAN and GM to Open Plants in St.Petersburg Area

It was announced that Nissan is planning to commence operations of its plan in Russia by the end of 2009. This is continuation of an earlier signed program; initially only one model shall be assembled for sales in Russia, but some export options are being considered too. General Motors will start operation of its third plant in November 2008 ; its $115 million worth plant will produce the Chevrolet Captiva sports utility vehicles and a yet-to-be-named compact car from October 2008, with total annual capacity of 60,000.

New IPO Candidates

• CIT Finance Bank – MICEX listing next summer
• TransCreditBank – IPO within 2007-2010
• Bank “Saint Petersburg” – possible Russian IPO within a year.
• Corbina Telecom - up to 25% of its stock through an IPO in Moscow, London or New York in late 2008.
• Kaspersky Lab – possible IPO within two years
• North West Oil Group – possible IPO on NASDAQ, AMEX or AIM
• Conversbank Financial Group – its member bank INVESTBANK is planning IPO in neaqrest years
• POLYUS GEOLOGORAZVEDKA, of POLYUZ GOLD – a newly established company will be preparing for IPO
• The Rosweb group of companies – IPO at the end of 2008.
• United Aircraft Building Corporation – IPO in 2009-2010

The List of Latest Russian IPOs

	Exchange	Currency	IPO Date	Price at date of IPO	Price as of May 31, 2007	Change
RTM	RTS	USD	05/22/07	2.300	2.380	+3.48
DIXIE Grp.	RTS	USD	05/18/07	14.400	14.300	-0.69
VTB additional	MICEX	RUR	05/14/07	0.136	0.145	+6.47
PHARMSTANDART	RTS	USD	05/03/07	58.200	63.570	+9.54
NUTRINVESTHOLDING	RTS	USD	04/27/07	53.000	49.250	-7.08
VOLGA GAS	AIM	GBP	04/25/07	299.000	300.000	+0.33
SBERBANK	MICEX	RUR	02/22/07	89,0000	91,800	+3.15
INTEGRA (GDRs)	LSE	USD	02/21/07	16.755	18.250	+8.96
POLYMETALL	LSE	USD	02/07/07	7.750	5.750	-25.81
SITRONCS (GDRs)	LSE	USD	02/07/07	12.00	8.400	-30.00

Source: Business & Financial Markets

THIRD IPO CONGRESS – REFLECTION OF CHANGES IN THE WORLD EQUITY MARKETS

THIS POST WAS ORIGINALLY PUBLISHED APRIL 15, 2007

THIRD IPO CONGRESS – REFLECTION OF CHANGES IN THE WORLD EQUITY MARKETS

This year it was the third venue, but as usual it lacked management expertise and showed very little interest from the top government and industry officials. In fact of all declared officials (Federal Financial Markets Service, Regional Banks Association, the Duma, etc.) the only one present was the Deputy Head of the Bank of Russia. This low key government participation resulted in equally low key press coverage. However, such deficiency was surmounted by some interesting reports and events.

I am not sure whether the news media will discuss it, but here it was the first time when management of the leading stock exchanges met together in the in the new, perspective for them environment. For some of them – this is new exploration territory, for others – somehow familiar. Everyone was surprised with conspicuous absence of familiar faces. I guess, Paulina McGroarty, Managing Director, NASDAQ, lost an interesting opportunity to have a nice debate with NYSE-Euronext representative. Maybe we will see this on the upcoming Emerging Markets Private Equity Conference (EMPEC 2007) ? Notable absence was for the London Stock Exchange/AIM and their U.S. counterparts. LSE/AIM is, I think, resting on their laurels with 2006 results (?) – Or they are involved in a flurry of popular activities? Austrian philosopher Ludwig Wittgenstein noted: “Resting on your laurels is as dangerous as resting when you are walking in the snow. You doze off and die in your sleep.” True to this saying we witnessed a substantial effort from the competitors.

Shaping up my brief report at the conference, I found some interesting stats about latest developments in the world’s stock exchanges scene.

In recent years everyone notes rapid changes and adaptation of the stock markets to these environments. This is about the so called emerging markets and their needs. In my view, we will see more and more in the next 2-3 years. While the patriarch-stock markets are making these adaptations in a tad slow pace (it took about 10 years for AIM to gain its current position), we found new instruments that are appealing to emerging markets and SMEs (small and medium enterprises). Of course, the United States with its refined stock market experience is the first to my knowledge in introduction of new trading platforms. I would point here to Entrex and to the Unified Market Financial Information Exchange Network (UMKT). This, I guess is an excellent direction for the future. In 2005 World Federation of Stock Exchanges counted 35 alternative investment markets (unfortunately, it seems to be extremely bureaucratic entity – it is impossible to get fresh data – they do not answer e-mails); another researcher SME Capital Markets counted 35 this year, but excluded a number of them worldwide. However, in its investigation SME notes that 29% of the stock exchanges have their junior markets – I would assume that on the world basis there are about 40-45 of them. This means that the competition in the world is stepping up, and true to this - we see junior markets in such exotic places as Malawi, Botswana and Papua New Guiney.

This overall feeling of competition is present in Moscow too.

Each of the representatives of exchanges made their best to persuade the audience that their exchange is the best. However, Euronext representative Aaron Goldstein (who is an extremely eloquent campaigner) put it very simple: What are the points that any company is looking for in listing: (i) best valuation; (ii) best liquidity; (iii) widest shareholders possible.

Summarizing the reports:
- Ms Medvedeyva, MICEX Vice-President, provided vital statistics for the exchange and reiterated the idea that time is ripe for the Russian companies to list domestically;
- Mr. Shatsky, RTS President, noted that we are awaiting for IPO boom, that may happen this year. His speech was followed by a report of Ms Derisheva, RTS Listing Department Head, who repeatedly stated that “There was no IPO boom in the past, and none at present time. What we see – a heightened interest towards IPO”. I do agree with this – indeed, when we will have tens of IPOs each quarter, only than we may speak about it ;
- Mr. Paul Chow, Hong Kong Exchanges, Chief Executive. It was the first appearance of such high level official of the exchange in Russia, although its representative spoke last November at IPO Congress-Tatarstan, which was supplemented at one of the Moscow based conferences in March this year. The great success of the HK Exchange in 2006 certainly makes us thinking about this opportunity. As Mr. Chow put it: “Hong Kong has a complete freedom of money, people and information”. He also informed that the stock exchange will open a representation office in Moscow very soon;
- A nice presentation was made by representative of another city-based (vs. country-based) stock exchange – the Singapore Stock Exchange, who stressed that Singapore is the “Asian Gateway”, and his bourse is very good in post-IPO support;
- Mr. Aaron Goldstein of Euronext was indeed silver-tongued. He showed all positive sides of listing on Euronext versus on LSE, and that was very convincing. However, all this is rather cognitive, but what about NYSE Group Chief Executive John Thain’s remarks? I asked this question, but Mr. Goldstein replied that that my question is based on biased and out of context citations. OK, here it is: “Thain outlined an international strategy for the combined exchange group focusing on Asia which he described as "the logical next step". NYSE Euronext will specifically target business in Japan, where it has an alliance with the Tokyo Stock Exchange, India where it owns a 5% stake in the National Stock Exchange, and China.” What about Russia????
- Mr. Rainer Riess, Managing Director, Deutsche Börse, was very convincing in his overview of the advantages of German listings versus LSE, especially on the Post-IPO liquidity. Everyone was fascinated with the table that showed per cent of trading days with zero transactions: for AIM-listed companies – 25%, for DB Prime Standard – 0%. I think we will see a lot more activity of DB with May of this year planned opening on their office in Moscow.